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REGISTRATION NO. 333-27851
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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CONTINENTAL AIRLINES, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 4512 74-2099724
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer identification
incorporation or organization) classification code number) number)
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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)
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JEFFERY A. SMISEK, ESQ.
EXECUTIVE 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:
JOHN K. HOYNS, ESQ.
HUGHES HUBBARD & REED LLP
ONE BATTERY PARK PLAZA
NEW YORK, NEW YORK 10004-1482
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
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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: [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED
MAXIMUM
PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE PER OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) CERTIFICATE(2) PRICE (2) FEE
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<S> <C> <C> <C> <C>
Pass Through Certificates, Series
1997-1A................................ $ 437,876,000 100% $ 437,876,000
Pass Through Certificates, Series
1997-1B................................ $ 148,333,000 100% $ 148,333,000 $ 214,334(3)
Pass Through Certificates, Series
1997-1C-I.............................. $ 111,093,000 100% $ 111,093,000
Pass Through Certificates, Series
1997-1C-II............................. $ 10,000,000 100% $ 10,000,000
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(1) Equals the aggregate principal amount of the securities being registered.
(2) Pursuant to Rule 457(f)(2), the registration fee has been calculated using
the book value of the securities being registered.
(3) Paid on May 27, 1997.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION -- DATED JULY 24, 1997
PROSPECTUS
CONTINENTAL AIRLINES, INC.
Offer to Exchange Pass Through Certificates, Series 1997-1,
which have been registered under the Securities Act of 1933, as amended,
for any and all outstanding Pass Through Certificates, Series 1997-1
The Exchange Offer will expire at 5:00 p.m., New York City time, on August 27,
1997, unless extended.
Pass Through Certificates, Series 1997-1 (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 1997-1 (the "Old Certificates"), of which $707,302,000 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 27, 1997 (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 New Certificates will have terms
identical in all material respects to the Old Certificates except that the New
Certificates will not contain terms with respect to transfer restrictions or
interest rate increases as described herein and the New Certificates will be
available only in book-entry form. See "The Exchange Offer" and "Description of
New Certificates".
Each Certificate represents a fractional undivided interest in one of the
four Continental Airlines 1997-1 Pass Through Trusts (the "Class A Trust", the
"Class B Trust", the "Class C-I Trust" and the "Class C-II Trust", the Class C-I
Trust and the Class C-II Trust being referred to together as the "Class C
Trusts" and all such trusts being referred to collectively as the "Trusts")
formed pursuant to four separate pass through trust agreements (the "Pass
Through Trust Agreements") between Continental Airlines, Inc. ("Continental" or
the "Company") and Wilmington Trust Company (the "Trustee"), as trustee under
each Trust. Pursuant to an intercreditor agreement, (i) the Certificates of the
Class B Trust are subordinated in right of payment to the Certificates of the
Class A Trust and (ii) the Certificates of the Class C Trusts are subordinated
in right of payment to the Certificates of the Class B Trust. Payments of
interest on the Certificates issued by each Trust are supported by two separate
liquidity facilities for the benefit of the holders of
(continued on next page)
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FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PARTICIPANTS IN THE EXCHANGE OFFER, SEE "RISK FACTORS" BEGINNING ON PAGE 34 OF
THIS PROSPECTUS.
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PASS THROUGH FINAL EXPECTED
CERTIFICATES PRINCIPAL AMOUNT INTEREST RATE DISTRIBUTION DATE
- -------------------------------------------------------------- ---------------- ------------- -----------------
<S> <C> <C> <C>
1997-1A....................................................... $437,876,000 7.461% April 1, 2015
1997-1B....................................................... $148,333,000 7.461% April 1, 2013
1997-1C-I..................................................... $111,093,000 7.420% April 1, 2007
1997-1C-II.................................................... $ 10,000,000 7.420% April 1, 2007
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Total............................................... $707,302,000
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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.
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The date of this Prospectus is July , 1997
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(continued from cover page)
such Certificates, such facilities provided initially by ABN AMRO Bank N.V., a
Dutch bank acting through its Chicago branch ("ABN AMRO"), and ING Bank N.V., a
Dutch bank ("ING" and, together with ABN AMRO, the "Liquidity Providers") in an
amount sufficient to pay interest thereon at the applicable interest rate for
such Certificates on up to three successive semiannual distribution dates
(except that the liquidity facilities will not cover interest payable on the
Deposits by the Depositary referred to below).
The Trusts were established for the purpose of acquiring equipment notes
(the "Equipment Notes") expected to be issued in connection with the financing
of the purchase of eight Boeing 757-224 aircraft, eighteen Boeing 737-524
aircraft and four Boeing 737-724 aircraft (collectively, the "Aircraft"), which
are scheduled for delivery during the period March 1997 through February 1998,
with the final delivery for purposes of purchase by the Trusts no later than
March 31, 1998 (or June 30, 1998 under certain circumstances) (the "Delivery
Period"). The Equipment Notes will be issued, at Continental's election, either
(i) on a non-recourse basis by the trustees of separate owner trusts (each, an
"Owner Trustee") in connection with separate leveraged lease transactions, in
which case the applicable Aircraft will be leased to Continental (collectively,
the "Leased Aircraft"), or (ii) on a recourse basis by Continental in connection
with separate secured loan transactions, in which case the applicable Aircraft
will be owned by Continental (collectively, the "Owned Aircraft"). The Equipment
Notes in respect of each Aircraft will be issued in three series (the "Series A
Equipment Notes", the "Series B Equipment Notes" and the "Series C Equipment
Notes"). The Class A Trust, the Class B Trust and the Class C-I Trust (or, if
the Deposits relating to the Class C-I Trust have been fully withdrawn, the
Class II Trust) will purchase the series of Equipment Notes issued with respect
to each Aircraft that has an interest rate equal to the interest rate applicable
to the Certificates issued by such Trust. If any funds remain as Deposits
relating to any Trust at the end of the Delivery Period or, if earlier, upon the
acquisition by the Trusts of the Equipment Notes with respect to all of the
Aircraft (the "Delivery Period Termination Date"), such funds will be withdrawn
by the Escrow Agent and distributed, with accrued and unpaid interest thereon,
to the Certificateholders (as defined herein) of such Trust after at least 20
days' prior notice. In addition, such distribution will include a premium
payable by Continental (i) in the case of the holders of the Certificates issued
by the Class A Trust, the Class B Trust and the Class C-I Trust, equal to the
Deposit Make-Whole Premium (as defined herein) with respect to the aggregate
amount of funds so distributed (excluding accrued interest) and (ii) in the case
of the holders of the Certificates issued by the Class C-II Trust, equal to the
Class C-II Premium (as defined herein) with respect to such aggregate amount.
Since the Deposits relating to the Class C-II Trust will be the last to be
utilized with respect to the purchase of Equipment Notes and the maximum
principal amount of Equipment Notes may not be issued, there is a greater
likelihood that such a distribution will be required with respect to the
Certificates issued by the Class C-II Trust than the Certificates issued by the
other Trusts. Prior to the date of this Prospectus, Equipment Notes with respect
to two Leased Aircraft have been issued.
The cash proceeds of the initial offering of Old Certificates by each Trust
were paid to First Security Bank, N.A., as escrow agent (the "Escrow Agent"),
under an Escrow and Paying Agent Agreement for the benefit of the holders of
Certificates issued by such Trust (each, an "Escrow Agreement"). The Escrow
Agent caused such cash proceeds to be deposited (each, a "Deposit") with Credit
Suisse First Boston, New York branch (the "Depositary"), in accordance with the
Deposit Agreement relating to such Trust (each, a "Deposit Agreement"). Pursuant
to each Deposit Agreement, the Depositary will pay for distribution to the
holders of Certificates issued by each Trust on each semiannual distribution
date an amount equal to interest accrued on the Deposits relating to such Trust
during the applicable interest period at a rate per annum equal to the interest
rate applicable to the Certificates issued by such Trust. Upon each delivery of
an Aircraft during the Delivery Period, the Trustee for the Class A Trust, the
Class B Trust and the Class C-I Trust (or, if the Deposits relating to the Class
C-I Trust have been fully withdrawn, the Class C-II Trust) will cause to be
withdrawn from the Deposits relating to such Trust funds sufficient to purchase
the Equipment Note of the series applicable to such Trust issued with respect to
such Aircraft.
The Equipment Notes issued with respect to each Aircraft will be secured by
a security interest in such Aircraft and, in the case of each Leased Aircraft,
by an assignment of the lease relating thereto, including the right to receive
rentals payable with respect to such Leased Aircraft by Continental. Although
neither the
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Certificates nor the Equipment Notes issued with respect to the Leased Aircraft
are direct obligations of, or guaranteed by, Continental, the amounts
unconditionally payable by Continental for lease of the Leased Aircraft will be
sufficient to pay in full when due all amounts required to be paid on the
Equipment Notes issued with respect to the Leased Aircraft held in the Trusts.
The Equipment Notes issued with respect to the Owned Aircraft will be direct
obligations of Continental.
All of the Equipment Notes held in each Trust will accrue interest at the
applicable rate per annum for the Certificates issued by such Trust, payable on
April 1 and October 1 of each year, commencing on October 1, 1997 or, if later,
the first such date to occur after initial issuance thereof. The Deposits
relating to each Trust accrue interest at the applicable rate per annum for the
Certificates issued by such Trust, payable on April 1 and October 1 of each
year, commencing on October 1, 1997, until the Deposits have been fully
withdrawn. The scheduled payments of interest on the Equipment Notes and on the
Deposits with respect to each Trust, taken together, will be sufficient to pay
an amount equal to accrued interest on the outstanding Certificates issued by
such Trust at the rate per annum applicable thereto. Such interest will be
distributed to Certificateholders of such Trust on each such date, subject, in
the case of interest payments made pursuant to the Equipment Notes, to the
Intercreditor Agreement (as defined herein). See "Description of the 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 April 1 and
October 1 in certain years, commencing on April 1, 1998. Such Payments will be
made, subject to certain assumptions, in accordance with the principal repayment
schedule set forth below under "Description of the New Certificates -- Pool
Factors", in each case subject to the Intercreditor Agreement.
On the earlier of (i) the first Business Day (as defined herein) after
March 31, 1998 or, if later, the fifth Business Day after the Delivery Period
Termination Date and (ii) the fifth Business Day after the occurrence of a
Triggering Event (as defined herein) (such Business Day, the "Transfer Date"),
each of the Trusts established at the time of the original issuance of the
Certificates (the "Original Trusts") will transfer and assign all of its assets
and rights to a newly-created successor trust with substantially identical terms
(each, a "Successor Trust"). The institution acting as Trustee of each of the
Original Trusts (each, an "Original Trustee") will also act as Trustee of the
corresponding Successor Trust (each, a "New Trustee"), and each New Trustee will
assume the obligations of the Original Trustee under each transaction document
to which such Original Trustee was a party. Upon the effectiveness of such
transfer, assignment and assumption, each of the Original Trusts will be
liquidated and each of the Certificates will represent the same percentage
interest in the Successor Trust as it represented in the Original Trust
immediately prior to such transfer, assignment and assumption. Unless the
context otherwise requires, all references in this Prospectus to the Trusts, the
Trustees, the Pass Through Trust Agreements and similar terms shall be
applicable with respect to the Original Trusts until the effectiveness of such
transfer, assignment and assumption and thereafter shall be applicable with
respect to the Successor Trusts.
Each Class of New Certificates will be represented by one or more permanent
global Certificates in fully registered form, which will be deposited with the
Trustee as custodian for and registered in the name of a nominee of DTC.
Beneficial interests in the permanent global Certificates will be shown on, and
transfers thereof will be effected through, records maintained by DTC and its
participants.
Based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission"), as set forth in no-action letters issued to third
parties, including Exxon Capital Holdings Corporation, SEC No-Action Letter
(available April 13, 1989) (the "Exxon Capital Letter"), Morgan Stanley & Co.
Incorporated, SEC No-Action Letter (available June 5, 1991) (the "Morgan Stanley
Letter") and Shearman & Sterling, SEC No-Action Letter (available July 2, 1993)
(the "Shearman & Sterling Letter") (collectively, the "Exchange Offer No-Action
Letters"), the Company believes that the New Certificates issued pursuant to the
Exchange Offer may be offered for resale, resold or otherwise transferred by
holders thereof (other than a broker-dealer who acquires such New Certificates
directly from the Trustee for resale
3
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pursuant to Rule 144A under the Securities Act or any other available exemption
under the Securities Act or any holder that is an "affiliate" of the Company as
defined under Rule 405 of the Securities Act), without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such New Certificates are acquired in the ordinary course of such holders'
business and such holders are not engaged in, and do not intend to engage in, a
distribution of such New Certificates and have no arrangement with any person to
participate in a distribution of such New Certificates. By tendering the Old
Certificates in exchange for New Certificates, each holder, other than a
broker-dealer, will represent to the Company that: (i) it is not an affiliate of
the Company (as defined under Rule 405 of the Securities Act) nor a
broker-dealer tendering Old Certificates acquired directly from the Company for
its own account; (ii) any New Certificates to be received by it will be acquired
in the ordinary course of its business; and (iii) it is not engaged in, and does
not intend to engage in, a distribution of such New Certificates and has no
arrangement or understanding to participate in a distribution of the New
Certificates. If a holder of Old Certificates is engaged in or intends to engage
in a distribution of the New Certificates or has any arrangement or
understanding with respect to the distribution of the New Certificates to be
acquired pursuant to the Exchange Offer, such holder may not rely on the
applicable interpretations of the staff of the Commission and must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction. Each broker-dealer that
receives New Certificates for its own account pursuant to the Exchange Offer (a
"Participating Broker-Dealer") must acknowledge that it will deliver a
prospectus in connection with any resale of such New Certificates. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
Participating Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a Participating
Broker-Dealer in connection with resales of New Certificates received in
exchange for Old Certificates where such Old Certificates were acquired by such
Participating Broker-Dealer as a result of market-making activities or other
trading activities. Pursuant to the Registration Rights Agreement, the Company
has agreed that starting on the Expiration Date it will make this Prospectus
available to any Participating Broker-Dealer for use in connection with any such
resale. See "Plan of Distribution."
The Company will not receive any proceeds from this offering. The Company
has agreed to pay the expenses of the Exchange Offer. No underwriter is being
utilized in connection with the Exchange Offer.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD CERTIFICATES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES AND BLUE SKY LAWS OF SUCH JURISDICTION. THE COMPANY IS NOT
AWARE OF ANY JURISDICTION WITHIN THE UNITED STATES IN WHICH THE EXCHANGE OFFER
OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH SUCH LAWS.
Prior to the Exchange Offer, there has been no public market for the New
Certificates. If such 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 otherwise. One or more of
Credit Suisse First Boston, Morgan Stanley & Co. Incorporated, Chase Securities
Inc. and Goldman, Sachs & Co. (the "Initial Purchasers") have previously made a
market in the Old Certificates and Continental has been advised that all of the
Initial Purchasers presently intend to make a market in the New Certificates, as
permitted by applicable laws and regulations, after consummation of the Exchange
Offer. None of the Initial Purchasers is obligated, however, to make a market in
the Certificates, and any such market making activity by an Initial Purchaser
may be discontinued at any time without notice at the sole discretion of such
Initial Purchaser. There an 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. See "Risk Factors -- Risk Factors Relating to the
Certificates and the Offering -- Absence of an Established Market."
4
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AVAILABLE INFORMATION
Continental is subject to the information 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 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 10007; 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. Such material may also
be accessed electronically by means of the Commission's home page on the
Internet at http://www.sec.gov. In addition, reports, proxy statements and other
information concerning Continental may be inspected and copied at the offices of
the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
Continental is the successor to Continental Airlines Holdings, Inc.
("Holdings"), which merged with and into Continental on April 27, 1993. Holdings
had also been subject to the informational requirements of the Exchange Act.
This Prospectus constitutes a part of a registration statement on Form S-4
(together with all amendments and exhibits, the "Registration Statement") filed
by Continental with the Commission, through the Electronic Data Gathering,
Analysis and Retrieval System ("EDGAR"), under the Securities Act, with respect
to the New Certificates offered hereby. This Prospectus omits certain of the
information contained in the Registration Statement, and reference is hereby
made to the Registration Statement for further information with respect to
Continental and 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 CERTIFICATEHOLDERS
Wilmington Trust Company, in its capacity as Pass Through Trustee under
each of the Trusts and Paying Agent under each Escrow Agreement, will provide
the Certificateholders of each Trust certain periodic reports concerning the
distributions made from such Trust and pursuant to such Escrow Agreement. 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, 1996 (filed February 24,
1997), (ii) Continental's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 1997 (filed April 28, 1997) and (iii) Continental's Current
Reports on Form 8-K filed on January 6, March 21, April 18, May 28, June 10 and
June 25, 1997.
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 DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY AUGUST
20, 1997.
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PROSPECTUS SUMMARY
The following summary information does not purport to be complete and is
qualified in its entirety by the detailed information and financial statements
(including the notes thereto) appearing elsewhere in, or incorporated by
reference in, this Prospectus. Certain capitalized terms used herein are defined
elsewhere in this Prospectus on the pages indicated in the "Index of Terms".
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 five months of 1997) and, together with its wholly owned subsidiary,
Continental Express, Inc. ("Express"), and its 91%-owned subsidiary, Continental
Micronesia, Inc. ("CMI"), each a Delaware corporation, serves 195 airports
worldwide as of June 12, 1997.
The Company operates its route system primarily through domestic hubs at
Newark, George Bush Intercontinental in Houston and Cleveland Hopkins
("Cleveland"), and a hub on the Pacific island of Guam. Each of Continental's
three domestic hubs is located in a large business and population center,
contributing to a high volume of "origin and destination" traffic. The Guam 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 54%, 79%, 54% and 68% of
average daily jet departures, respectively.
Continental directly serves 133 U.S. cities, with additional cities
(principally in the western and southwestern United States) connected to
Continental's route system under agreements with America West Airlines, Inc.
("America West"). Internationally, Continental flies to 62 destinations and
offers additional connecting service through alliances with foreign carriers.
Continental operates 98 weekly departures to nine European cities and markets
service to six other cities through code-sharing agreements. Continental
commenced service from Newark to Dusseldorf, Germany on March 19, 1997, to
Lisbon, Portugal on May 1, 1997, to Vancouver, British Columbia on June 12, 1997
and to Birmingham, England on July 1, 1997. Continental plans to add service
from Newark to Sao Paulo and Rio de Janeiro, Brazil on July 10, 1997 and from
Houston to Caracas, Venezuela on October 1, 1997. In addition, during 1996
Continental entered into agreements with Air France for a joint marketing
arrangement that will involve service from Newark and Houston to Paris
(scheduled to commence in the fourth quarter 1997), subject to governmental
approval, and Aeroflot Russian International Airlines ("Aeroflot") for a joint
marketing arrangement that will involve service from Newark to Moscow (scheduled
to commence in the second quarter of 1998), subject to governmental approval.
Also during 1996, Continental entered into an agreement with Alitalia Airlines
("Alitalia") to expand the companies' existing code-share relationship to
include additional flights between the United States and Italy, which commenced
June 1, 1997. In addition, Continental recently announced the execution of a
memorandum of understanding for a code-share arrangement with Virgin Atlantic
Airways Limited ("Virgin") involving the carriers' Newark/New York-London routes
and eight other routes flown by Virgin between the United Kingdom and the United
States (service is expected to commence in the third quarter of 1997), subject
to governmental approval. Continental is one of the leading airlines providing
service to Mexico and Central America, serving more destinations there than any
other United States airline. In addition, Continental flies to four cities in
South America. Through its Guam 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.
6
<PAGE> 8
THE EXCHANGE OFFER
Registration Rights
Agreement.................. The Old Certificates were issued on March 21, 1997
to the Initial Purchasers. The Initial Purchasers
placed the Old Certificates with institutional
investors. In connection therewith, the Company,
the Depositary, the 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, $707,302,000 aggregate
principal amount of Old Certificates are
outstanding. Old Certificates may be tendered
only in integral multiples of $1,000.
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 (as defined on page 3 of
this Prospectus), 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 Trustee for its own account; (ii) any New
Certificates to be received by it were acquired
in the ordinary course of its business; and (iii)
it is not engaged in, and does not intend to
engage in, a distribution of such New
Certificates and has no arrangement or
understanding to participate in a distribution of
the New Certificates. If a holder of Old
Certificates is engaged in or intends to engage
in a distribution of the New Certificates or has
any arrangement or understanding with respect to
the distribution of the New Certificates to be
acquired pursuant to the Exchange Offer, such
holder may not rely on the applicable
interpretations of the staff of the Commission
and must comply with the registration and
prospectus delivery requirements of the
Securities Act in connection with any secondary
resale transaction. Each Participating
Broker-Dealer that receives New Certificates for
its own account pursuant to the Exchange Offer
must acknowledge that it will deliver a
prospectus in connection with any resale of such
New Certificates. The Letter of Transmittal
states that by so acknowledging and by delivering
a prospectus, a Participating Broker-Dealer will
not be deemed to admit that it is an
"underwriter" within the meaning of the
Securities Act. This Prospectus, as it may
7
<PAGE> 9
be amended or supplemented from time to time, may
be used by a Participating Broker-Dealer in
connection with resales of New Certificates
received in exchange for Old Certificates where
such Old Certificates were acquired by such
Participating Broker-Dealer as a result of
market-making activities or other trading
activities. The Company has agreed that, starting
on the Expiration Date and ending on the close of
business 180 days after the Expiration Date, it
will make this Prospectus available to any
Participating Broker-Dealer for use in connection
with any such resale. See "Plan of Distribution."
To comply with the securities laws of certain
jurisdictions, it may be necessary to qualify for
sale or register the New Certificates prior to
offering or selling such New Certificates. The
Company has agreed, pursuant to the Registration
Rights Agreement and subject to certain specified
limitations therein, to register or qualify the
New Certificates for offer or sale under the
securities or "blue sky" laws of such
jurisdictions as may be necessary to permit the
holders of New Certificates to trade the New
Certificates without any restrictions or
limitations under the securities laws of the
several states of the United States.
Consequences of Failure to
Exchange Old
Certificates............. Upon consummation of the Exchange Offer, subject to
certain exceptions, holders of Old Certificates
who do not exchange their Old Certificates for
New Certificates in the Exchange Offer will no
longer be entitled to registration rights and
will not be able to offer or sell their Old
Certificates, unless such Old Certificates are
subsequently registered under the Securities Act
(which, subject to certain limited exceptions,
the Company will have no obligation to do),
except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act
and applicable state securities laws. See "Risk
Factors -- Risk Factors Relating to the
Certificates and the Offering -- Consequences of
Failure to Exchange" and "The Exchange Offer --
Terms of the Exchange Offer".
Expiration Date............ 5:00 p.m., New York City time, on August 27, 1997
(30 calendar days following the commencement of
the Exchange Offer), unless the Exchange Offer is
extended, in which case the term "Expiration
Date" means the latest date and time to which the
Exchange Offer is extended.
Interest on the New
Certificates............. The New Certificates will accrue interest at the
applicable per annum rate for such New
Certificates set forth on the cover page of this
Prospectus, from the date on which the Old
Certificates were originally issued.
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.
8
<PAGE> 10
Procedures for Tendering
Old Certificates........... Each holder of Old Certificates wishing to accept
the Exchange Offer must complete, sign and date
the Letter of Transmittal, or a facsimile
thereof, in accordance with the instructions
contained herein and therein, and mail or
otherwise deliver such Letter of Transmittal, or
such facsimile, together with the Old
Certificates to be exchanged and any other
required documentation to the Exchange Agent (as
defined herein) at the address set forth herein
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 will 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 Certificates
issued by each Trust were deposited with the
Depositary on behalf of the Escrow Agent for the
benefit of the Certificateholders of such Trust.
Such proceeds will be used to purchase Equipment
Notes during the Delivery Period issued,
9
<PAGE> 11
at Continental's election, either (i) by the
Owner Trustees to finance the purchase of the
Leased Aircraft or (ii) by Continental to finance
the purchase of the Owned Aircraft. Prior to the
date of this Prospectus, two Boeing 757-224
Aircraft have been delivered, and funds were
withdrawn from the Deposits to purchase Equipment
Notes in respect of such Aircraft in the
aggregate principal amount of $74.4 million. See
"Use of Proceeds".
TERMS OF CERTIFICATES
The Exchange Offer relates to the exchange of up to $707,302,000 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 and will be governed by the same Pass Through Trust Agreements that
govern the Old 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 provide for interest rate increases
relating to failure to implement the Exchange Offer and will not bear legends
restricting transfer. See "Description of New Certificates".
Trusts..................... Each of the Continental Airlines 1997-1A Pass
Through Trust, the Continental Airlines 1997-1B
Pass Through Trust, the Continental Airlines
1997-1C-I Pass Through Trust and the Continental
Airlines 1997-1C-II Pass Through Trust has been
formed pursuant to one of the four separate Pass
Through Trust Agreements that were entered into
between the Company and Wilmington Trust Company,
as trustee under each Trust. Each Trust is a
separate entity. On the Transfer Date, each of
the Original Trusts will transfer and assign all
of its assets and rights to a substantially
identical Successor Trust, and the New Trustee
thereof will assume the obligations of the
related Original Trustee under each transaction
document to which such Original Trustee was a
party. Upon effectiveness of such transfer,
assignment and assumption, each of the Original
Trusts will be liquidated and each of the New
Certificates will represent the same interest in
the Successor Trust as it represented in the
Original Trust immediately prior to such transfer
and assignment.
Certificates Offered....... Pass Through Certificates issued by each Trust,
representing fractional undivided interests in
such Trust. The New Certificates issued by the
Class A Trust, the Class B Trust, the Class C-I
Trust and the Class C-II Trust are referred to
herein as the "Class A Certificates", the "Class
B Certificates", the "Class C-I Certificates",
and the "Class C-II Certificates", respectively,
and the Class C-I Certificates and the Class C-II
Certificates, which are of equal rank under the
Intercreditor Agreement, are referred to herein
collectively as the "Class C Certificates". The
Class C-I Trust and Class C-II Trust will each
acquire Series C Equipment Notes, although the
Deposits relating to the Class C-I Trust will be
utilized for such purpose prior to the Deposits
relating to the Class C-II Trust. Accordingly,
there is a greater likelihood that a special
distribution that will reduce the Pool Balance
for the Class C-II Certificates will be required
than with respect to the Certificates issued by
the other Trusts. See "Description of the Deposit
Agreements -- Unused Deposits".
10
<PAGE> 12
Escrow Receipts............ The holders of the Certificates are entitled to
certain rights with respect to the Deposits. Such
rights are evidenced by escrow receipts ("Escrow
Receipts") which are affixed to each Certificate.
Any transfer of a Certificate will have the
effect of transferring the corresponding rights
in the affixed Escrow Receipt. All payments to
the holders of Certificates in respect of the
Deposits and the Escrow Receipts relating to a
Trust (i) will not constitute Trust Property of
such Trust and (ii) will be deemed for all
purposes of this Prospectus to be payments to
such holders of Certificates in their capacity as
holders of Escrow Receipts.
Subordination Agent,
Trustee, Paying Agent and
Loan Trustee............. Wilmington Trust Company acts (i) as subordination
agent under the Intercreditor Agreement (the
"Subordination Agent"), (ii) as Trustee, paying
agent and registrar for the Certificates of each
Trust, (iii) as paying agent on behalf of the
Escrow Agent in respect of each Trust (the
"Paying Agent") and (iv) as Loan Trustee, paying
agent and registrar for each series of Equipment
Notes.
Escrow Agent............... First Security Bank, National Association, acts as
Escrow Agent under each Escrow Agreement.
Depositary................. Credit Suisse First Boston, a bank organized under
the laws of Switzerland, acting through its New
York branch, acts as Depositary under each
Deposit Agreement.
Liquidity Providers........ ABN AMRO Bank N.V., a Dutch bank acting through its
Chicago branch ("ABN AMRO"), and ING Bank N.V., a
Dutch bank ("ING" and, together with ABN AMRO,
the "Liquidity Providers"), have each provided a
separate liquidity facility for the benefit of
the holders of each Class of Certificates.
Trust Property............. The property of each Trust (the "Trust Property")
consists of (i) the rights of such Trust to
acquire Equipment Notes under the Note Purchase
Agreement issued, at Continental's election in
connection with the delivery of each Aircraft
during the Delivery Period, either (a) on a
nonrecourse basis by an Owner Trustee in each
separate leveraged lease transaction with respect
to each Leased Aircraft to finance the purchase
of such Leased Aircraft by the Owner Trustee, in
which case the applicable Leased Aircraft will be
leased to Continental, or (b) on a recourse basis
by Continental in connection with each separate
secured loan transaction with respect to each
Owned Aircraft, if any, to finance the purchase
of such Owned Aircraft by Continental, (ii)
Equipment Notes acquired under the Note Purchase
Agreement (consisting, as of the date of this
Prospectus, of $74.4 million principal amount
issued with respect to two Boeing 757-224
Aircraft in leveraged lease transactions), (iii)
the rights of such Trust under the related Escrow
Agreement (including the right to request the
Escrow Agent to withdraw from the Depositary
funds sufficient to enable such Trust to purchase
Equipment Notes on the delivery of each Aircraft
during the Delivery Period), (iv) the rights of
such Trust under the Intercreditor Agreement
(including all monies receivable in respect of
such rights), (v) all monies receivable under the
Liquidity Facility for such Trust and (vi) funds
from time to time deposited with the
11
<PAGE> 13
Trustee in accounts relating to such Trust.
Rights with respect to Deposits or under the
Escrow Agreement relating to a Trust, except for
the right to request withdrawals for the purchase
of Equipment Notes, will not constitute Trust
Property of such Trust. The Equipment Notes with
respect to each Leased Aircraft will be issued in
three series under an Indenture (each, a "Leased
Aircraft Indenture") between the applicable Owner
Trustee and the indenture trustee thereunder (the
"Leased Aircraft Trustee"). The Equipment Notes
with respect to each Owned Aircraft will be
issued in three series under an Indenture (the
"Owned Aircraft Indenture" and, together with the
other Owned Aircraft Indentures and the Leased
Aircraft Indentures, the "Indentures") between
Continental and the indenture trustee thereunder
(the "Owned Aircraft Trustee" and, together with
the other Owned Aircraft Trustees and the Leased
Aircraft Trustees, the "Loan Trustees"). The
Class A Trust, the Class B Trust and the Class
C-I Trust (or, if the Deposits relating to the
Class C-I Trust have been fully withdrawn, the
Class C-II Trust) each will acquire, pursuant to
a certain Note Purchase Agreement (the "Note
Purchase Agreement"), the series of Equipment
Notes issued with respect to each of the Aircraft
having an interest rate equal 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 Regular Distribution
Date applicable to the Certificates issued by
such Trust. Any Deposits relating to a Trust not
used to acquire Equipment Notes by the Delivery
Period Termination Date will be distributed to
the holders of Certificates issued by such Trust,
together with accrued and unpaid interest thereon
and a premium, as a special distribution. See
"Description of the Deposit Agreements -- Unused
Deposits".
12
<PAGE> 14
SUMMARY OF TERMS OF CERTIFICATES
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C-I CLASS C-II
CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Aggregate Face Amount............. $437,876,000 $148,333,000 $111,093,000 $10,000,000
Loan to Aircraft Value
(cumulative)(1)................. 40.29% 53.93% 64.93% 64.93%
Expected Principal Distribution
Window (in years)............... 1.027-18.027 1.027-16.027 1.027-10.027 1.027-10.027
Expected Initial Average Life (in
years).......................... 12.86 10.03 5.82 5.82
Regular Distribution Dates........ April 1 & October 1 April 1 & October 1 April 1 & October 1 April 1 & October 1
Final Expected Regular
Distribution Date............... April 1, 2015 April 1, 2013 April 1, 2007 April 1, 2007
Final Maturity Date............... October 1, 2016 October 1, 2014 October 1, 2008 October 1, 2008
Minimum Denomination.............. $1,000 $1,000 $1,000 $1,000
Section 1110 Protection(2)........ Yes Yes Yes Yes
Liquidity Facility Coverage(3).... 3 semiannual 3 semiannual 3 semiannual 3 semiannual
interest interest interest interest
payments payments payments payments
Liquidity Facility Amount at April
1, 1998(3)...................... $48,564,521 $16,426,917 $12,155,173 $1,094,144
</TABLE>
- ---------------
(1) Determined as of April 1, 1998, the first Regular Distribution Date after
the scheduled Delivery Period Termination Date, assuming that all Aircraft
are delivered prior to such date, that the maximum principal amount of
Equipment Notes is issued with respect to all Aircraft and that the
aggregate appraised Aircraft value is $1,081,740,200 (which assumes
depreciation of 2% of the initial appraised value for Aircraft delivered
before April 1, 1997, although actual depreciation may differ). The
appraised value is only an estimate and reflects certain assumptions. See
"Description of the Aircraft and the Appraisals -- The Appraisals". The
Mandatory Economic Terms require that the initial loan to aircraft value,
based on the foregoing appraisals, for each Aircraft as of its delivery date
be not in excess of 41% in the case of the Series A Equipment Notes, 55% in
the case of Series B Equipment Notes and 69.99%, 66.19% and 66.25% in the
case of the Series C Equipment Notes with respect to the Boeing 757-224
Aircraft, the Boeing 737-524 Aircraft and the Boeing 737-724 Aircraft,
respectively. Because the aggregate principal amount of all of the Equipment
Notes will not exceed the aggregate face amount of the Certificates, the
maximum initial loan to aircraft value for all of the Series C Equipment
Notes will be less than the foregoing maximums, which are applicable to the
Series C Equipment Note or Notes issued with respect to each Aircraft.
(2) The benefits of Section 1110 of the U.S. Bankruptcy Code are available to
the Loan Trustees.
(3) For each Class of Certificates, the initial amount of the Liquidity
Facilities, taken together, will cover three consecutive semiannual interest
payments (without regard to any future payments of principal on such
Certificates), except that the Liquidity Facilities with respect to each
Trust will not cover interest payable by the Depositary on the Deposits
relating to such Trust. The scheduled payments of interest on the Equipment
Notes and on the Deposits relating to a Trust, taken together, will be
sufficient to pay accrued interest on the outstanding Certificates issued by
such Trust at the rates per annum applicable thereto. In aggregate for Class
A, B, C-I and C-II Certificates, the amount of the Liquidity Facilities at
April 1, 1998, the first Regular Distribution Date after the scheduled
Delivery Period Termination Date, assuming that Equipment Notes in the
maximum principal amount with respect to all Aircraft are acquired by the
Trusts and that all interest and principal due on or prior to April 1, 1998
is paid, will be $78,240,755.
13
<PAGE> 15
EQUIPMENT NOTES AND THE AIRCRAFT
Set forth below is certain information about the Equipment Notes expected
to be held in the Trusts and the Aircraft expected to secure such Equipment
Notes (except in the case of Aircraft 118, 119 and 120, which reflects actual
information about the financings completed in March, May and June, 1997,
respectively):
<TABLE>
<CAPTION>
MAXIMUM
PRINCIPAL
MANU- AMOUNT OF
AIRCRAFT FACTURER'S AIRCRAFT LATEST EQUIPMENT APPRAISED
TAIL SERIAL DELIVERY EQUIPMENT NOTE NOTES VALUE
AIRCRAFT TYPE NUMBER NUMBER MONTH(1) MATURITY DATE (IN MILLIONS)(2) (IN MILLIONS)(3)
- -------------- -------- ---------- ------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Boeing 757-224 118 27560 March 1997 April 1, 2013 $37.20 $53.72
Boeing 757-224 119 27561 May 1997 April 1, 2013 37.20 53.80
Boeing 757-224 120 27562 June 1997 April 1, 2013 37.20 53.97
Boeing 757-224 121 27563 July 1997 April 1, 2013 37.60 54.05
Boeing 757-224 122 27564 August 1997 April 1, 2013 37.60 54.13
Boeing 757-224 126 28966 December 1997 April 1, 2013 37.60 54.47
Boeing 757-224 123 27565 January 1998 April 1, 2014 37.60 54.55
Boeing 757-224 127 28967 January 1998 April 1, 2014 37.60 54.55
Boeing 737-524 638 28899 July 1997 October 1, 2014 18.40 27.80
Boeing 737-524 639 28900 July 1997 October 1, 2014 18.40 27.80
Boeing 737-524 640 28901 August 1997 October 1, 2014 18.40 27.80
Boeing 737-524 641 28902 August 1997 October 1, 2014 18.40 27.80
Boeing 737-524 642 28903 August 1997 October 1, 2014 18.40 27.80
Boeing 737-524 643 28904 September 1997 October 1, 2014 18.40 27.83
Boeing 737-524 644 28905 September 1997 October 1, 2014 18.40 27.83
Boeing 737-524 645 28906 October 1997 April 1, 2015 18.40 27.93
Boeing 737-524 646 28907 October 1997 April 1, 2015 18.40 27.93
Boeing 737-524 647 28908 November 1997 April 1, 2015 18.40 28.04
Boeing 737-524 648 28909 November 1997 April 1, 2015 18.40 28.04
Boeing 737-524 649 28910 December 1997 April 1, 2015 18.40 28.15
Boeing 737-524 650 28911 December 1997 April 1, 2015 18.40 28.15
Boeing 737-524 651 28912 December 1997 April 1, 2015 18.40 28.15
Boeing 737-524 652 28913 January 1998 April 1, 2015 18.40 28.26
Boeing 737-524 653 28914 January 1998 April 1, 2015 18.40 28.26
Boeing 737-524 654 28915 February 1998 April 1, 2015 18.40 28.36
Boeing 737-524 655 28916 February 1998 April 1, 2015 18.40 28.36
Boeing 737-724 701 28762 January 1998 April 1, 2015 24.40 36.83
Boeing 737-724 702 28763 January 1998 April 1, 2015 24.40 36.83
Boeing 737-724 703 28764 February 1998 April 1, 2015 24.40 36.89
Boeing 737-724 704 28765 February 1998 April 1, 2015 24.40 36.89
</TABLE>
- ---------------
(1) Reflects the scheduled delivery months under Continental's purchase
agreement with the manufacturer. Aircraft 118, 119 and 120 have been
delivered. The actual delivery date for the other Aircraft may be subject to
delay. See "Description of the Aircraft and the Appraisals -- Deliveries of
Aircraft". Continental has the option to substitute other Boeing 757-224,
737-524 or 737-724 aircraft in the event that the delivery of any Aircraft
is expected to be delayed for more than 30 days after the month scheduled
for delivery or beyond the Delivery Period Termination Date. See
"Description of the Aircraft and the Appraisals -- Substitute Aircraft".
(2) Except in the case of Aircraft 118, 119 and 120 (which have been delivered),
reflects the initial maximum principal amount as of the date of original
issuance, which principal amount may be less with respect to an Aircraft
depending on the circumstances of the financing of such Aircraft. The
Mandatory Economic Terms require that the maximum aggregate principal amount
of the Equipment Notes issued with respect to all Boeing 757-224 Aircraft
not exceed $300,800,000, all Boeing 737-524 not exceed $331,200,000 and all
Boeing 737-724 Aircraft not exceed $97,600,000. The aggregate principal
amount of all Equipment Notes will not exceed the aggregate face amount of
the Certificates.
(3) The appraised value of each Aircraft set forth above is based upon varying
assumptions and methodologies and reflects the lesser of the average and
median values 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"), determined as of February 25, 1997,
January 8, 1997 and February 21, 1997, respectively, and projected as of the
scheduled delivery month of each Aircraft. An appraisal is only an estimate
of value and should not be relied upon as a measure of realizable value. See
"Risk Factors -- Appraisals and Realizable Value of Aircraft" and
"Description of the Aircraft and the Appraisals".
14
<PAGE> 16
LOAN TO AIRCRAFT VALUE RATIOS
The following table sets forth loan to Aircraft value ratios ("LTVs") for
each Class of Certificates as of the April 1 Regular Distribution Dates that
occur after the scheduled Delivery Period Termination Date, assuming that
Equipment Notes of each series in the maximum principal amount for all of the
Aircraft are acquired by the Trusts prior to the Delivery Period Termination
Date. The LTVs for any Class of Certificates as of dates prior to the Delivery
Period Termination Date are not meaningful, since the Trust Property will not
include during such period all of the Equipment Notes expected to be acquired by
the Trusts. See "Description of the New Certificates -- General". 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 or equal 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
Pool Balances and resulting LTVs are subject to change if, among other things,
the aggregate principal amount of the Equipment Notes acquired by the Trusts is
less than the maximum permitted by the Mandatory Economic Terms or Equipment
Notes with respect to any Aircraft are purchased by the Trusts in other than the
month currently scheduled for delivery of such Aircraft. See "Description of the
New Certificates -- Pool Factors".
The following table is based on the assumption that the value of each
Aircraft included in the Assumed Aggregate Aircraft Value opposite the initial
Regular Distribution Date included in the table depreciates by approximately 2%
of the initial appraised value per year until the fifteenth year after the year
of delivery of such Aircraft and by approximately 4% of the initial appraised
value per year thereafter. Other rates or methods of depreciation would result
in materially different LTVs and no assurance can be given (i) that the
depreciation rates and method assumed for the purpose of the table are the ones
most likely to occur or (ii) as to the actual future value of any Aircraft.
Although the table is compiled on an aggregate basis, it should be noted that,
since the Equipment Notes are not cross-collateralized with respect to the
Aircraft, the excess proceeds realized from the disposition of any particular
Aircraft would not be available to offset shortfalls on the Equipment Notes
relating to any other Aircraft. Therefore, upon the occurrence of an Indenture
Default, even if the Aircraft as a group could be sold for more than the total
amounts payable in respect of all of the outstanding Equipment Notes, if certain
Aircraft were sold for less than the total amount payable in respect of the
related Equipment Notes, there would not be sufficient proceeds to pay all
Classes of Certificates in full. See "Description of the Equipment Notes -- Loan
to Value Ratios of Equipment Notes" for examples of LTVs for the Equipment Notes
issued in respect of individual 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. In addition, the initial appraised value of each Aircraft was based
upon the lesser of the average and the median value of each Aircraft as
appraised by the Appraisers, as of the respective date of their appraisals and
projected as of the scheduled delivery month of each such Aircraft. No assurance
can be given that such value represents the realizable value of any Aircraft.
See "Risk Factors -- Risk Factors Relating to the Certificates and the
Offering -- Appraisal and Realizable Value of Aircraft" and "Description of the
Aircraft and the Appraisals -- The Appraisals".
<TABLE>
<CAPTION>
ASSUMED CLASS A CLASS B CLASS C-I
AGGREGATE CERTIFICATES CLASS A CERTIFICATES CLASS B CERTIFICATES CLASS C-I
AIRCRAFT POOL CERTIFICATES POOL CERTIFICATES POOL CERTIFICATES
DATE VALUE BALANCE LTV BALANCE LTV BALANCE LTV
- ------------- -------------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 1, 1998 $1,081,740,200 $433,941,121 40.12% $146,780,295 53.68% $109,210,897 64.69%
April 1, 1999 1,060,040,800 427,036,568 40.28 145,584,404 54.02 108,072,170 65.13
April 1, 2000 1,038,341,400 416,653,383 40.13 143,527,813 53.95 102,514,584 64.71
April 1, 2001 1,016,642,000 402,886,044 39.63 141,289,084 53.53 90,828,747 63.27
April 1, 2002 994,942,600 384,428,108 38.64 138,464,875 52.56 68,140,359 60.02
April 1, 2003 973,243,200 374,329,700 38.46 133,628,084 52.19 39,836,687 56.65
April 1, 2004 951,543,800 364,988,151 38.36 123,579,583 51.34 18,573,888 53.47
April 1, 2005 929,844,400 359,033,292 38.61 105,095,450 49.91 3,259,763 50.30
April 1, 2006 908,145,000 353,166,186 38.89 92,337,736 49.06 889,515 49.16
April 1, 2007 886,445,600 337,263,875 38.05 71,117,103 46.07 0 46.07
April 1, 2008 864,746,200 319,150,659 36.91 46,995,379 42.34 0 0.00
April 1, 2009 843,046,800 299,160,594 35.49 27,964,589 38.80 0 0.00
April 1, 2010 821,347,400 253,263,778 30.84 16,086,768 32.79 0 0.00
April 1, 2011 799,648,000 216,030,916 27.02 8,088,596 28.03 0 0.00
April 1, 2012 777,948,600 153,308,257 19.71 336,950 19.75 0 0.00
April 1, 2013 753,019,400 76,215,673 10.12 0 10.12 0 0.00
April 1, 2014 709,620,600 31,167,389 4.39 0 4.39 0 0.00
<CAPTION>
CLASS C-II
CERTIFICATES CLASS C-II
POOL CERTIFICATES
DATE BALANCE LTV
- ------------- ------------ ------------
<S> <C> <C>
April 1, 1998 $9,830,583 64.69%
April 1, 1999 9,728,081 65.13
April 1, 2000 9,227,817 64.71
April 1, 2001 8,175,920 63.27
April 1, 2002 6,133,632 60.02
April 1, 2003 3,585,886 56.65
April 1, 2004 1,671,922 53.47
April 1, 2005 293,426 50.30
April 1, 2006 80,069 49.16
April 1, 2007 0 46.07
April 1, 2008 0 0.00
April 1, 2009 0 0.00
April 1, 2010 0 0.00
April 1, 2011 0 0.00
April 1, 2012 0 0.00
April 1, 2013 0 0.00
April 1, 2014 0 0.00
</TABLE>
15
<PAGE> 17
CASH FLOW STRUCTURE
Set forth below is a diagram illustrating the structure for the offering of
the Certificates and certain cash flows.
[FLOW CHART]
(1) Each Leased Aircraft will be subject to a separate Lease and the related
Indenture; each Owned Aircraft will be subject to a separate Indenture.
(2) Funds held as Deposits relating to each Trust will be withdrawn to purchase
Equipment Notes on behalf of such Trust from time to time during the
Delivery Period. If any funds remain as Deposits with respect to any Trust
at the Delivery Period Termination Date, such funds will be withdrawn by the
Escrow Agent and distributed to the holders of the Certificates issued by
such Trust, together with accrued and unpaid interest thereon and a premium.
No interest will accrue with respect to the Deposits after they have been
fully withdrawn.
(3) The initial amount of the Liquidity Facilities for each Trust, taken
together, will cover three consecutive semiannual interest payments with
respect to each Trust, except that the Liquidity Facilities will not cover
interest payable by the Depositary on the Deposits relating to such Trust.
The scheduled payments of interest on the Equipment Notes and on the
Deposits relating to a Trust, taken together, will be sufficient to pay an
amount equal to accrued interest on the outstanding Certificates issued by
such Trust at the rate per annum applicable thereto.
16
<PAGE> 18
THE NEW CERTIFICATES
Certificates;
Denominations.............. The New Certificates of each Trust will be issued
in a minimum denomination of $1,000 and in
integral multiples thereof. See "Description of
the New Certificates -- General".
Regular Distribution
Dates...................... April 1 and October 1, commencing October 1, 1997.
Special Distribution
Dates...................... Any Business Day on which a Special Payment is to
be distributed.
Record Dates............... The fifteenth day preceding a Regular Distribution
Date or a Special Distribution Date.
Distributions.............. All payments of principal, premium (if any) and
interest received by the Trustee on the Equipment
Notes held in each Trust and all payments of
interest on the Deposits relating to each Trust
will be distributed by the Trustee (in the case
of the Equipment Notes) or by the Paying Agent
(in the case of the Deposits) to the holders of
the Certificates (the "Certificateholders") of
such Trust, subject in the case of payments on
the Equipment Notes to the provisions of the
Intercreditor Agreement. Such payments of
interest are scheduled to be received by the
Trustee of each Trust on April 1 and October 1,
commencing on October 1, 1997. Payments of
principal of the Equipment Notes are scheduled to
be received on April 1 and October 1 in certain
years, commencing April 1, 1998. 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 to the Certificateholders of
such Trust on a Special Distribution Date after
not less than 20 days' notice to such
Certificateholders of such Trust, subject to the
provisions of the Intercreditor Agreement. If any
funds remain as Deposits with respect to any
Trust at the Delivery Period Termination Date,
they will be withdrawn by the Escrow Agent for
such Trust and distributed, with accrued and
unpaid interest thereon, plus a premium payable
by Continental (i) in the case of the holders of
Certificates issued by the Class A Trust, the
Class B Trust and the Class C-I Trust, equal to
the Deposit Make-Whole Premium with respect to
the aggregate amount of funds so distributed
(excluding accrued interest) and (ii) in the case
of the holders of Certificates issued by the
Class C-II Trust, equal to the Class C-II Premium
with respect to such aggregate amount, to the
Certificateholders of such Trust on a Special
Distribution Date after not less than 20 days'
notice to such Certificateholders. Payments in
respect of Deposits will not be subject to the
Intercreditor Agreement. For a discussion of
distributions with respect to unused Deposits
upon the occurrence of a Triggering Event, see
"Description of the Deposit
Agreements -- Distribution Upon Occurrence of
Triggering Event", and for a discussion of
distributions by the Trusts upon an Indenture
Default, see "Description of the New
Certificates -- Indenture Defaults and Certain
Rights Upon an Indenture Default".
Events of Default.......... Events of default under each Pass Through Trust
Agreement (each, a "PTC Event of Default") are
the failure to pay within 10 Business Days of the
due date thereof: (i) the outstanding Pool
Balance of the applicable Class of Certificates
on the Final Maturity Date for such Class or (ii)
interest due on such Certificates on any
distribution date (unless the Subordination Agent
shall have made Interest Drawings
17
<PAGE> 19
with respect to the applicable Class of
Certificates, or drawings on the Cash Collateral
Account for such Class of Certificates, in an
aggregate amount sufficient to pay such interest
and shall have distributed such amount to the
Trustee entitled thereto). The Final Maturity
Date for the Class A Certificates is October 1,
2016, for the Class B Certificates is October 1,
2014, for the Class C-I Certificates is October
1, 2008 and for the Class C-II Certificates is
October 1, 2008. Any failure to make expected
principal distributions on any Class of
Certificates on any Regular Distribution Date
(other than the Final Maturity Date) will not
constitute a PTC Event of Default with respect to
such Certificates.
Purchase Rights of
Certificateholders....... Upon the occurrence and during the continuation of
a Triggering Event, (i) the Class B
Certificateholders shall have the right to
purchase all, but not less than all, of the Class
A Certificates and (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, 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 (provided that during
the Delivery Period the aggregate principal
amount thereof exceeds $280 million) or (z)
certain bankruptcy or insolvency events involving
Continental.
Successor Trusts........... On the Transfer Date, each of the Original Trusts
will transfer and assign all of its assets and
rights to a newly-created, substantially
identical Successor Trust, except that (i) the
Successor Trusts will not have the right to
purchase new Equipment Notes and (ii) Delaware
law will govern the Original Trusts and New York
law will govern the Successor Trusts. The
institution acting as Original Trustee for an
Original Trust will also act as the New Trustee
of the corresponding Successor Trust, and the New
Trustee of each Successor Trust will assume the
obligations of the related Original Trustee under
each transaction document to which such Original
Trustee was a party. Upon effectiveness of such
transfer, assignment and assumption, each of the
Original Trusts will be liquidated and each of
the Certificates will represent the same interest
in the Successor Trust as it represented in the
Original Trust immediately prior to such transfer
and assignment.
Escrow Agreements.......... Each Escrow Agent, each Paying Agent, each Trustee
and the Initial Purchasers have entered into a
separate Escrow Agreement for the benefit of the
Certificateholders of each Trust. Pursuant to
each Escrow Agreement, on the initial issuance
date of the Old Certificates (the "Issuance
Date"), the cash proceeds of the offering of Old
Certificates of each Trust were deposited on
behalf of the Escrow Agent for the benefit of the
holders of such Certificates with the Depositary
as Deposits relating to such Trust. The Escrow
Agent of each Trust has been given irrevocable
instructions (i) to permit the
18
<PAGE> 20
Trustee of such Trust to cause funds to be
withdrawn from such Deposits on or prior to the
Delivery Period Termination Date for the purpose
of enabling such Trustee to purchase Equipment
Notes on and subject to the terms and conditions
of the Note Purchase Agreement and (ii) to direct
the Depositary to pay interest on the Deposits
accrued in accordance with the Deposit Agreement
to the Paying Agent for distribution to the
Certificateholders of such Trust. See
"Description of the Escrow Agreements".
Deposit Agreements and the
Depositary............... The Escrow Agent with respect to each Trust has
entered into a separate Deposit Agreement with
the Depositary relating to such Trust pursuant to
which the Depositary established separate
accounts into which the proceeds of the sale of
the Old Certificates of such Trust were
deposited, from which the Escrow Agent, upon
request from the Trustee of such Trust, will make
withdrawals and into which such Trustee will make
re-deposits during the Delivery Period. Pursuant
to the Deposit Agreement with respect to each
Trust, on each Regular Distribution Date the
Depositary will pay to the Paying Agent on behalf
of the applicable Escrow Agent, for distribution
to the Certificateholders of such Trust, an
amount equal to interest accrued on the Deposits
relating to such Trust during the relevant
interest period at a rate per annum equal to the
interest rate applicable to the Certificates
issued by such Trust. The interest rates payable
on the Deposits are subject to change under
certain circumstances described in "The Exchange
Offer -- Terms of the Exchange Offer -- General"
to the same extent as the interest rates for the
Equipment Notes. Upon each delivery of an
Aircraft during the Delivery Period, the Trustees
for the Class A Trust, the Class B Trust and the
Class C-I Trust (or, if the Deposits relating to
the Class C-I Trust have been fully withdrawn,
the Class C-II Trust) will request the Escrow
Agent relating to such Trust to withdraw from the
Deposits relating to such Trust funds sufficient
to enable the Trustee of such Trust to purchase
the Equipment Note of the series applicable to
such Trust issued with respect to such Aircraft.
Accrued but unpaid interest on all such Deposits
withdrawn to purchase Equipment Notes will be
paid on the next Regular Distribution Date. Any
portion of any withdrawn Deposit which is not
used to purchase such Equipment Note will be re-
deposited with the Depositary. If any funds
remain as Deposits with respect to any Trust at
the Delivery Period Termination Date, they will
be withdrawn by the Escrow Agent and distributed,
together with accrued and unpaid interest thereon
and a premium payable by Continental, to the
Certificateholders of such Trust. The Deposits
relating to each Trust and interest paid thereon
are not subject to the subordination provisions
of the Intercreditor Agreement and are not
available to pay any other amount in respect of
the Certificates.
Credit Suisse First Boston, New York Branch acts as
the Depositary. Credit Suisse First Boston is a
Swiss bank and is one of the largest banking
institutions in the world, with total
consolidated assets of approximately Sfr 412
billion ($307 billion) and total consolidated
shareholders' equity of approximately Sfr 9.7
billion (U.S. $7.2 billion) in each case as of
December 31, 1996, on a pro forma basis. Credit
Suisse First Boston has long-term unsecured debt
ratings of
19
<PAGE> 21
Aa3 from Moody's and AA from Standard & Poor's
and short-term unsecured debt ratings of P-1 from
Moody's and A-1+ from Standard & Poor's. See
"Description of the Deposit Agreements --
Depositary".
Unused Deposits............ The Trustees' obligations to purchase the Equipment
Notes issued with respect to each Aircraft are
subject to satisfaction of certain conditions,
and no assurance can be given that all such
conditions will be satisfied. See "Description of
the New Certificates -- Obligation to Purchase
Equipment Notes". All of the Aircraft are
scheduled to be delivered by February 1998,
although the delivery of any Aircraft may be
subject to delay. See "Description of the
Aircraft and the Appraisals -- Deliveries of
Aircraft". The Delivery Period expires on March
31, 1998 (or June 30, 1998 under certain
circumstances discussed in "Description of the
Aircraft and the Appraisals -- Deliveries of
Aircraft"). In addition, depending on the
circumstances of the financing of each Aircraft,
the maximum aggregate principal amount of
Equipment Notes may not be issued. If any funds
remain as Deposits with respect to any Trust at
the Delivery Period Termination Date, they will
be withdrawn by the Escrow Agent for such Trust
and distributed, with accrued and unpaid interest
thereon, plus a premium payable by Continental
(i) in the case of the holders of Certificates
issued by the Class A Trust, the Class B Trust
and the Class C-I Trust, equal to the Deposit
Make-Whole Premium with respect to the aggregate
amount of funds so distributed (excluding accrued
interest) and (ii) in the case of the holders of
Certificates issued by the Class C-II Trust,
equal to the Class C-II Premium with respect to
such aggregate amount, to the Certificateholders
of such Trust after at least 20 days' prior
written notice. See "Description of the Deposit
Agreements -- Unused Deposits".
Obligation to Purchase
Equipment Notes.......... The Trustees are obligated to purchase the
Equipment Notes issued with respect to each
Aircraft during the Delivery Period, subject to
the terms and conditions of the Note Purchase
Agreement. Under the Note Purchase Agreement,
Continental has the option of entering into a
leveraged lease financing or a secured debt
financing with respect to each Aircraft. The Note
Purchase Agreement provides for the relevant
parties to enter into (i) with respect to each
Leased Aircraft, a Participation Agreement, a
Lease and a Leased Aircraft Indenture relating to
the financing of such Leased Aircraft and (ii)
with respect to each Owned Aircraft, a
Participation Agreement and an Owned Aircraft
Indenture relating to the financing of such Owned
Aircraft (any such Participation Agreement, a
"Participation Agreement"). The description of
such agreements in this Prospectus is based on
the forms of such agreements contemplated by the
Note Purchase Agreement. In the case of a Leased
Aircraft, the terms of the agreements actually
entered into may differ from the forms of such
agreements and, consequently, may differ from the
description of such agreements contained in this
Prospectus. However, under the Note Purchase
Agreement, the terms of such agreements are
required to (i) contain the Mandatory Document
Terms and (ii) not vary the Mandatory Economic
Terms. In addition, Continental is obligated (i)
to certify to the Trustees that any such
modifications do not materially and
20
<PAGE> 22
adversely affect the Certificateholders and (ii)
to obtain written confirmation from each Rating
Agency that the use of versions of such
agreements modified in any material respect will
not result in a withdrawal, suspension or
downgrading of the rating of any Class of
Certificates. Further, under the Note Purchase
Agreement, it is a condition precedent to the
obligation of each Trustee to purchase the
Equipment Notes related to the financing of an
Aircraft that no Triggering Event shall have
occurred. The Trustees will have no right or
obligation to purchase Equipment Notes after the
Delivery Period Termination Date. See
"Description of the New
Certificates -- Obligation to Purchase Equipment
Notes".
Equipment Notes
(a) Interest............. The Equipment Notes held in each Trust will accrue
interest at the applicable rate per annum for the
Certificates issued by such Trust set forth on
the cover page of this Prospectus, payable on
April 1 and October 1 of each year, commencing on
October 1, 1997, or, if later, the first such
date to occur after initial issuance thereof, and
such interest payments will be passed through to
Certificateholders of such Trust on each such
date until the final distribution date for such
Certificates, in each case, subject to the
Intercreditor Agreement. Interest is calculated
on the basis of a 360-day year consisting of
twelve 30-day months. See "Description of the
Equipment Notes -- Principal and Interest
Payments". The interest rates for the Equipment
Notes are subject to change under certain
circumstances described in "The Exchange
Offer -- Terms of the Exchange Offer -- General".
(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 April 1
and October 1 in certain years, commencing on
October 1, 1997, in each case, subject to the
Intercreditor Agreement. See "Description of the
New Certificates -- Pool Factors" and
"Description of the Equipment Notes -- Principal
and Interest Payments".
(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 the case
of a Leased Aircraft) or under the related Owned
Aircraft Indenture (in the case of an Owned
Aircraft), in each case at a price equal to the
aggregate unpaid principal thereof, together with
accrued interest thereon to, but not including,
the date of redemption, but without any premium.
(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, if such redemption is made
prior to April 1, 2010 in the case of the Series
A Equipment Notes, April 1, 2007 in the case of
the Series B Equipment Notes and April 1, 2003 in
the case of the Series C Equipment Notes (with
respect to any such Series, its "Premium
Termination Date"), a Make-Whole Premium. See
"Description of the Equipment
Notes -- Redemption" for
21
<PAGE> 23
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 a Leased Aircraft, (x)
one or more Lease Events of Default shall have
occurred and be continuing, (y) in the event of a
bankruptcy proceeding involving Continental, (A)
during the Section 1110 Period, the trustee in
such proceeding or Continental refuses to assume
or agree to perform its obligations under the
related Lease or (B) at any time after assuming
or agreeing to perform such obligations, such
trustee or Continental ceases to perform such
obligations such that the stay period applicable
under the U.S. Bankruptcy Code comes to an end or
(z) the Equipment Notes with respect to such
Aircraft have been accelerated or the Leased
Aircraft Trustee with respect to such Equipment
Notes takes action or notifies the applicable
Owner Trustee that it intends to take action to
foreclose the lien of the related Leased Aircraft
Indenture or otherwise commence the exercise of
any significant remedy under such Indenture or
the related Lease, then in each case all, but not
less than all, of the Equipment Notes issued with
respect to such Leased Aircraft may be purchased
by the Owner Trustee or Owner Participant on the
applicable purchase date at a price equal to the
aggregate unpaid principal thereof, together with
accrued interest thereon to, but not including,
the purchase date, but without any premium
(provided that a Make-Whole Premium shall be
payable if such Equipment Notes are to be
purchased pursuant to clause (x) above when a
Lease Event of Default shall have occurred and be
continuing for less than 120 days). Continental,
as owner of the Owned Aircraft, will have no
comparable right under any Owned Aircraft
Indenture to purchase the Equipment Notes under
such circumstances.
(d) Security............. The Equipment Notes issued with respect to each
Aircraft will be secured by a security interest
in such Aircraft and, in the case of each Leased
Aircraft, by an assignment to the related Leased
Aircraft 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 will not be
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
will not be cross-default provisions in the
Indentures or in the Leases (unless, in the case
of a Lease, otherwise agreed between an Owner
Participant and Continental). Consequently,
events resulting in an Indenture Default under
any particular Indenture may or may not result in
an Indenture Default occurring under any other
Indenture, and a Lease Event of Default under any
particular Lease may or may not constitute a
Lease Event of Default under any other Lease. If
the Equipment Notes issued with respect to one or
more Aircraft are in default and the Equipment
Notes issued with respect to the remaining
Aircraft are not in default, no remedies will be
exercisable under the Indentures with respect to
such remaining Aircraft. See "Description of the
Equipment Notes -- Security" and "-- Indenture
Defaults, Notice and Waiver".
22
<PAGE> 24
Although the Equipment Notes issued in respect of
the Leased Aircraft are not obligations of, or
guaranteed by, Continental, the amounts
unconditionally payable by Continental for lease
of the Leased Aircraft will be sufficient to pay
in full when due all scheduled amounts required
to be paid on the Equipment Notes issued in
respect of the Leased Aircraft. The Equipment
Notes issued in respect of the Owned Aircraft
will be direct obligations of Continental. See
"Description of the Equipment Notes -- General".
(e) Section 1110
Protection................. It is a condition to the Trustees' obligation to
purchase Equipment Notes with respect to each
Aircraft that outside counsel to Continental,
which is expected to be Hughes Hubbard & Reed
LLP, provide its opinion to the Trustees that (i)
if such Aircraft is a Leased Aircraft, the Owner
Trustee, as lessor under the Lease for such
Aircraft, and the related Leased Aircraft
Trustee, as assignee of such Owner Trustee's
rights under such Lease pursuant to the related
Leased Aircraft Indenture, will be entitled to
the benefits of Section 1110 of the U.S.
Bankruptcy Code with respect to the airframe and
engines comprising such Aircraft or (ii) if such
Aircraft is an Owned Aircraft, the Owned Aircraft
Trustee will be entitled to the benefits of
Section 1110 of the U.S. Bankruptcy Code with
respect to the airframe and engines comprising
such Aircraft. See "Description of the Equipment
Notes -- Remedies" for a description of such
required opinion and certain assumptions
permitted to be contained therein.
(f) Ranking.............. Series B Equipment Notes issued in respect of any
Aircraft will be subordinated in right of payment
to Series A Equipment Notes issued in respect of
such Aircraft, and Series C Equipment Notes
issued in respect of such Aircraft will be
subordinated in right of payment to such Series B
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 and (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.
(g) Owner Participant.... Continental currently intends to lease all of the
Aircraft. Continental has obtained commitments of
certain companies to act as the owner participant
("Owner Participant") with respect to the
leveraged leases for all of the Aircraft and, in
certain cases, is seeking alternative commitments
on more favorable terms. The existing commitments
are subject to satisfaction of certain conditions
with respect to each Aircraft and, in certain
cases, Continental may elect to terminate such
commitments with respect to certain Aircraft.
Accordingly, Continental may select one or more
other Owner Participants for some or all of such
Aircraft or finance such Aircraft as Owned
Aircraft rather than Leased Aircraft. Each Owner
Participant will have the right to sell, assign
or otherwise transfer its interests as Owner
Participant in any of such leveraged leases,
subject to the terms and conditions of the
relevant Participation Agreement and related
documents. See "Risk Factors -- Risk Factors
Relating to the Certificates and the
Offering -- Owner Participant; Revisions to
Agreements".
23
<PAGE> 25
Liquidity Facilities....... Each Liquidity Provider and the Subordination Agent
have entered into a separate revolving credit
agreement (each, a "Liquidity Facility") with
respect to each of the Trusts. Under the
Liquidity Facilities with respect to any Trust,
the Liquidity Providers will, if necessary, make
advances ("Interest Drawings") in an aggregate
amount (the "Required Amount") sufficient to pay
interest on the Certificates of such Trust on up
to three successive semiannual Regular
Distribution Dates (without regard to any future
payments of principal on such Certificates) at
the respective interest rates shown on the cover
page of this Prospectus (plus an additional
margin specified by the Registration Rights
Agreement, if applicable) for such Certificates
(the "Stated Interest Rates"), except that the
Liquidity Facilities with respect to each Trust
will not cover interest payable by the Depositary
on the Deposits relating to such Trust. Each of
the two Liquidity Facilities with respect to each
Trust cover 50% (the "Stated Portion") of the
Required Amount for such Trust. The initial
Required Amount under the Liquidity Facilities on
April 1, 1998, the first Regular Distribution
Date after the scheduled Delivery Period
Termination Date, for the Class A Certificates,
the Class B Certificates, the Class C-I
Certificates and the Class C-II Certificates,
assuming that Equipment Notes in the maximum
principal amount with respect to all of the
Aircraft are acquired by the Trusts and that all
interest and principal due on or prior to April
1, 1998 is paid, will be $48,564,521,
$16,426,917, $12,155,173 and $1,094,144,
respectively. Interest Drawings under the
relevant Liquidity Facilities 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, C-I or C-II Certificates; provided,
however, that on any date the maximum amount
available under a Liquidity Facility with respect
to any Trust to fund any shortfall in interest
due on the Certificates of such Trust will not
exceed an amount equal to the Stated Portion of
the then Required Amount of such Liquidity
Facility less the aggregate amount of each
Interest Drawing outstanding under such Liquidity
Facility at such time (the "Maximum Available
Commitment"). The Liquidity Facilities for any
Class of Certificates do 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 is 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") ranks pari passu
with the Liquidity Obligations relating to all
other Liquidity Facilities and ranks senior to
the Certificates in right of payment. Upon
reimbursement in full of the Interest Drawings,
together with any accrued interest thereon, under
any Liquidity Facility, the Maximum Available
Commitment under such Liquidity Facility will be
reinstated to the Stated Portion of the then
Required
24
<PAGE> 26
Amount of such Liquidity Facility; provided that
the amount will not be so reinstated if (i) a
Liquidity Event of Default shall have occurred
and be continuing and (ii) less than 65% of the
aggregate outstanding principal amount of all
Equipment Notes are Performing Equipment Notes.
"Performing Equipment Note" means an Equipment Note
with respect to which no payment default has
occurred and is continuing; provided that in the
event of a bankruptcy proceeding involving
Continental under the U.S. Bankruptcy Code, (i)
any payment default existing during the 60-day
period under Section 1110(a)(1)(A) of the U.S.
Bankruptcy Code (or such longer period as may
apply under Section 1110(b) of the U.S.
Bankruptcy Code) (the "Section 1110 Period")
shall not be taken into consideration, unless
during the Section 1110 Period the trustee in
such proceeding or Continental refuses to assume
or agree to perform its obligations under the
Lease related to such Equipment Note (in the case
of a Leased Aircraft) or under the Owned Aircraft
Indenture related to such Equipment Note (in the
case of an Owned Aircraft), and (ii) any payment
default occurring after the date of the order of
relief in such proceeding shall not be taken into
consideration if such payment default is cured
under Section 1110(a)(1)(B) of the U.S.
Bankruptcy Code before the later of 30 days after
the date of such default or the expiration of the
Section 1110 Period.
If at any time the short-term unsecured debt rating
of any Liquidity Provider issued by either Rating
Agency is lower than the Threshold Rating, each
Liquidity Facility provided by such Liquidity
Provider will be required to be replaced by a
financial institution having such unsecured debt
ratings issued by both Rating Agencies that are
equal to or higher than the Threshold Rating. If
any such Liquidity Facility is not replaced
within 10 days after notice of the downgrading,
such Liquidity Facility will be drawn in full up
to the then Maximum Available Commitment (the
"Downgrade Drawing") and the proceeds will be
deposited into a cash collateral account (the
"Cash Collateral Account") for the related Class
of Certificates and used for the same purposes
and under the same circumstances and subject to
the same conditions as cash payments of Interest
Drawings under such Liquidity Facility would be
used. In addition, the Intercreditor Agreement
provides for the replacement or extension of
either 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 up to
the then Maximum Available Commitment (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 the
364th day after the Issuance Date, subject to
annual extensions by mutual agreement.
25
<PAGE> 27
Upon receipt by the Subordination Agent of a
Termination Notice with respect to any Liquidity
Facility from the applicable Liquidity Provider
(given as described in "Description of the
Liquidity Facilities -- Liquidity Events of
Default"), the Subordination Agent shall request
a final drawing (the "Final Drawing") under such
Liquidity Facility in an amount equal to the then
Maximum Available Commitment thereunder and shall
hold the proceeds thereof in the Cash Collateral
Account for the related Trust 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. All amounts on
deposit in the Cash Collateral Account for any
Trust that are in excess of the Required Amount
will be paid to the Liquidity Providers.
Continental may, at its option, with or without
cause, arrange for a replacement facility to
replace either Liquidity Facility for any Trust,
subject to certain conditions. 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 with respect to such Liquidity
Facility 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 issued by each Trust will be
entitled to receive and retain the proceeds of
drawings under the Liquidity Facilities for such
Trust. See "Description of the Liquidity
Facilities".
Intercreditor Agreement
(a) Subordination........ The Trustees, the Liquidity Providers and the
Subordination Agent have entered into an
agreement (the "Intercreditor Agreement") which
provides as follows:
(i) All payments made in respect of the Equipment
Notes and certain other payments will be made to
the Subordination Agent, which will distribute
such payments in accordance with the provisions
of paragraphs (ii) and (iii) below.
(ii) On any Regular Distribution Date or Special
Distribution Date (each, a "Distribution Date"),
so long as no Triggering Event shall have
occurred (whether or not continuing), all
payments received by the Subordination Agent in
respect of the Equipment Notes and certain other
payments shall be distributed in the following
order: (1) payment of certain 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; and (5) 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 (excluding interest, if any, payable
with respect to the Deposits relating to such
Trust) and (y) the difference between (A) the
Pool Balance of such Certificates as of the
immediately preceding Distribution Date
26
<PAGE> 28
and (B) the Pool Balance of such Certificates as
of the Current Distribution Date calculated on
the basis that (i) 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 and (ii) the principal of any
Equipment Notes formerly held in such Trust that
have been sold pursuant to the Intercreditor
Agreement has been paid in full and such payments
have been distributed to the holders of such
Certificates, but without giving effect to any
reduction in the Pool Balance as a result of any
distribution attributable to Deposits.
(iii) Upon the occurrence of a Triggering Event and
at all times thereafter, all payments received by
the Subordination Agent in respect of the
Equipment Notes and certain other payments shall
be distributed in the following order: (1) to the
Subordination Agent, the Trustees and certain
other parties in payment of the Administration
Expenses and to the Liquidity Providers in
payment of the Liquidity Obligations; (2) to the
holders of Class A Certificates in payment of
Adjusted Expected Distributions; (3) to the
holders of Class B Certificates in payment of
Adjusted Expected Distributions; and (4) to the
holders of Class C Certificates in payment of
Adjusted Expected Distributions.
"Adjusted Expected Distributions" means, with
respect to the Certificates of any Trust on any
Distribution Date, the sum of (x) accrued and
unpaid interest on such Certificates (excluding
interest, if any, payable with respect to the
Deposits relating to such Trust) and (y) the
greater of:
(A) the difference between (x) the Pool Balance of
such Certificates as of the immediately
preceding Distribution Date and (y) the Pool
Balance of such Certificates as of the Current
Distribution Date calculated on the basis that
(i) the principal of the Equipment Notes other
than Performing Equipment Notes (the
"Non-Performing Equipment Notes") held in such
Trust has been paid in full and such payments
have been distributed to the holders of such
Certificates, (ii) the principal of the
Performing Equipment Notes held in such Trust
has been paid when due (but without giving
effect to any acceleration of Performing
Equipment Notes) and such payments have been
distributed to the holders of such Certificates
and (iii) the principal of any Equipment Notes
formerly held in such Trust that have been sold
pursuant to the Intercreditor Agreement has
been paid in full and such payments have been
distributed to the holders of such
Certificates, but without giving effect to any
reduction in the Pool Balance as a result of
any distribution attributable to Deposits, and
(B) the amount of the excess, if any, of (i) the
Pool Balance of such Class of Certificates as
of the immediately preceding Distribution Date
(less the amount of the Deposits for such Class
of Certificates as of such preceding
Distribution Date other than any portion of
such Deposits thereafter used to acquire
Equipment Notes pursuant to the Note Purchase
Agreement), over (ii) the Aggregate LTV
27
<PAGE> 29
Collateral Amount for such Class of
Certificates for the Current Distribution Date;
provided that, until the date of the initial LTV
Appraisals, clause (B) shall not apply.
For purposes of calculating Expected Distributions
or Adjusted Expected Distributions with respect
to the Certificates of any Trust, any premium
paid on the Equipment Notes held in such Trust
that 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 Adjusted Expected
Distributions.
"Aggregate LTV Collateral Amount" for any Class of
Certificates for any Distribution Date means the
sum of the applicable LTV Collateral Amounts for
each Aircraft, minus the Pool Balance for each
Class of Certificates, if any, senior to such
Class, after giving effect to any distribution on
such Distribution Date of principal of the
Equipment Notes held by the Trust or Trusts of
such senior Class or Classes.
"LTV Collateral Amount" of any Aircraft for any
Class of Certificates means, as of any
Distribution Date, the lesser of (i) the LTV
Ratio for such Class of Certificates multiplied
by the Appraised Current Market Value of such
Aircraft (or with respect to any such Aircraft
which has suffered an Event of Loss under and as
defined in the relevant Lease, in the case of a
Leased Aircraft, or Indenture, in the case of an
Owned Aircraft, the amount of the insurance
proceeds paid to the related Loan Trustee in
respect thereof to the extent then held by such
Loan Trustee in respect thereof) and (ii) the
outstanding principal amount of the Equipment
Notes secured by such Aircraft after giving
effect to any principal payments of such
Equipment Notes on or before such Distribution
Date.
"LTV Ratio" means for the Class A Certificates
40.36%, for the Class B Certificates 54.03% and
for the Class C Certificates 65.19%.
"Appraised Current Market Value" of any Aircraft
means the lower of the average and the median of
the most recent three Appraisals of such
Aircraft. After a Triggering Event occurs and any
Equipment Note becomes a Non-Performing Equipment
Note, the Subordination Agent shall obtain
Appraisals for the Aircraft (the "LTV
Appraisals") as soon as practicable and
additional LTV Appraisals on or prior to each
anniversary of the date of such initial LTV
Appraisals; provided that if the Controlling
Party reasonably objects to the appraised value
of the Aircraft shown in such LTV Appraisals, the
Controlling Party shall have the right to obtain
or cause to be obtained substitute LTV Appraisals
(including LTV Appraisals based upon physical
inspection of the Aircraft).
(b) Deposits............. Payments in respect of the Deposits are not subject
to the subordination provisions of the
Intercreditor Agreement.
(c) Intercreditor
Rights..................... Pursuant to the Intercreditor Agreement, the
Trustees and the Liquidity Providers have agreed
that, with respect to any Indenture at any given
time, the Loan Trustee will be directed (a) in
taking, or refraining
28
<PAGE> 30
from taking, any action thereunder or with
respect to the Equipment Notes issued thereunder
by the holders of at least a majority of the
outstanding principal amount of such Equipment
Notes as long as no Indenture Default has
occurred and is continuing thereunder and (b)
subject to certain conditions, in taking, or
refraining from taking, any action thereunder
(including exercising remedies thereunder, such
as acceleration of such Equipment Notes or
foreclosing the lien on the Aircraft securing
such Equipment Notes) by the Controlling Party
insofar as an Indenture Default thereunder has
occurred and is continuing.
"Controlling Party" with respect to any Indenture
means: (x) the Class A Trustee; (y) upon payment
of Final Distributions to the holders of Class A
Certificates, the Class B Trustee; and (z) upon
payment of Final Distributions to the holders of
Class B Certificates, the Class C-I Trustee and
the Class C-II Trustee, who have agreed to act
together. See "Description of the New
Certificates -- Indenture Defaults and Certain
Rights Upon an Indenture Default" for a
description of the rights of the
Certificateholders of each Trust to direct the
respective Trustees. Notwithstanding the
foregoing, at any time after 18 months from the
earlier to occur of (x) the date on which the
entire available amount under any Liquidity
Facility shall have been drawn (for any reason
other than a Downgrade Drawing or a Non-Extension
Drawing) and remain unreimbursed and (y) the date
on which all Equipment Notes shall have been
accelerated (provided that prior to the Delivery
Period Termination Date the aggregate principal
amount thereof exceeds $280 million), the
Liquidity Providers with at least two-thirds of
unreimbursed Liquidity Obligations shall have the
right to become the Controlling Party with
respect to such Indenture. For purposes of giving
effect to the foregoing, the Trustees (other than
the Controlling Party) have irrevocably agreed
(and the Certificateholders (other than the
Certificateholders represented by the Controlling
Party) shall be deemed to agree by virtue of
their acquisition of Certificates) to exercise
their voting rights as directed by the
Controlling Party. For a description of certain
limitations on the Controlling Party's rights to
exercise remedies, see "Description of the
Equipment Notes -- Remedies".
"Final Distributions" means, with respect to the
Certificates of any Trust on any Distribution
Date, the sum of (x) accrued and unpaid interest
on such Certificates (excluding interest payable
on the Deposits relating to such Trust) and (y)
the Pool Balance of such Certificates as of the
immediately preceding Distribution Date (less the
amount of the Deposits for such Class of
Certificates as of such preceding Distribution
Date other than any portion of such Deposits
thereafter used to acquire Equipment Notes
pursuant to the Note Purchase Agreement).
(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.
29
<PAGE> 31
(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) with respect to any Leased
Aircraft, the amount and payment dates of
rentals payable by Continental under the Lease
for such Leased Aircraft may not be adjusted
if, as a result of such adjustment, the
discounted present value of all such rentals
would be less than 75% of the discounted
present value of the rentals payable by
Continental under such Lease before giving
effect to such adjustment, in each case, using
the weighted average interest rate of the
Equipment Notes issued under such Indenture as
the discount rate.
"Minimum Sale Price" means, with respect to any
Aircraft or the Equipment Notes issued in respect
of such Aircraft, at any time, the lesser of (1)
75% of the Appraised Current Market Value of such
Aircraft and (2) the aggregate outstanding
principal amount of such Equipment Notes, plus
accrued and unpaid interest thereon.
Certificates; Book-Entry
Registration............. The New Certificates of each Trust will be
represented by one or more permanent global
Certificates in definitive, fully registered form
and registered in the name of Cede & Co.
("Cede"), as nominee of The Depository Trust
Company ("DTC"). See "Description of the New
Certificates -- Book Entry; Delivery and Form".
Method of Distribution..... The persons in whose names the Certificates are
registered will be treated as the owners of such
Certificates for the purpose of receiving
payments of principal of and interest on such
Certificates, payments under the Escrow
Agreements in respect of Deposits and for all
other purposes whatsoever. Therefore, none of the
Trustees, Continental, the Loan Trustees, the
Liquidity Providers, the Subordination Agent, the
Escrow Agents, the Paying Agents, the Owner
Participants or the Owner Trustees 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 and by the Paying
Agent 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 Continental expects that
they will be made in accordance with customary
industry practices. The final distribution with
respect to the Certificates of any Trust will be
made only upon surrender and presentation thereof
to the Trustee of such Trust. See "Description of
the New Certificates--Book-Entry; Delivery and
Form".
30
<PAGE> 32
Federal Income Tax
Consequences............. The exchange of New Certificates for Old
Certificates will not be a sale or exchange or
otherwise a taxable event for Federal income tax
purposes.
ERISA Considerations....... In general, employee benefit plans subject to Title
I of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), or Section 4975 of
the Internal Revenue Code of 1986, as amended
(the "Code") (or entities which may be deemed to
hold the assets of any such plan) will be
eligible to purchase the Class A Certificates
subject to the circumstances applicable to such
plans. Plans will not be eligible to purchase
Class B or Class C Certificates, except that such
Certificates may be acquired with the assets of
an insurance company general account that may be
deemed to constitute Plan assets if the
conditions of Prohibited Transaction Class
Exemption ("PTCE") 95-60 are satisfied. Holders
of Class B or Class C Certificates that tender
such Old Certificates in exchange for New
Certificates will be deemed to have represented
and warranted that either (i) no Plan assets have
been used to acquire and hold such Certificate or
(ii) the acquisition and holding of such
Certificate is exempt from the prohibited
transaction restrictions of ERISA and Section
4975 of the Code pursuant to PTCE 95-60. See
"ERISA Considerations". Each Plan fiduciary (and
each fiduciary for a governmental or church plan
subject to rules similar to those imposed on
Plans under ERISA) should consult with its legal
advisor concerning an investment in any of the
Certificates.
<TABLE>
<CAPTION>
STANDARD
MOODY'S & POOR'S
------- --------
<S> <C> <C> <C>
Rating of the Liquidity Providers: Short Term
ABN AMRO.................................. P-1 A-1+
ING....................................... P-1 A-1+
Threshold Rating: Short Term................................ P-1 A-1+
</TABLE>
31
<PAGE> 33
SELECTED FINANCIAL DATA
The following selected consolidated financial data for the years ended
December 31, 1996, 1995 and 1994 is derived from the audited consolidated
financial statements of the Company. The consolidated financial data of the
Company for the three months ended March 31, 1997 and 1996 is 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, 1997 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1997. 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 in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
----------------- -----------------------------
1997 1996 1996 1995 1994
------ ------ ------ ------ -------
(IN MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
FINANCIAL DATA -- OPERATIONS:
Operating Revenue:
Passenger............................. $1,564 $1,375 $5,871 $5,302 $ 5,036
Cargo, mail and other................. 134 114 489 523 634
------ ------ ------ ------ -------
1,698 1,489 6,360 5,825 5,670
------ ------ ------ ------ -------
Operating Expenses:
Wages, salaries and related costs..... 414 364 1,549 1,432(2) 1,532
Aircraft fuel......................... 229 177 774 681 741
Aircraft rentals...................... 131 124 509 497 433
Commissions........................... 138 126 510 489 439
Maintenance, materials and repairs.... 125 112 461 429 495
Other rentals and landing fees........ 97 84 350 356 392
Depreciation and amortization......... 60 65 254 253 258
Fleet disposition charge.............. -- -- 128(1) -- --
Other................................. 358 317 1,300 1,303 1,391
------ ------ ------ ------ -------
1,552 1,369 5,835 5,440 5,681
------ ------ ------ ------ -------
Operating Income (Loss)................. 146 120 525 385 (11)
------ ------ ------ ------ -------
Nonoperating Income (Expense):
Interest expense...................... (42) (47) (165) (213) (241)
Interest capitalized.................. 6 1 5 6 17
Interest income....................... 13 9 43 31 23
Other, net............................ 1 12 20 101(3) (439)(4)
------ ------ ------ ------ -------
(22) (25) (97) (75) (640)
------ ------ ------ ------ -------
Income (Loss) before Income Taxes,
Minority Interest and Extraordinary
Loss.................................. 124 95 428 310 (651)
Net Income (Loss)....................... $ 74 $ 88 $ 319 $ 224 $ (613)
Earnings (Loss) per Common and Common
Equivalent Share(5)................... $ 1.13 $ 1.35 $ 4.87 $ 3.60 $(11.88)
====== ====== ====== ====== =======
Earnings (Loss) per Common Share
Assuming Full Dilution(5)............. $ 0.95 $ 1.18 $ 4.11 $ 3.15 $(11.88)
====== ====== ====== ====== =======
</TABLE>
(See footnotes on the following page.)
32
<PAGE> 34
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------- ------------
(IN MILLIONS OF DOLLARS)
(UNAUDITED)
<S> <C> <C>
FINANCIAL DATA -- BALANCE SHEET:
Assets:
Cash and Cash Equivalents, including
restricted cash and cash equivalents
of $79 and $76, respectively(6)....... $ 927 $1,061
Other Current Assets.................... 647 573
Total Property and Equipment, Net....... 1,754 1,596
Routes, Gates and Slots, Net............ 1,469 1,473
Other Assets, Net....................... 504 503
------- ------
Total Assets.................. $ 5,301 $5,206
======= ======
Liabilities and Stockholders' Equity:
Current Liabilities..................... $ 2,160 $2,104
Long-term Debt and Capital Leases....... 1,557 1,624
Deferred Credits and Other Long-term
Liabilities........................... 620 594
Minority Interest....................... 16 15
Continental-Obligated Mandatorily
Redeemable Preferred Securities of
Subsidiary Trust holding solely
Convertible Subordinated
Debentures(7)......................... 242 242
Redeemable Preferred Stock(8)........... 47 46
Common Stockholders' Equity............. 659 581
------- ------
Total Liabilities and
Stockholders' Equity........ $ 5,301 $5,206
======= ======
</TABLE>
- ---------------
(1) The $128 million fleet disposition charge recorded in 1996 is associated
primarily with the Company's decision to accelerate the replacement of its
DC-9-30, DC-10-10, 727-200, 737-100, and 737-200 aircraft. In connection
with its decision to accelerate the replacement of such aircraft, the
Company wrote down its Stage 2 aircraft inventory, that is not expected to
be consumed through operations, to its estimated fair value and recorded a
provision for costs associated with the return of leased aircraft at the end
of their respective lease terms.
(2) 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.
(3) Includes a pre-tax gain of $108 million ($30 million after tax) on the
series of transactions by which the Company and its subsidiary, Continental
CRS, transferred certain assets and liabilities relating to the computerized
reservation business of such subsidiary to a newly-formed limited liability
company and the remaining assets and liabilities were sold.
(4) Includes a provision of $447 million recorded in 1994 associated with the
planned early retirement of certain aircraft and closed or underutilized
airport and maintenance facilities and other assets.
(5) In February 1997, the Financial Accounting Standard Board issued SFAS 128
which specifies the computation, presentation and disclosure requirements
for EPS. SFAS 128 replaces the presentation of primary and fully diluted EPS
pursuant to Accounting Principles Board ("APB") 15 with the presentation of
basic and diluted EPS. The Company is required to adopt SFAS 128 with its
December 31, 1997 financial statements and restate all prior period EPS
data. The Company will continue to account for EPS pursuant to APB 15 until
that time. Under SFAS 128, the Company's basic EPS for the three months
ended March 31, 1997 and 1996 was $1.28 and $1.60 per share, respectively,
and the Company's diluted EPS for the three months ended March 31, 1997 and
1996 was $0.96 and $1.19 per share, respectively. Under SFAS 128, the
Company's basic EPS for the years ended December 31, 1996, 1995 and 1994 was
$5.75, $4.07 and ($11.88) per share, respectively, and the Company's diluted
EPS for the years ended December 31, 1996, 1995 and 1994 was $4.17, $3.37
and ($11.88) per share, respectively.
(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 to maintain certain minimum
consolidated net worth and liquidity levels and is subject to restrictions
on its ability to pay dividends to Continental, which effectively restrict
the amount of cash available to Continental from CMI.
(7) The sole assets of the Trust are convertible subordinated debentures, with
an aggregate principal amount of $250 million, which bear interest at the
rate of 8 1/2% per annum and mature on December 1, 2020. Upon repayment, the
Continental-Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trust will be mandatorily redeemed.
(8) In April 1997, Continental redeemed for cash all of the outstanding
Redeemable Preferred Stock.
33
<PAGE> 35
RECENT DEVELOPMENTS
The Company recently announced its results of operations for the three and
six months ended June 30, 1997. The Company's preliminary unaudited net income
for the three months ended June 30, 1997 was $128 million as compared to net
income for the three months ended June 30, 1996 of $167 million. For the six
months ended June 30, 1997, the Company reported preliminary unaudited net
income of $202 million as compared to net income for the six months ended June
30, 1996 of $255 million. The Company's net income in the first six months of
1996 included a gain of $18 million on the sale of certain shares of America
West Airlines common stock and warrants.
Preliminary unaudited operating income for the three months ended June 30,
1997 was $231 million on revenues of $1.8 billion, compared to the operating
income for the three months ended June 30, 1996 of $229 million on revenues of
$1.6 billion. For the six months ended June 30, 1997, preliminary unaudited
operating income was $377 million on revenues of $3.5 billion, as compared to
operating income for the six months ended June 30, 1996 of $349 million on
revenues of $3.1 billion.
34
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RISK FACTORS
Holders of Old Certificates should carefully consider the following risk
factors, as well as other information set forth in this Prospectus, before
tendering their Old Certificates in the Exchange Offer. The risk factors set
forth below (other than "-- Risk Factors Relating to the Certificates and the
Offering -- Consequences of Failure to Exchange") are generally applicable to
the Old Certificates as well as the New Certificates.
RISK FACTORS RELATING TO THE COMPANY
Leverage and Liquidity
Continental has successfully negotiated a variety of agreements to increase
its liquidity. 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 and may not have the
flexibility to respond to changing economic conditions or to exploit new
business opportunities.
As of March 31, 1997, Continental had approximately $1.8 billion (including
current maturities) of long-term debt and capital lease obligations and had
approximately $1.0 billion of minority interest, Continental-obligated
mandatorily redeemable preferred securities of subsidiary 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 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").
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 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, 1997, Continental had $848 million of cash and cash
equivalents, (excluding restricted cash and cash equivalents of $79 million).
Continental does not have general lines of credit and has significant encumbered
assets.
For 1997, Continental expects to incur cash expenditures under operating
leases relating to aircraft of approximately $624 million, compared to $568
million for 1996, and approximately $232 million relating to facilities and
other rentals, compared to $210 million in 1996. In addition, Continental has
capital requirements relating to compliance with regulations that are discussed
below. See "-- Risk Factors Relating to the Airline Industry -- Regulatory
Matters".
As of July 1, 1997, the Company had firm commitments with The Boeing
Company ("Boeing") to take delivery of a total of 124 principally narrowbody jet
aircraft during the years 1997 through 2003 with options for an additional 90
aircraft (exercisable subject to certain conditions). These aircraft will
replace older, less efficient Stage 2 aircraft and allow for growth of
operations. In addition, the Company has recently signed a letter of intent with
Boeing to purchase 35 new widebody jet aircraft. This new order consists of five
firm Boeing 777-200 aircraft and 30 firm Boeing 767-400ER aircraft, with options
for additional 777 and 767 aircraft to be negotiated by the parties. The new
widebody aircraft will replace Continental's fleet of DC10-10 and DC10-30
aircraft, which will be retired as the new Boeing aircraft are delivered, and
will also be used to expand the airline's international and transcontinental
service. Ten firm delivery 777 aircraft (including five aircraft the Company
already had on order, the deliveries of which will be accelerated) will be
delivered in September 1998 through May 1999, and the thirty firm delivery 767
aircraft will be delivered starting in mid-2000 through the end of 2004. In
connection with this new order, the Company will obtain the flexibility to
substitute certain aircraft on order with Boeing and will obtain other benefits.
The new order with Boeing is subject to the negotiation and execution of
definitive documentation. It provides that the Company will purchase from Boeing
the carrier's requirements for new jet aircraft (other than regional jets) over
the next
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twenty years, subject to certain conditions; provided, however, Boeing has
agreed with the European Commission not to enforce such provision. The Company
requested a business offer from Boeing which would include the requirements
commitment in order to obtain more favorable terms and flexibility.
The estimated aggregate cost of the Company's firm commitments for the 124
Boeing aircraft previously ordered and the 35 widebody aircraft included in the
recent Boeing letter of intent is approximately $7 billion. The Company has
completed or has third party commitments for a total of approximately $800
million in financing for its future narrowbody Boeing deliveries, and has
commitments or letters of intent from various sources for backstop financing for
approximately one-fourth of the anticipated acquisition cost of its future
narrowbody and widebody Boeing deliveries. The Company currently plans on
financing the new Boeing aircraft with enhanced equipment trust certificates or
similar financing and lease equity, subject to availability and market
conditions. However, further financing will be needed to satisfy the Company's
capital commitments for other aircraft and aircraft-related expenditures such as
engines, spare parts, simulators and related items. There can be no assurance
that sufficient financing will be available for all aircraft and other capital
expenditures not covered by firm financing commitments. Deliveries of new Boeing
aircraft are expected to increase aircraft rental, depreciation and interest
costs while generating cost savings in the areas of maintenance, fuel and pilot
training.
Continental has also entered into agreements or letters of intent with
several outside parties to lease three, and purchase two, DC-10-30 aircraft. The
first of such aircraft was purchased on July 18, 1997, and the Company will take
delivery of the remaining four DC-10-30 aircraft in 1997.
In September 1996, Express placed an order for 25 firm EMB-145 50-seat
regional jets, with options for an additional 175 aircraft. In June 1997,
Express exercised its option to order 25 of such additional aircraft. Express
now has options for an additional 150 regional jets exercisable at the election
of the Company over the next 12 years. Neither Express nor Continental will have
any obligation to take such aircraft that are not financed by a third party and
leased to the Company. Express has taken delivery of nine of the initial 25 firm
aircraft through July 7, 1997 and will take delivery of the remaining 16 initial
firm aircraft through the second quarter of 1998. The Company expects to account
for all of these aircraft as operating leases.
On July 18, 1997, Continental entered into a credit agreement with certain
banks that provides for the establishment of a $575 million credit facility (the
"$575 million Credit Facility"), of which tranches of $275 million and $75
million of principal amount will be term loans and $225 million will be a
revolving credit facility. On July 23, 1997, Continental borrowed the $275
million term loan, the proceeds of which were loaned by Continental to AMI,
reloaned by AMI to CMI and used by CMI to repay its existing secured term loan
described above. The proceeds of the $75 million term loan will be used to
finance the United Micronesia Development Association, Inc. ("UMDA")
transactions described below. The $575 million Credit Facility is secured by
substantially all of CMI's assets (other than aircraft subject to other
financing arrangements) but does not contain any financial covenants relating to
CMI other than covenants restricting CMI's incurrence of certain indebtedness
and pledge of assets. AMI's rights with respect to its loan to CMI and
Continental's rights with respect to its loan to AMI (as well as Continental's
stock in AMI) are pledged as collateral for loans to Continental under the $575
million Credit Facility. In addition, the $575 million Credit Facility contains
certain financial covenants applicable to Continental and will prohibit
Continental from granting a security interest on certain of its international
route authorities.
In late May 1997, the Company entered into a letter of intent with UMDA,
the owner of the 9% minority interest in AMI, to purchase UMDA's rights to
receive future payments under a services agreement between UMDA and CMI
(pursuant to which CMI pays UMDA approximately 1% of the gross revenues of CMI,
as defined, through January 1, 2012, which payment by CMI to UMDA totalled $6
million in 1996) and UMDA's 9% minority interest in AMI, to terminate the
Company's obligations to UMDA under a settlement agreement entered into in 1987,
and to terminate substantially all of the contractual arrangements between the
Company, AMI and CMI, on the one hand, and UMDA on the other hand, for an
aggregate consideration of $73 million in cash payable by the Company.
Consummation of the transactions contemplated by the letter of intent is subject
to the negotiation and execution of definitive agreements and the approval of
the stockholders of UMDA. A meeting of the stockholders of UMDA to consider the
approval of such transactions has been
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called for July 10, 1997. There can be no assurance that the transactions
contemplated by the letter of intent will be consummated.
In June 1997, the Company acquired 10 aircraft previously leased by it. The
debt financing for the acquisition of the six Boeing 737-300 aircraft and the
four McDonnell Douglas MD-82 aircraft was funded by the private placement of
$155 million of pass through certificates. The pass through certificates, which
were issued by separate pass through trusts which acquired equipment trust notes
issued on a recourse basis by Continental, consist of $75 million of 7.148%
Class A certificates, $26 million of 7.149% Class B certificates, $27 million of
7.206% Class C certificates and $27 million of 7.522% Class D certificates. The
transaction is expected to decrease aircraft ownership costs by approximately $3
million annually over the next three years, as compared to the ownership costs
the Company would have incurred had it continued to lease the aircraft. In
addition, aircraft maintenance expense in the second quarter of 1997 will be
reduced by approximately $16 million due to the release of reserves that are no
longer required as a result of the transaction.
In April 1997 Continental entered into a $160 million revolving credit
facility with a group of banks (the "Predelivery Deposit Revolver") to finance
predelivery deposits with respect to the acquisition of new Boeing 737 and 757
aircraft, which is secured by the purchase agreements with respect to such
aircraft, including the Aircraft.
In February 1997, the Company began construction of a new hangar and
improvements to a cargo facility at the Company's hub at Newark International
Airport which is expected to be completed in the fourth quarter of 1997. The
Company expects to finance these projects, which will cost approximately $22
million, with tax-exempt bonds by the New Jersey Economic Development Authority.
In addition, the Company is also planning a facility expansion at Newark which
would require, among other matters, agreements to be reached with the applicable
airport authority.
In March 1997, the Company announced plans to expand its facilities at its
Hopkins International Airport hub in Cleveland. The expansion, which will
include a new jet concourse for the new regional jet service offered by Express,
as well as other facility improvements, is expected to cost approximately $120
million, which the Company expects will be funded principally by the issuance of
a combination of tax-exempt special facilities revenue bonds and general airport
revenue bonds by the City of Cleveland. In connection therewith, the Company
expects to enter into long-term leases under which rental payments will be
sufficient to service the related bonds.
In April 1997, the Company announced plans to build a wide-body aircraft
maintenance hangar in Honolulu, Hawaii at an estimated cost of $24 million.
Construction of the hangar, anticipated to be completed by the second quarter of
1998, is expected to be financed by tax-exempt special facilities revenue bonds
issued by the State of Hawaii. In connection therewith, the Company expects to
enter into long-term leases under which rental payments will be sufficient to
service the related bonds.
In April 1997, the City of Houston (the "City") completed the offering of
$190 million aggregate principal amount of tax-exempt special facilities revenue
bonds (the "IAH Bonds") payable solely from rentals paid by Continental under
long-term lease agreements with the City. The IAH Bonds are unconditionally
guaranteed by the Company. The proceeds from the IAH Bonds will be used to
finance the acquisition, construction and installation of certain terminal and
other airport facilities located at Continental's hub at George Bush
Intercontinental Airport in Houston, including a new automated people mover
system linking Terminals B and C and 20 aircraft gates in Terminal B into which
Continental intends to expand its operations. The expansion project is expected
to be completed by the summer of 1999.
In April 1997, Continental redeemed for cash all of the 460,247 outstanding
shares of its Series A 12% Cumulative Preferred Stock held by an affiliate of
Air Canada, a Canadian corporation, for $100 per share plus accrued dividends
thereon. The redemption price, including accrued dividends, totaled $48 million.
In June 1997, Continental purchased from Air Partners warrants to purchase
3,842,542 shares of Class B common stock of the Company for $94 million in cash.
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Continental's History of Operating Losses
Although Continental recorded net income of $74 million in the first
quarter of 1997, $319 million in 1996 and $224 million in 1995, 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.
Aircraft Fuel
Since fuel costs constitute a significant portion of Continental's
operating costs (approximately 13.3% for the year ended December 31, 1996 and
14.8% for the three months ended March 31, 1997), significant changes in fuel
costs would materially affect the Company's operating results. Jet fuel prices
have increased significantly since December 31, 1995, although such prices have
moderated recently. Fuel prices continue to be susceptible to international
events, and the Company cannot predict near or longer-term fuel prices. The
Company enters into petroleum option contracts to provide some short-term
protection (generally three to 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.
Labor Matters
The Company has recently begun collective bargaining agreement negotiations
with its Continental Airlines and Express pilots whose contracts become
amendable in July 1997 and October 1997, respectively. In addition, the
Company's collective bargaining agreements with its CMI mechanics and
mechanic-related employees became amendable in March 1997. Negotiations are in
progress to amend this contract. The Company believes that mutually acceptable
agreements can be reached with all such employees, although the
ultimate outcome of the negotiations is unknown at this time. The CMI
agent-classification employees' collective bargaining agreement, which became
amendable in March 1997, was ratified and approved in April 1997. The agreement,
which becomes amendable in March 2001, provides for an 8.7% increase in wages
over a four-year period. The CMI flight attendants' contract, which became
amendable in September 1996, was ratified and approved in April 1997 and becomes
amendable in June 2000. The CMI flight attendants' new contract provides for a
19.6% increase in wages in the first year of the contract and 4 to 5% increases
over subsequent years. The Company's mechanics and related employees recently
voted to be represented by the International Brotherhood of Teamsters. The
Company does not believe that this union representation will be material to the
Company.
Certain Tax Matters
The Company's United States federal income tax return for the year ended
December 31, 1996 is expected to reflect net operating loss carryforwards
("NOLs") of $2.3 billion that will expire through 2009 and federal investment
tax credit carry forwards of $45 million that will expire through 2001. For
financial reporting purposes, Continental began accruing tax expense on its
income statement during the second quarter of 1996.
The Company had, as of December 31, 1996, deferred tax assets aggregating
$1.3 billion, including $804 million of NOLs. The Company recorded a valuation
allowance of $694 million against such assets as of December 31, 1996. The
Company has consummated several built-in-gain transactions, which resulted in
the realization of tax benefits related to NOLs and investment tax credit
carryforwards attributable to the Company's predecessor that were previously
recorded. To the extent the Company consummates additional built-in-gain
transactions such benefits will result in a reduction of the valuation allowance
with an offset to reorganizational value in excess of amounts allocable to
identifiable assets and other intangibles to zero, and thereafter as an addition
to paid-in capital.
As a result of NOLs, the Company will not pay United States federal income
taxes (other than alternative minimum tax) until it has recorded approximately
an additional $1.1 billion of taxable income following December 31, 1996.
Section 382 of the Internal Revenue Code ("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
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a corporation by more than 50 percentage points over a three-year period. In the
event that an ownership change should occur, utilization of Continental's NOLs
would be subject to an annual limitation under Section 382 determined by
multiplying the value of the Company's stock at the time of the ownership change
by the applicable long-term tax-exempt rate (which is 5.64% for July 1997).
Unused annual limitation may be carried over to later years, and the amount of
the limitation may under certain circumstances be increased by the built-in
gains in assets held by the Company at the time of the change that are
recognized in the five-year period after the change. Under current conditions,
if an ownership change were to occur, Continental's annual NOL utilization would
be limited to approximately $117 million per year.
Continental Micronesia
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 1994 and 1995 increased CMI's profitability while a decline of the
yen against the dollar in 1996 reduced CMI's profitability. As a result of the
recent weakness of the yen against the dollar and increased fuel costs, CMI's
operating earnings declined during the past three quarters as compared to
similar periods a year ago, and are not expected to improve materially absent a
stronger yen or reduced fuel costs.
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. Such options historically have not had a
material effect on the Company's results of operations or financial condition.
Any significant and sustained decrease in traffic or yields (including due to
the value of the yen) to and from Japan could materially adversely affect
Continental's consolidated profitability.
Principal Stockholder
On November 21, 1996, Air Partners, L.P., a Texas limited partnership and
major stockholder of the Company ("Air Partners"), exercised its right to sell
to the Company, and the Company subsequently purchased, for $50 million,
warrants to purchase 2,614,379 shares of Class B common stock (representing a
portion of the total warrants held by Air Partners) pursuant to an agreement
entered into earlier in 1996 with the Company. Also on June 2, 1997, Continental
purchased from Air Partners warrants to purchase 3,842,542 shares of Class B
common stock of the Company for $94 million. As of June 3, 1997, Air Partners
held approximately 9.4% of the common equity interest and 40.5% of the general
voting power of the Company. If all the remaining warrants held by Air Partners
had been exercised on June 3, 1997, approximately 14.5% of the common equity
interest and 51.7% of the general voting power of the Company would have been
held by Air Partners. Various provisions in the Company's Certificate of
Incorporation and 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 the control of the
Company.
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 (and in certain cases, lower cost structures), as well as smaller
carriers with low 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 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, fuel costs have also increased significantly. In addition, significant
industry-wide discounts could be reimplemented at any time, and the introduction
of broadly
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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.
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,
security measures, 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, DOT regulations and judicial decisions.
Management believes that the Company benefited significantly from the
expiration of the aviation trust fund tax (the "ticket tax") on December 31,
1995. The ticket tax was reinstated on August 27, 1996, expired on December 31,
1996 and was reinstated again on March 7, 1997. Congress is currently
considering proposals for significant revisions to the ticket tax, including the
imposition of taxes on components of air travel not previously taxed. The
ultimate outcome or effect of any such tax proposals cannot be determined by the
Company at this time.
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 proposed or enacted in the future will not adversely affect the
Company.
Seasonal Nature of Airline Business
Due to the greater demand for air travel during the summer months, revenue
in the airline industry in the third quarter of the year is generally
significantly greater than revenue in the first quarter of the year and
moderately greater than revenue in the second and fourth quarters of the year
for the majority of air carriers. Continental's results of operations generally
reflect this seasonality, but have also been impacted by numerous other factors
that are not necessarily seasonal, including the extent and nature of
competition from other airlines, fare wars, excise and similar taxes, changing
levels of operations, fuel prices, foreign currency exchange rates and general
economic conditions.
RISK FACTORS RELATING TO THE CERTIFICATES AND THE OFFERING
Consequences of Failure to Exchange
Holders of Old Certificates who do not exchange their Old Certificates for
New Certificates pursuant to the Exchange Offer will continue to be subject to
the restrictions on transfer of such Old Certificates as set forth in the legend
thereon as a consequence of the issuance of the Old Certificates pursuant to
exemptions
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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, and such appraisals are based on varying
assumptions and methodologies which differ among the Appraisers. The Appraisers
have delivered letters summarizing their respective reports, copies of which are
annexed to this Prospectus as Appendix II. See "Description of the Aircraft and
the Appraisals -- The Appraisals". The appraised value of each Aircraft, and
accordingly the initial aggregate Aircraft value as referred to herein, is based
upon the lesser of the average and median value of such Aircraft as appraised by
the Appraisers and projected as of the scheduled delivery month of such
Aircraft. Such aggregate appraised values also assume depreciation of
approximately 2% of the initial appraised value for Aircraft delivered more than
one year prior to the scheduled Delivery Period Termination Date (although no
assurance can be given as to the actual market value rate of depreciation, which
may differ from 2% during such period). Appraisals that are based on different
assumptions and methodologies may result in valuations that are materially
different from those contained in the appraisals of the Appraisers. An appraisal
is only an estimate of value, is not indicative of the price at which an
Aircraft may be purchased from the manufacturer and should not in any event 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. In particular, the
appraisals are estimates of values as of future delivery dates. 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 supply of aircraft, 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.
The aggregate appraised value of the Aircraft, determined as of April 1,
1998, is $1,081,740,200, based upon the lesser of the average and median values
of each Aircraft as appraised by the Appraisers and assuming that all Aircraft
are delivered prior to such date and that the Aircraft delivered before April 1,
1997 depreciates at 2% of its initial appraised value for such year, although
actual depreciation may differ.
Priority of Distributions; Subordination
Certain provisions of the Intercreditor Agreement, which provides for the
subordination of the Class B Certificates to the Class A Certificates and the
subordination of the Class C Certificates to the Class B Certificates, may
result in the holders of subordinated Classes of Certificates receiving less
than the full amount due to them after the occurrence of a Triggering Event even
if all of the Equipment Notes are paid in full.
Pursuant to the Intercreditor Agreement to which the Trustees, the
Subordination Agent and the Liquidity Providers are parties, on each
Distribution Date, so long as no Triggering Event shall have occurred, all
payments in respect of Equipment Notes received by the Subordination Agent will
be distributed in the following order: (1) payment of certain 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; and (5) payment of certain fees and
expenses of the Subordination Agent and the Trustees.
In addition, upon the occurrence of a Triggering Event and at all times
thereafter, all payments received by the Subordination Agent in respect of the
Equipment Notes and certain other payments will be distributed
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under the Intercreditor Agreement in the following order: (1) to the
Subordination Agent, the Trustee and certain other parties in payment of the
Administration Expenses and to the Liquidity Providers in payment of the
Liquidity Obligations; (2) to the holders of Class A Certificates in payment of
Adjusted Expected Distributions; (3) to the holders of Class B Certificates in
payment of Adjusted Expected Distributions; and (4) to the holders of Class C
Certificates in payment of Adjusted Expected Distributions.
Accordingly, the priority of distributions after a payment default under
any Equipment Note will have the effect in certain circumstances of requiring
the distribution to more senior Classes of Certificates of payments received in
respect of one or more junior series of Equipment Notes. If this should occur,
the interest accruing on the remaining Equipment Notes would in the aggregate be
less than the interest accruing on the remaining Certificates because such
Certificates include a relatively greater proportion of junior Classes with
relatively higher interest rates. As a result of this possible interest
shortfall, the holders of one or more junior Classes of Certificates may not
receive the full amount due them after a payment default under any Equipment
Note even if all Equipment Notes are eventually paid in full.
Payments in respect of the Deposits are not subject to the subordination
provisions of the Intercreditor Agreement.
Control over Collateral; Sale of Collateral
Pursuant to the Intercreditor Agreement, the Trustees and the Liquidity
Providers have agreed that, with respect to any Indenture at any given time, the
Loan Trustee will be directed (a) in taking, or refraining from taking, any
action thereunder by the holders of at least a majority of the outstanding
principal amount of the Equipment Notes issued thereunder as long as no
Indenture Default has occurred and is continuing thereunder and (b) subject to
certain conditions, in exercising remedies thereunder (including acceleration of
such Equipment Notes or foreclosing the lien on the Aircraft securing such
Equipment Notes) insofar as an Indenture Default has occurred and is continuing
by the Controlling Party. See "Description of the New Certificates -- Indenture
Defaults and Certain Rights Upon an Indenture Default" for a description of the
rights of the Certificateholders of each Trust to direct the respective
Trustees. Notwithstanding the foregoing, at any time after 18 months from the
earlier to occur of (x) the date on which the entire available amount under any
Liquidity Facility shall have been drawn (for any reason other than a Downgrade
Drawing or a Non-Extension Drawing) and remain unreimbursed and (y) the date on
which all Equipment Notes shall have been accelerated (provided that prior to
the Delivery Period Termination Date the aggregate principal amount thereof
exceeds $280 million), the Liquidity Providers with at least two-thirds of the
unreimbursed Liquidity Obligations shall have the right to elect to become the
Controlling Party with respect to such Indenture. For purposes of giving effect
to the foregoing, the Trustees (other than the Controlling Party) shall
irrevocably agree, and the Certificateholders (other than the Certificateholders
represented by the Controlling Party) shall be deemed to agree by virtue of
their purchase of Certificates, to exercise their voting rights as directed by
the Controlling Party. For a description of certain limitations on the
Controlling Party's rights to exercise remedies, see "Description of the
Equipment Notes -- Remedies".
Upon the occurrence and during the continuation of any Indenture Default
under any Indenture, the Controlling Party may accelerate and, subject to the
provisions described in the last sentence of this paragraph, sell all (but not
less than all) of the Equipment Notes issued under such Indenture to any person.
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 the Controlling Party sells any such Equipment
Notes for less than their outstanding principal amount, certain
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. So long as any
Certificates are outstanding, during nine months after the earlier of (x) the
acceleration of the Equipment Notes under any Indenture and (y) the bankruptcy
or insolvency of Continental, without the consent of each Trustee, (a) no
Aircraft subject to the lien of such Indenture or such Equipment Notes may be
sold, if the net proceeds from such sale would be less than the Minimum Sale
Price for such Aircraft or such Equipment Notes, and (b) with respect to any
Leased Aircraft, the amount and payment dates of rentals payable by Continental
under the Lease for such Leased Aircraft may not be adjusted, if, as a result of
such adjustment, the
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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 Equipment Notes are not cross-collateralized and, consequently,
proceeds from the sale of an Aircraft in excess of the amounts due on Equipment
Notes related to such Aircraft will not be available to cover losses, if any, on
any other Equipment Notes.
Owner Participant; Revisions to Agreements
Continental has obtained commitments of certain companies to act as the
Owner Participant with respect to the leveraged leases for all of the Aircraft
and, in certain cases, is seeking alternative commitments on more favorable
terms. The existing commitments are subject to satisfaction of certain
conditions with respect to each Aircraft and, in certain cases, Continental may
elect to terminate such commitments with respect to certain Aircraft.
Accordingly, Continental may select one or more other Owner Participants for
some or all of such Aircraft or finance such Aircraft as Owned Aircraft rather
than Leased Aircraft. Such Owner Participants may request revisions to the forms
of the Participation Agreement, the Lease and the Leased Aircraft Indenture that
are contemplated by the Note Purchase Agreement, so that the terms of such
agreements applicable to any particular Leased Aircraft may differ from the
description of such agreements contained in this Prospectus. However, under the
Note Purchase Agreement, the terms of such agreements are required to (i)
contain the Mandatory Document Terms and (ii) not vary the Mandatory Economic
Terms. In addition, Continental is obligated (i) to certify to the Trustee that
any such modifications do not materially and adversely affect the
Certificateholders and (ii) to obtain written confirmation from each Rating
Agency that the use of versions of such agreements modified in any material
respect will not result in a withdrawal, suspension or downgrading of the rating
of any Class of Certificates. See "Description of the New
Certificates -- Obligation to Purchase Equipment Notes".
Each Owner Participant will have the right to sell, assign or otherwise
transfer its interests as Owner Participant in any of such leveraged leases,
subject to the terms and conditions of the relevant Participation Agreement and
related documents.
Unused Deposits
The Trustees' obligations to purchase the Equipment Notes issued with
respect to each Aircraft are subject to satisfaction of certain conditions at
the time of delivery, as set forth in the Note Purchase Agreement. See
"Description of the New Certificates -- Obligation to Purchase Equipment Notes".
Since the Aircraft are scheduled for delivery from time to time during the
Delivery Period, no assurance can be given that all such conditions will be
satisfied at the time of delivery for each Aircraft. Moreover, since the
Aircraft will be newly manufactured, their delivery as scheduled is subject to
delays in the manufacturing process and to the manufacturer's right to postpone
deliveries under its agreement with Continental. See "Description of the
Aircraft and Appraisals -- Deliveries of Aircraft". Depending on the
circumstances of the financing of each Aircraft, the maximum aggregate principal
amount of Equipment Notes may not be issued. In addition, Continental's
obligations to Boeing relating to the ordered aircraft and under the Predelivery
Deposit Revolver are secured by Continental's purchase agreement with Boeing
relating to the Aircraft. Accordingly, if Continental should breach its
obligations secured thereby, the secured parties could exercise remedies and
prevent delivery of Aircraft to Continental. If any funds remain as Deposits
with respect to any Trust at the Delivery Period Termination Date, they will be
withdrawn by the Escrow Agent and distributed, with accrued and unpaid interest
thereon, plus a premium payable by Continental (i) in the case of the holders of
the Certificates issued by the Class A Trust, the Class B Trust and the Class
C-I Trust, equal to the Deposit Make-Whole Premium with respect to the aggregate
amount of funds so distributed (excluding accrued interest) and (ii) in the case
of the holders of the Certificates issued by the Class C-II Trust, equal to the
Class C-II Premium with respect to such aggregate amount, to the
Certificateholders of such Trust. See "Description of the Deposit
Agreements -- Unused Deposits".
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Special Distributions to Class C-II Certificateholders
The Deposits relating to the Class C-I Trust will be utilized to purchase
Series C Equipment Notes prior to the utilization of Deposits relating to Class
C-II Trust. If any funds remain as Deposits with respect to any Trust at the
Delivery Period Termination Date, they will be withdrawn by the Escrow Agent and
distributed, together with accrued and unpaid interest thereon and a premium, to
the Certificateholders of such Trust. See "--Unused Deposits". As a result,
there is a greater likelihood that a special distribution that will reduce the
Pool Balance of the Class C-II Certificates will be required than with respect
to the other Certificates. In addition, to the extent that the Class C-II Trust
acquires Series C Equipment Notes, such Equipment Notes will relate to fewer
Aircraft than the Equipment Notes held by the other Trusts. Accordingly, if
Continental exercises its rights under a Lease or Owned Aircraft Indenture to
cause the Series C Equipment Notes held by the Class C-II Trust to be redeemed,
such as upon termination of the Lease for obsolescence, refunding of such
Equipment Notes or payment of stipulated loss value upon the occurrence of an
event of loss with respect to the Aircraft that secures such Equipment Notes,
the resulting special distribution with respect to the Class C-II Certificates
will reduce the Pool Balance of the Class C-II Trust by a greater percentage
than the reduction that would be applicable to the other Trusts had such an
event occurred with respect to the same number of Aircraft securing Equipment
Notes held by the other Trusts. See "Description of the Equipment
Notes -- Redemption".
Withholding Tax on Foreign Investors
Because of the possibility that the Original Trusts may be treated for
United States federal income tax purposes as partnerships engaged in U.S. trades
or businesses, tax will be withheld from distributions with respect to the
Original Trusts and the Deposits to foreign persons who are beneficial owners of
Certificates. Each foreign investor, by accepting an interest in a Certificate,
will agree to indemnify the Original Trustee, the Original Trust, and the Paying
Agent against any liability for improper failure to withhold tax. Although
foreign investors can file United States federal income tax returns seeking
refunds of any withheld taxes, there is no assurance that such refund claims
will be successful. Even if such refund claims are successful, the refund
process will result in a delay in the receipt of cash by foreign investors.
Absence of an Established Market
Prior to the Exchange Offer, there has been no public market for the
Certificates and neither Continental nor any Trust intends to apply for listing
of the Certificates on any national securities exchange or otherwise. Certain of
the Initial Purchasers have previously made a market in the Old Certificates and
Continental has been advised by the Initial Purchasers that all of them
presently intend to make a market in the New Certificates, as permitted by
applicable laws and regulations, after consummation of the Exchange Offer. None
of the Initial Purchasers is obligated, however, to make a market in the Old
Certificates or the New Certificates, and any such market making activity may be
discontinued at any time without notice at the sole discretion of each Initial
Purchaser. There can be no assurance as to the liquidity of the public market
for the 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 price and liquidity of the Certificates may be adversely affected.
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 issued by each Trust were deposited with the Depositary
on behalf of the Escrow Agent for the benefit of the Certificateholders of such
Trust. Such proceeds will be used to purchase Equipment Notes during the
Delivery Period issued, at Continental's election, either (i) by the Owner
Trustees to finance the purchase of the Leased Aircraft or (ii) by Continental
to finance the purchase of the Owned Aircraft. Prior to the date of this
Prospectus, two Boeing 757-224 Aircraft have been delivered, and funds were
withdrawn from the Deposits to purchase Equipment Notes in respect of such
Aircraft in the aggregate principal amount of $74.4 million.
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<PAGE> 46
RATIOS OF EARNINGS TO FIXED CHARGES
The following information for the year ended December 31, 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 years ended December 31, 1994, 1995 and 1996 and for
the three months ended March 31, 1996 and 1997 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 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").
For the year ended December 31, 1992, for the periods January 1, 1993
through April 27, 1993 and April 28, 1993 through December 31, 1993 and for the
year ended December 31, 1994, earnings were not sufficient to cover fixed
charges. Additional earnings of $131 million, $979 million, $60 million and $667
million would have been required to achieve ratios of earnings to fixed charges
of 1.0. The ratio of earnings to fixed charges for the years ended December 31,
1995 and December 31, 1996 was 1.53 and 1.81, respectively. The ratio of
earnings to fixed charges for the three months ended March 31, 1996 and March
31, 1997 was 1.70 and 1.88, respectively. 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.
THE EXCHANGE OFFER
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and reference is made to the
provisions of the Registration Rights Agreement, which has been filed as an
exhibit to the Registration Statement and a copy of which is available as set
forth under the heading "Available Information".
TERMS OF THE EXCHANGE OFFER
General
In connection with the issuance of the Old Certificates pursuant to a
Purchase Agreement dated as of March 12, 1997, between the Company, the Trusts,
the Depositary and the Initial Purchasers, the Initial Purchasers and their
respective assignees became entitled to the benefits of the Registration Rights
Agreement.
Under the Registration Rights Agreement, the Company is obligated to use
its best efforts to (i) file the Registration Statement of which this Prospectus
is a part for a registered exchange offer with respect to an issue of new
certificates identical in all material respects to the Old Certificates within
120 days after March 21, 1997, the Issuance Date, (ii) cause the Registration
Statement to become effective under the Securities Act within 180 days after the
Issuance Date, (iii) cause the Registration Statement to remain effective until
the closing of the Exchange Offer and (iv) consummate the Exchange Offer within
210 calendar days after the Issuance Date. The Company will keep the Exchange
Offer open for a period of not less than 30 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 face
amount of outstanding Old Certificates accepted in the Exchange Offer. Old
Certificates may be tendered only in integral multiples of $1,000. This
Prospectus, together with the Letter of Transmittal, is being sent to all
registered holders as of July 28, 1997. The Exchange Offer is not conditioned
upon any minimum principal amount of Old Certificates being tendered for
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<PAGE> 47
exchange. However, the obligation to accept Old Certificates for exchange
pursuant to the Exchange Offer is subject to certain conditions as set forth
herein under "-- Conditions".
Old Certificates shall be deemed to have been accepted as validly tendered
when, as and if the Trustee has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Old Certificates for the purposes of receiving the New Certificates and
delivering New Certificates to such holders.
Based on interpretations by the staff of the Commission, as set forth in
no-action letters issued to third parties, including the Exchange Offer
No-Action Letters (as defined on page 3 of this Prospectus), the Company
believes that the New Certificates issued pursuant to the Exchange Offer in
exchange for Old Certificates may be offered for resale, resold or otherwise
transferred by holders thereof (other than a broker-dealer who acquired such Old
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 participate in a
distribution of such New Certificates. By tendering the Old Certificates in
exchange for New Certificates, each holder, other than a broker-dealer, will
represent to the Company that: (i) it is not an affiliate of the Company (as
defined under Rule 405 of the Securities Act) nor a broker-dealer tendering Old
Certificates acquired directly from the Company for its own account; (ii) any
New Certificates to be received by it will be acquired in the ordinary course of
its business; and (iii) it is not engaged in, and does not intend to engage in,
a distribution of such New Certificates and has no arrangement or understanding
to participate in a distribution of the New Certificates. If a holder of Old
Certificates is engaged in or intends to engage in a distribution of the New
Certificates or has any arrangement or understanding with respect to the
distribution of the New Certificates to be acquired pursuant to the Exchange
Offer, such holder may not rely on the applicable interpretations of the staff
of the Commission and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any secondary resale
transaction. Each Participating Broker-Dealer that receives New Certificates for
its own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such New Certificates. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a Participating Broker-Dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with resales of New Certificates
received in exchange for Old Certificates where such Old Certificates were
acquired by such Participating Broker-Dealer as a result of market-making
activities or other trading activities. The Company has agreed that, starting on
the Expiration Date and ending on the close of business 180 days after the
Expiration Date, it will make this Prospectus available to any Participating
Broker-Dealer for use in connection with any such resale. See "Plan of
Distribution."
In the event that any changes in law or the applicable interpretations of
the staff of the Commission do not permit Continental to effect the Exchange
Offer, if the Registration Statement is not declared effective within 180
calendar days after the Issuance Date under certain circumstances or the
Exchange Offer is not consummated within 210 days after the Issuance Date under
certain other circumstances, at the request of a holder not eligible to
participate in the Exchange Offer or under certain other circumstances described
in the Registration Rights Agreement, Continental will, in lieu of effecting the
registration of the New Certificates pursuant to the Registration Statement and
at no cost to the holders of Old Certificates, (a) as promptly as practicable
file with the Commission a shelf registration statement (the "Shelf Registration
Statement") covering resales of the Old Certificates, (b) use its best efforts
to cause the Shelf Registration Statement to be declared effective under the
Securities Act by the 180th calendar day after the Issuance Date and (c) use its
best efforts to keep effective the Shelf Registration Statement for a period of
two years after its effective date (or for such shorter period as shall end when
all of the Old Certificates covered by the Shelf Registration
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<PAGE> 48
Statement have been sold pursuant thereto or may be freely sold pursuant to Rule
144 under the Securities Act).
In the event that neither the consummation of the Exchange Offer nor the
declaration by the Commission of the Shelf Registration Statement to be
effective (each a "Registration Event") occurs on or prior to the 210th calendar
day following the Issuance Date, the interest rate per annum borne by the
Equipment Notes and Deposits shall be increased by 0.50% from and including such
210th day to but excluding the earlier of (i) the date on which a Registration
Event occurs and (ii) the date on which all of the Certificates otherwise become
transferable by Certificateholders (other than affiliates or former affiliates
of Continental) without further registration under the Securities Act. In the
event that the Shelf Registration Statement ceases to be effective at any time
during the period specified by the Registration Rights Agreement for more than
60 days, whether or not consecutive, during any 12-month period, the interest
rate per annum borne by the Equipment Notes and the Deposits 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 (or, if earlier, the end of such
period specified by the Registration Rights Agreement).
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 27, 1997 (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 October 17, 1997, the interest rate borne by the Equipment
Notes and Deposits 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.
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INTEREST ON THE NEW CERTIFICATES
The New Certificates will accrue interest at the applicable per annum rate
for such Trust set forth on the cover page of this Prospectus, from the Issuance
Date. Interest on the New Certificates is payable on April 1 and October 1 of
each year commencing upon the consummation of the Exchange Offer, subject to the
terms of the Intercreditor Agreement.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with any other
required documents, to the Exchange Agent prior to 5:00 p.m., New York City
time, on the Expiration Date. In addition, either (i) certificates for such Old
Certificates must be received by the Exchange Agent along with the Letter of
Transmittal, (ii) a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such Old Certificates, if such procedure is available, into
the Exchange Agent's account at The Depository Trust Company (the "Book-Entry
Transfer Facility") pursuant to the procedure for book-entry transfer described
below, must be received by the Exchange Agent prior to the Expiration Date or
(iii) the holder must comply with the guaranteed delivery procedures described
below. THE METHOD OF DELIVERY OF OLD CERTIFICATES, LETTERS OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF 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
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<PAGE> 50
authorizes such person to tender the Old Certificates on behalf of the
registered holder, in each case as the name of the registered holder or holders
appears on the Old Certificates.
If the Letter of Transmittal or any Old Certificates or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority to so act must
be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt) and withdrawal of the tendered Old Certificates will be determined by
the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old
Certificates not properly tendered or any Old Certificates the acceptance of
which 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 Pass Through Trust Agreements, 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 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.
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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 (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
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<PAGE> 52
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:
<TABLE>
<S> <C>
By Mail or 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
</TABLE>
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, electronic mail or in person by officers
and regular employees of the Company.
The Company will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
the Exchange Agent for its reasonable out-of-pocket expenses in connection
therewith. The Company may also pay brokerage houses and other custodians,
nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them
in forwarding copies of the Prospectus and related
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<PAGE> 53
documents to the beneficial owners of the Old Certificates, and in handling or
forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer will be
paid by the Company, including fees and expenses of the Exchange Agent and
Trustee and accounting, legal, printing and related fees and expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Certificates pursuant to the Exchange Offer. If, however, certificates
representing New Certificates or Old Certificates for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be
registered or issued in the name of, any person other than the registered holder
of the Old Certificates tendered, or if tendered Old Certificates are registered
in the name of any person other than the person signing the Letter of
Transmittal, or if a transfer tax is imposed for any reason other than the
exchange of Old Certificates pursuant to the Exchange Offer, then the amount of
any such transfer taxes (whether imposed on the registered holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
DESCRIPTION OF THE NEW CERTIFICATES
The New Certificates will be issued pursuant to four separate Pass Through
Trust Agreements. The following summary describes all material terms of the
Certificates, the Deposits and the Pass Through Trust Agreements. The summary
does not purport to be complete, and reference is made to all of the provisions
of the Pass Through Trust Agreements, the Deposit Agreements, the Escrow
Agreements and the Intercreditor Agreement, which have been filed as exhibits to
the Registration Statement and copies of which are available as set forth under
the heading "Available Information". Except as otherwise indicated, the
following summary relates to each of the Trusts and the Certificates issued by
each Trust. The terms and conditions governing each of the Trusts are
substantially the same, except as described under "-- Subordination" below and
except that the principal amount and scheduled principal repayments of the
Equipment Notes held by each Trust and the interest rate and maturity date of
the Equipment Notes held by each of the Class A Trust, the Class B Trust and the
Class C Trusts will differ. The references to Sections in parentheses in the
following summary are to the relevant Sections of the Pass Through Trust
Agreements unless otherwise indicated.
GENERAL
The New Certificates of each Trust will be issued in fully registered form
only and will be subject to the provisions described below under "-- Book Entry;
Delivery and Form". (Section 3.01) Each New Certificate will represent a
fractional undivided interest in the Trust created by the Pass Through Trust
Agreement pursuant to which such Certificate is issued. (Section 3.01) The Trust
Property of each Trust consists of (i) the rights of such Trust to acquire
Equipment Notes under the Note Purchase Agreement issued, at Continental's
election in connection with the delivery of each Aircraft during the Delivery
Period, either (a) on a nonrecourse basis by an Owner Trustee in each separate
leveraged lease transaction with respect to each Leased Aircraft to finance the
purchase of such Leased Aircraft by the Owner Trustee, in which case the
applicable Leased Aircraft will be leased to Continental, or (b) on a recourse
basis by Continental in connection with each separate secured loan transaction
with respect to each Owned Aircraft, if any, to finance the purchase of such
Owned Aircraft by Continental, (ii) Equipment Notes acquired under the Note
Purchase Agreement (consisting, as of the date of this Prospectus, of $74.4
million principal amount issued with respect to two Boeing 757-224 Aircraft in
leveraged lease transactions), (iii) the rights of such Trust under the
applicable Escrow Agreement (including the right to request the Escrow Agent to
withdraw from the Depositary funds sufficient to enable such Trust to purchase
Equipment Notes on the delivery of each Aircraft during the Delivery Period),
(iv) the rights of such Trust under the Intercreditor Agreement (including all
monies receivable in respect of such rights), (v) all monies receivable under
the Liquidity Facility for such Trust and (vi) funds from time to time deposited
with the Trustee in accounts relating to such Trust. The New Certificates
represent pro rata shares of the Equipment Notes and other property held in
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<PAGE> 54
the related Trust and will be issued only in minimum denominations of $1,000 and
integral multiples thereof. (Section 3.01).
On the Transfer Date, each of the Original Trusts will transfer and assign
all of its assets and rights to a substantially identical Successor Trust, and
the New Trustee will assume the obligations of the related Original Trustee
under each transaction document to which such Original Trustee was a party. Upon
the effectiveness of such transfer, assignment and assumption, each of the
Original Trusts will be liquidated and each of the Certificates will represent
the same interest in the Successor Trust as it represented in the Original Trust
immediately prior to such transfer, assignment and assumption. Unless the
context otherwise requires, all references in this Prospectus to the Trusts, the
Trustees, the Pass Through Trust Agreements and similar terms shall be
applicable to the Original Trusts until the effectiveness of such transfer,
assignment and assumption and thereafter shall be applicable with respect to the
Successor Trusts. See "-- Liquidation of Original Trusts".
The Certificates represent interests in the respective Trusts, and all
payments and distributions thereon will be made only from the Trust Property of
the related Trust. (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.
Pursuant to the Escrow Agreement applicable to each Trust, the
Certificateholders of such Trust as holders of the Escrow Receipts affixed to
each Certificate are entitled to certain rights with respect to the Deposits
relating to such Trust. Accordingly, any transfer of a Certificate will have the
effect of transferring the corresponding rights with respect to the Deposits,
and rights with respect to the Deposits may not be separately transferred by
Certificateholders. Rights with respect to the Deposits and the Escrow Agreement
relating to a Trust, except for the right to request withdrawals for the
purchase of Equipment Notes, do not constitute Trust Property of such Trust.
SUBORDINATION
Pursuant to the Intercreditor Agreement to which the Trustees, the
Subordination Agent and the Liquidity Providers are parties, on each
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 Equipment Notes and certain other payments will be distributed under the
Intercreditor Agreement in the following order: (1) payment of certain 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; and (5) payment of certain fees and
expenses of the Subordination Agent and the Trustees.
In addition, upon the occurrence of a Triggering Event and at all times
thereafter, all payments received by the Subordination Agent in respect of the
Equipment Notes and certain other payments will be distributed under the
Intercreditor Agreement in the following order: (1) to reimburse the
Subordination Agent, the Trustees and certain other parties for the payment of
the Administration Expenses and to the Liquidity Providers in payment of the
Liquidity Obligations; (2) to the holders of Class A Certificates in payment of
Adjusted Expected Distributions; (3) to the holders of Class B Certificates in
payment of Adjusted Expected Distributions; and (4) to the holders of Class C
Certificates in payment of Adjusted Expected Distributions.
The priority of distributions after a Triggering Event will have the effect
in certain circumstances of requiring the distribution to more senior Classes of
Certificates of payments received in respect of one or more junior series of
Equipment Notes. If this should occur, the interest accruing on the remaining
Equipment Notes would in the aggregate be less than the interest accruing on the
remaining Certificates because such Certificates include a relatively greater
proportion of junior Classes with relatively higher interest rates. As a result
of such possible interest shortfalls, the holders of one or more junior Classes
of Certificates may not receive the full amount due them after a Triggering
Event even if all Equipment Notes are eventually paid in full.
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<PAGE> 55
Payments in respect of the Deposits relating to a Trust are not subject to
the subordination provisions of the Intercreditor Agreement.
PAYMENTS AND DISTRIBUTIONS
Payments of interest on the Deposits with respect to each Trust and
payments of principal, premium (if any) and interest on the Equipment Notes or
with respect to other Trust Property held in each Trust will be distributed by
the Paying Agent (in the case of the Deposits) or by the Trustee (in the case of
Trust Property of such Trust) to Certificateholders of such Trust on the date
receipt of such payment is confirmed, except in the case of certain types of
Special Payments.
The Deposits held with respect to each Trust and the Equipment Notes held
in each Trust will accrue interest at the applicable rate per annum for
Certificates to be issued by such Trust set forth on the cover page of this
Prospectus, payable on April 1 and October 1 of each year, commencing on October
1, 1997 (or, in the case of Equipment Notes issued after such date, commencing
with the first such date to occur after initial issuance thereof). Such interest
payments will be distributed to Certificateholders of such Trust on each such
date until the final Distribution Date for such Trust, subject in the case of
payments on the Equipment Notes 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 Deposits and the Equipment Notes are subject to
change under certain circumstances. See "The Exchange Offer -- Terms of the
Exchange Offer -- General". Payments of interest applicable to the Certificates
issued by each of the Trusts are supported by two separate Liquidity Facilities
provided by the Liquidity Providers for the benefit of the holders of such
Certificates in an aggregate amount sufficient to pay interest thereon at the
Stated Interest Rate for such Trust on up to three successive Regular
Distribution Dates (without regard to any future payments of principal on such
Certificates), except that the Liquidity Facilities with respect to such Trust
do not cover interest payable by the Depositary on the Deposits relating to such
Trust. The Liquidity Facilities for any Class of Certificates do 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, notwithstanding the subordination provisions of the
Intercreditor Agreement, principal of or interest or premium on the Certificates
of any other Class. Therefore, only the holders of the Certificates to be issued
by a particular Trust will be entitled to receive and retain the proceeds of
drawings under the Liquidity Facilities for such Trust. See "Description of the
Liquidity Facilities".
Payments of principal of the Equipment Notes held in each Trust are
scheduled to be received by the Trustee on April 1 and October 1 in certain
years depending upon the terms of the Equipment Notes held in such Trust,
commencing April 1, 1998. Scheduled payments of interest on the Deposits and of
interest or principal on the Equipment Notes are herein referred to as
"Scheduled Payments", and April 1 and October 1 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 the
Class A Certificates is October 1, 2016, for the Class B Certificates is October
1, 2014 and for the Class C Certificates is October 1, 2008.
The Paying Agent with respect to each Escrow Agreement will distribute on
each Regular Distribution Date to the Certificateholders of the Trust to which
such Escrow Agreement relates all Scheduled Payments received in respect of the
related Deposits, the receipt of which is confirmed by the Paying Agent on such
Regular Distribution Date. 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 received in respect of
Equipment Notes held on behalf of such Trust, 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 interest on the Deposits relating to such Trust
and, subject to the Intercreditor Agreement, of principal or interest on
Equipment Notes held on behalf of such Trust. Each such distribution of
Scheduled Payments will be made by the applicable Paying Agent or Trustee to the
Certificateholders of record of the relevant Trust on the Record Date applicable
to such Scheduled Payment subject to certain exceptions. (Sections 4.01 and
4.02, and Section 2.03 of the Escrow Agreement) If a Scheduled Payment is not
received by the applicable Paying Agent or Trustee on a Regular
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<PAGE> 56
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 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 scheduled to 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 each Trustee as soon as practicable after the Trustee has
received funds for such Special Payment (each a "Special Distribution Date"),
subject to the Intercreditor Agreement. Any unused Deposits to be distributed
after the Delivery Period Termination Date or the occurrence of a Triggering
Event, together with accrued and unpaid interest thereon and the premium payable
by Continental (each, also a "Special Payment"), will be scheduled to be
distributed on a date 35 days after the Paying Agent has received notice of the
event requiring such distribution (also a "Special Distribution Date") unless
such date is within 10 days before or after a Regular Distribution Date, in
which case such Special Payment shall be made on such Regular Distribution Date.
Each Paying Agent, in the case of the Deposits, and each Trustee, in the case of
Trust Property or the premium payable by Continental in connection with certain
distributions of unused Deposits, will mail a notice to the Certificateholders
of the applicable Trust stating the scheduled Special Distribution Date, the
related Record Date, the amount of the Special Payment and the reason for the
Special Payment. In the case of a redemption or purchase of the Equipment Notes
held in the related Trust or any distribution of unused Deposits after the
Delivery Period Termination Date or the occurrence of a Triggering Event, such
notice will be mailed not less than 20 days prior to the date such Special
Payment is scheduled to be distributed, and in the case of any other Special
Payment, such notice will be mailed as soon as practicable after the Trustee has
confirmed that it has received funds for such Special Payment. (Section 4.02(c)
and Section 2.03 of the Escrow Agreement) Each distribution of a Special
Payment, other than a final distribution, on a Special Distribution Date for any
Trust will be made by the Paying Agent or the Trustee, as applicable, to the
Certificateholders of record of such Trust on the Record Date applicable to such
Special Payment. (Section 4.02(b) and Section 2.03 of the Escrow Agreement) 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 received by such Trustee. Each Pass
Through Trust Agreement also requires that the Trustee establish and maintain,
for the related Trust and for the benefit of the Certificateholders of such
Trust, one or more accounts (the "Special Payments Account") for the deposit of
payments representing Special Payments received by such Trustee, which 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)
Each Escrow Agreement requires that the Paying Agent establish and
maintain, for the benefit of the Receiptholders, one or more accounts (the
"Paying Agent Account"), which shall be non-interest bearing. Pursuant to the
terms of the Escrow Agreement, the Paying Agent is required to deposit interest
on Deposits relating to such Trust and any unused Deposits withdrawn by the
Escrow Agent in the Paying Agent Account. All amounts so deposited will be
distributed by the Paying Agent on a Regular Distribution Date or Special
Distribution Date, as appropriate.
The final distribution for each Trust 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
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<PAGE> 57
"-- Termination of the Trusts" below. Distributions in respect of Certificates
issued in global form will be made as described in "-- Book Entry; Delivery and
Form" below.
If any Regular Distribution Date or Special Distribution Date is a
Saturday, Sunday or other day on which commercial banks are authorized or
required to close in New York, New York, Houston, Texas, Wilmington, Delaware,
or Salt Lake City, Utah (any other day being 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
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 or in respect of Deposits relating to
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 or for the Certificates issued by any Trust as of any
Regular Distribution Date or Special Distribution Date shall be computed after
giving effect to any special distribution with respect to unused Deposits,
payment of principal of the Equipment Notes or payment with respect to other
Trust Property held in such Trust and the distribution thereof to be made on
that date. (Section 1.01)
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 or for
the Certificates issued by any Trust as of any Regular Distribution Date or
Special Distribution Date shall be computed after giving effect to any special
distribution with respect to unused Deposits, payment of principal of the
Equipment Notes or payment with respect to other Trust Property held in such
Trust and the distribution thereof to be made on that date. (Section 1.01) The
Pool Factor for each Trust was 1.0000000 on the Issuance Date, and will decline
as described herein to reflect reductions in the Pool Balance of such Trust. The
amount of a Certificateholder's pro rata share of the Pool Balance of a Trust
can be determined by multiplying the par value of the holder's Certificate of
such Trust by the Pool Factor for such Trust as of the applicable Regular
Distribution Date or Special Distribution Date. Notice of the Pool Factor and
the Pool Balance for each Trust will be mailed to Certificateholders of such
Trust on each Regular Distribution Date and Special Distribution Date. (Section
4.03)
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<PAGE> 58
The Mandatory Economic Terms require that, assuming each Aircraft is
delivered in the month scheduled for its delivery (see "Description of the
Aircraft and the Appraisals -- The Appraisals" for the delivery schedule) and
that Equipment Notes in the maximum principal amount in respect of all of the
Aircraft are purchased by the Trusts, the scheduled aggregate payments of
principal of the Equipment Notes held in each Trust as of each Regular
Distribution Date be as set forth in the applicable column below (the "Assumed
Amortization Schedule"). In addition, assuming that no early redemption or
purchase, or default in the payment of principal, in respect of any Equipment
Notes shall occur, the Pool Factors for each Trust after taking into account
each such Scheduled Payment will be as set forth below:
<TABLE>
<CAPTION>
1997-1C-I
1997-1A TRUST 1997-1B TRUST TRUST
EQUIPMENT 1997-1A EQUIPMENT 1997-1B EQUIPMENT
NOTES TRUST NOTES TRUST NOTES 1997-1C-I
SCHEDULED EXPECTED SCHEDULED EXPECTED SCHEDULED TRUST
PAYMENTS OF POOL PAYMENTS OF POOL PAYMENTS OF EXPECTED
DATE PRINCIPAL FACTOR PRINCIPAL FACTOR PRINCIPAL POOL FACTOR
- ------------------------------ ------------- --------- ------------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
March 21, 1997 $ 0.00 1.0000000 $ 0.00 1.0000000 $ 0.00 1.0000000
October 1, 1997 0.00 1.0000000 0.00 1.0000000 0.00 1.0000000
April 1, 1998 3,934,879.12 0.9910137 1,552,705.03 0.9895323 1,882,103.25 0.9830583
October 1, 1998 1,681,582.29 0.9871734 66,785.83 0.9890821 0.00 0.9830583
April 1, 1999 5,222,970.99 0.9752454 1,129,105.40 0.9814701 1,138,727.15 0.9728081
October 1, 1999 1,785,140.00 0.9711686 304,080.00 0.9794201 229,980.50 0.9707379
April 1, 2000 8,598,044.60 0.9515328 1,752,510.54 0.9676054 5,327,605.14 0.9227817
October 1, 2000 3,208,002.92 0.9442065 304,080.00 0.9655554 12,443.50 0.9226697
April 1, 2001 10,559,336.19 0.9200916 1,934,649.19 0.9525128 11,673,393.02 0.8175920
October 1, 2001 1,785,140.00 0.9160148 609,560.00 0.9484034 4,845,496.82 0.7739754
April 1, 2002 16,672,796.22 0.8779383 2,214,649.16 0.9334732 17,842,891.27 0.6133632
October 1, 2002 2,613,116.99 0.8719706 859,499.57 0.9276788 7,003,522.61 0.5503212
April 1, 2003 7,485,290.53 0.8548760 3,977,291.36 0.9008655 21,300,149.75 0.3585886
October 1, 2003 1,785,140.00 0.8507992 609,560.00 0.8967561 2,640,287.94 0.3348222
April 1, 2004 7,556,409.30 0.8335423 9,438,941.06 0.8331227 18,622,511.38 0.1671922
October 1, 2004 1,785,140.00 0.8294654 609,560.00 0.8290133 4,873 ,236.58 0.1233260
April 1, 2005 4,169,719.26 0.8199428 17,874,572.95 0.7085102 10,440,888.52 0.0293426
October 1, 2005 1,785,140.00 0.8158660 609,560.00 0.7044008 0.00 0.0293426
April 1, 2006 4,081,965.16 0.8065438 12,148,154.28 0.6225030 2,370,247.10 0.0080069
October 1, 2006 6,009,321.43 0.7928200 4,482,202.42 0.5922858 0.00 0.0080069
April 1, 2007 9,892,990.06 0.7702269 16,738,430.54 0.4794422 889,515.48 0.0000000
October 1, 2007 4,397,087.96 0.7601850 3,826,001.10 0.4536489 0.00 0.0000000
April 1, 2008 13,716,127.67 0.7288608 20,295,722.81 0.3168235 0.00 0.0000000
October 1, 2008 3,671,847.23 0.7204752 400,701.24 0.3141221 0.00 0.0000000
April 1, 2009 16,318,218.06 0.6832085 18,630,088.20 0.1885257 0.00 0.0000000
October 1, 2009 2,445,509.15 0.6776235 2,166,372.54 0.1739210 0.00 0.0000000
April 1, 2010 43,451,307.24 0.5783915 9,711,448.30 0.1084504 0.00 0.0000000
October 1, 2010 185,691.30 0.5779675 0.00 0.1084504 0.00 0.0000000
April 1, 2011 37,047,170.31 0.4933609 7,998,172.64 0.0545300 0.00 0.0000000
October 1, 2011 6,646,530.16 0.4781819 0.00 0.0545300 0.00 0.0000000
April 1, 2012 56,076,129.35 0.3501180 7,751,645.54 0.0022716 0.00 0.0000000
October 1, 2012 0.00 0.3501180 323,595.36 0.0000900 0.00 0.0000000
April 1, 2013 77,092,583.73 0.1740577 13,354.94 0.0000000 0.00 0.0000000
October 1, 2013 1,274,987.73 0.1711459 0.00 0.0000000 0.00 0.0000000
April 1, 2014 43,773,295.63 0.0711786 0.00 0.0000000 0.00 0.0000000
October 1, 2014 10,042,845.35 0.0482432 0.00 0.0000000 0.00 0.0000000
April 1, 2015 21,124,544.06 0.0000000 0.00 0.0000000 0.00 0.0000000
<CAPTION>
1997-IC-II
1997-IC-II TRUST
TRUST EQUIPMENT
EQUIPMENT NOTES
NOTES SCHEDULED
SCHEDULED PAYMENTS
PAYMENTS OF OF
DATE PRINCIPAL PRINCIPAL
- ------------------------------ ------------ ---------
<S> <C> <C>
March 21, 1997 $ 0.00 1.0000000
October 1, 1997 0.00 1.0000000
April 1, 1998 169,416.91 0.9830583
October 1, 1998 0.00 0.9830583
April 1, 1999 102,502.15 0.9728081
October 1, 1999 20,701.62 0.9707379
April 1, 2000 479,562.63 0.9227817
October 1, 2000 1,120.10 0.9226697
April 1, 2001 1,050,776.65 0.8175920
October 1, 2001 436,165.81 0.7739754
April 1, 2002 1,606,122.01 0.6133632
October 1, 2002 630,419.79 0.5503212
April 1, 2003 1,917,326.00 0.3585886
October 1, 2003 237,664.65 0.3348222
April 1, 2004 1,676,299.26 0.1671922
October 1, 2004 438,662.79 0.1233260
April 1, 2005 939,833.16 0.0293426
October 1, 2005 0.00 0.0293426
April 1, 2006 213,357.02 0.0080069
October 1, 2006 0.00 0.0080069
April 1, 2007 80,069.44 0.0000000
October 1, 2007 0.00 0.0000000
April 1, 2008 0.00 0.0000000
October 1, 2008 0.00 0.0000000
April 1, 2009 0.00 0.0000000
October 1, 2009 0.00 0.0000000
April 1, 2010 0.00 0.0000000
October 1, 2010 0.00 0.0000000
April 1, 2011 0.00 0.0000000
October 1, 2011 0.00 0.0000000
April 1, 2012 0.00 0.0000000
October 1, 2012 0.00 0.0000000
April 1, 2013 0.00 0.0000000
October 1, 2013 0.00 0.0000000
April 1, 2014 0.00 0.0000000
October 1, 2014 0.00 0.0000000
April 1, 2015 0.00 0.0000000
</TABLE>
The final schedule of principal payments and the resulting schedule of Pool
Balances and Pool Factors may change from that set forth above if, among other
things, the aggregate principal amount of the Equipment Notes acquired by the
Trusts is less than the maximum permitted by the Mandatory Economic Terms,
Equipment Notes with respect to any Aircraft are purchased by the Trusts in
other than the month currently scheduled for delivery of such Aircraft or
Equipment Notes as to which the projected LTVs are lower than other Equipment
Notes are not acquired by the Trusts. In addition, the Pool Factor and Pool
Balance of each Trust will be recomputed if 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", or a special distribution
attributable to unused Deposits after the Delivery Period Termination Date or
the occurrence of a Triggering Event, as described in "Description of the
Deposit
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<PAGE> 59
Agreements". In the event of (i) any such change in the scheduled repayments or
(ii) any such redemption, purchase, default or special distribution, the Pool
Factors and the Pool Balances of each Trust so affected will be recomputed after
giving effect thereto and notice thereof will be mailed to the
Certificateholders of such Trust promptly after the Delivery Period Termination
Date in the case of clause (i) and promptly after the occurrence of any event
described in clause (ii).
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date, the applicable Paying Agent and Trustee will
include with each distribution by it of a Scheduled Payment or Special Payment
to Certificateholders of the related Trust a statement, giving effect to such
distribution to be made on such Distribution Date, setting forth the following
information (per $1,000 aggregate principal amount of Certificate for such
Trust, as to (ii), (iii), (iv) and (v) below):
(i) the aggregate amount of such funds distributed on such
Distribution Date under the Pass Through Trust Agreement and the Escrow
Agreement, indicating the amount allocable to each source;
(ii) the amount of such distribution under the Pass Through Trust
Agreement allocable to principal and the amount allocable to premium
(including any premium paid by Continental with respect to unused
Deposits), if any;
(iii) the amount of such distribution under the Pass Through Trust
Agreement allocable to interest;
(iv) the amount of such distribution under the Escrow Agreement
allocable to interest;
(v) the amount of such distribution under the Escrow Agreement
allocable to unused Deposits (if any); and
(vi) 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
Paying Agent and 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. (Section 4.03(a))
In addition, after the end of each calendar year, the applicable Trustee
and Paying Agent will furnish to 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), (ii), (iii), (iv) and (v) 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(b)) With respect to Certificates
registered in the name of Cede, as nominee for DTC, 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. (Section 4.03(b))
With respect to the Certificates issued in definitive form, the applicable
Paying Agent and Trustee will prepare and deliver the information described
above to each Certificateholder of record of each Trust as the name of such
Certificateholder appears on the records of the registrar of the Certificates.
INDENTURE DEFAULTS AND CERTAIN RIGHTS UPON AN INDENTURE DEFAULT
An event of default under an Indenture (an "Indenture Default") will, with
respect to the Leased Aircraft Indentures, include an event of default under the
related Lease (a "Lease Event of Default"). See "Description of Equipment
Notes-Indenture Default; Notice and Waiver". Since the Equipment Notes issued
under an Indenture may be held in more than one Trust, a continuing Indenture
Default under such Indenture
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<PAGE> 60
would affect the Equipment Notes held by each such Trust. There are no
cross-default provisions in the Indentures or in the Leases (unless, in the case
of a Lease, otherwise agreed between an Owner Participant and Continental).
Consequently, events resulting in an Indenture Default under any particular
Indenture may or may not result in an Indenture Default under any other
Indenture, and a Lease Event of Default under any particular Lease may or may
not constitute a Lease Event of Default under any other Lease. If an Indenture
Default occurs in fewer than all of the Indentures, notwithstanding the
treatment of Equipment Notes issued under any Indenture under which an Indenture
Default has occurred, payments of principal and interest on the Equipment Notes
issued pursuant to Indentures with respect to which an Indenture Default has not
occurred will continue to be distributed to the holders of the Certificates as
originally scheduled, subject to the Intercreditor Agreement. See "Description
of the Intercreditor Agreement -- Priority of Distributions".
With respect to each Leased Aircraft, the applicable Owner Trustee and
Owner Participant will, under the related Leased Aircraft Indenture, have the
right under certain circumstances to cure Indenture Defaults 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. Wilmington Trust Company is the initial Trustee under each Trust.
Upon the occurrence and continuation of any Indenture Default under any
Indenture, the Controlling Party will direct the Indenture Trustee under such
Indenture in the exercise of remedies thereunder and 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. See "Description of Intercreditor
Agreement-Sale of Equipment Notes and Aircraft". The proceeds of such sale will
be distributed pursuant to the provisions of the Intercreditor Agreement. Any
such proceeds so distributed to any 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 any such Equipment Notes are sold for
less than their outstanding principal amount, certain Certificateholders will
receive a smaller amount of principal distributions than anticipated and will
not have any claim for the shortfall against Continental, any Liquidity
Provider, any Owner Trustee, any Owner Participant or any Trustee.
Any amount, other than Scheduled Payments received on a Regular
Distribution Date, distributed to the Trustee of any Trust by the Subordination
Agent on account of any Equipment Note or Trust Indenture Estate (as defined in
each Indenture) held in such Trust following an Indenture Default under any
Indenture will be deposited in the Special Payments Account for such Trust and
will be distributed to the Certificateholders of such Trust on a Special
Distribution Date. (Sections 4.01 and 4.02) In addition, if, following an
Indenture Default under any Leased Aircraft Indenture relating to a Leased
Aircraft, the applicable Owner Participant or Owner Trustee exercises its option
to redeem or purchase the outstanding Equipment Notes issued under such Leased
Aircraft Indenture, the price paid by such Owner Participant or Owner Trustee
for the Equipment Notes issued under such Leased Aircraft Indenture and
distributed to such Trust by the Subordination Agent will be deposited in the
Special Payments Account for such Trust and will be distributed to the
Certificateholders of such Trust on a Special Distribution Date. (Sections 4.01
and 4.02)
Any funds representing payments received with respect to any defaulted
Equipment Notes, or the proceeds from the sale of any Equipment Notes, held by
the Trustee in the Special Payments Account for such Trust will, to the extent
practicable, be invested and reinvested by such Trustee in certain permitted
investments pending the distribution of such funds on a Special Distribution
Date. (Section 4.04) Such permitted investments are defined as obligations of
the United States or agencies or instrumentalities thereof for the payment of
which the full faith and credit of the United States is pledged and which mature
in not
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<PAGE> 61
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 will, within 90 days after the occurrence of any 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 a payment of principal, premium, if any, or interest
on any of the Equipment Notes held in such Trust, the applicable Trustee will 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) The term "default" as used in this paragraph only with respect to
any Trust means the occurrence of an Indenture Default under any Indenture
pursuant to which Equipment Notes held by such Trust were issued, as described
above, except that in determining whether any such Indenture Default has
occurred, any grace period or notice in connection therewith will be
disregarded.
Each Pass Through Trust Agreement contains a provision entitling the
Trustee of the related Trust, subject to the duty of such Trustee during a
default to act with the required standard of care, to be offered reasonable
security or indemnity by the holders of the Certificates of such Trust before
proceeding to exercise any right or power under such Pass Through Trust
Agreement at the request of such Certificateholders. (Section 7.03(e))
Subject to certain qualifications set forth in the Pass Through Trust
Agreements and to the Intercreditor Agreement, the Certificateholders of each
Trust holding Certificates evidencing fractional undivided interests aggregating
not less than a majority in interest in such Trust shall have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee with respect to such Trust or pursuant to the terms of
the Intercreditor Agreement, or exercising any trust or power conferred on such
Trustee under such Pass Through Trust Agreement or the Intercreditor Agreement,
including any right of such Trustee as Controlling Party under the Intercreditor
Agreement or as holder of the Equipment Note. (Section 6.04)
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 Indenture Default under any Indenture pursuant to which Equipment
Notes held by such Trust were issued 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 and thereby annul any direction
given by such holders or Trustee 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 and
(iii) a default in respect of any covenant or provision of the related Pass
Through Trust Agreement that cannot be modified or amended without the consent
of each Certificateholder of such Trust affected thereby. (Section 6.05) Each
Indenture provides that, with certain exceptions, the holders of the majority in
aggregate unpaid principal amount of the Equipment Notes issued thereunder may
on behalf of all such holders waive any past default or Indenture Default
thereunder. Notwithstanding such provisions of the Indentures, 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, with
ten days' written notice to the Trustee and each Certificateholder of the same
Class (i) the Class B Certificateholders will have the right to purchase all,
but not less than all, of the Class A Certificates and (ii) the Class C
Certificateholders will have the right to purchase all, but not less than all,
of the Class A Certificates and the Class B 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. In each case, if prior to the end of the ten-day period,
any other Certificateholder of the same Class notifies the purchasing
Certificateholder that the other
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<PAGE> 62
Certificateholder wants to participate in such purchase, then such other
Certificateholder may join with the purchasing Certificateholder to purchase the
Certificates pro rata based on the interest in the Trust held by each
Certificateholder. (Section 6.01(b))
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 Class of Certificates
on any Distribution Date (unless, in the case of the Class A, B, C-I or C-II
Certificates, the Subordination Agent shall have made Interest Drawings, or
drawings on the Cash Collateral Account for such Class of Certificates, with
respect thereto in an aggregate amount sufficient to pay such interest and shall
have distributed such amount to the Trustee entitled thereto). Any failure to
make expected principal distributions on any Class of Certificates on any
Regular Distribution Date (other than the Final Maturity Date) will not
constitute a PTC Event of Default with respect to such Certificates. A PTC Event
of Default with respect to the most senior outstanding 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 Title 49
of the United States Code, as amended, relating to aviation (the "Transportation
Code"), (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 Note Purchase Agreement, the Indentures, the Participation
Agreements and the Leases; and (ii) Continental shall have delivered a
certificate and an opinion or opinions of counsel indicating that such
transaction complies with such conditions. (Section 5.02) Additionally, after
giving effect to such transaction, no Lease Event of Default, in the case of a
Leased Aircraft, or Indenture Event of Default, in the case of an Owned
Aircraft, shall have occurred and be continuing. (Leases, Section 13.02; Owned
Aircraft Indenture, Section 4.09)
The Pass Through Trust Agreements, the Note Purchase Agreement, the
Indentures, the Participation Agreements and the Leases 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, at the
request of the Company, the execution of amendments or supplements to such Pass
Through Trust Agreement or, if applicable, to the Deposit Agreements, the Escrow
Agreements, the Intercreditor Agreement, the Note Purchase Agreement, the
Registration Rights Agreement or any Liquidity Facility, 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, the Note Purchase Agreement, the Registration Rights Agreement or any
Liquidity Facility, (ii) to add to the covenants of Continental for the benefit
of holders of such Certificates or to surrender any right or power conferred
upon Continental in such Pass Through Trust Agreement, the Note Purchase
Agreement, the Registration Rights Agreement or any Liquidity Facility, (iii) to
correct or supplement any provision of such Pass Through Trust Agreement, the
Deposit Agreements, the Escrow Agreements, the Intercreditor Agreement, the Note
Purchase Agreement, the Registration Rights Agreement or any Liquidity Facility
which may be defective or inconsistent with any other provision in such Pass
Through Trust Agreement, the Deposit Agreements, the Escrow Agreements, the
Intercreditor Agreement, the Note Purchase Agreement, the Registration Rights
Agreement or any Liquidity Facility, as applicable, or to cure any ambiguity,
correct any mistake or to modify any other provisions with respect to matters or
questions arising under such Pass
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<PAGE> 63
Through Trust Agreement, the Deposit Agreements, the Escrow Agreements, the
Intercreditor Agreement, the Note Purchase Agreement, the Registration Rights
Agreement or any Liquidity Facility, provided such action shall not materially
adversely affect the interests of the holders of such Certificates, (iv) to
comply with any requirement of the Commission, any applicable law, rules or
regulations of any exchange or quotation system on which the Certificates are
listed, any regulatory body or the Registration Rights Agreement to effectuate
the Exchange Offer, (v) to add to such Pass Through Trust Agreement such other
provisions as may be expressly permitted by the Trust Indenture Act and (vi) 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, provided that
in each case, such modification or supplement does not adversely affect the
status of the Trust as a grantor trust under Subpart E, Part I of Subchapter J
of Chapter 1 of Subtitle A of the Code for U.S. federal income tax purposes.
(Section 9.01)
Each Pass Through Trust Agreement also contains provisions permitting the
execution, with the consent of the holders of the Certificates of the related
Trust evidencing fractional undivided interests aggregating not less than a
majority in interest of such Trust, and with the consent of the applicable Owner
Trustee (such consent not to be unreasonably withheld), of amendments or
supplements for the purposes of adding any provisions to or changing or
eliminating any of the provisions of such Pass Through Trust Agreement, the
Deposit Agreements, the Escrow Agreements, the Intercreditor Agreement, the Note
Purchase Agreement, the Registration Rights Agreement or any Liquidity Facility
or of modifying the rights and obligations of the Certificateholders, except
that no such amendment or supplement 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 (or, with respect to the
Deposits, the Certificateholders) of payments with respect to the Deposits, 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 in a manner adverse to
the Certificateholders, (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, (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 or (f) adversely affect the status of the Trust as a grantor trust under
Subpart E, Part I of Subchapter J of Chapter 1 of Subtitle A of the Code for
U.S. federal income tax purposes. (Section 9.02)
In the event that a Trustee, as holder (or beneficial owner through the
Subordination Agent) of any Equipment Note in trust for the benefit of the
Certificateholders of the relevant Trust or as Controlling Party under the
Intercreditor Agreement, receives (directly or indirectly through the
Subordination Agent) a request for a consent to any amendment, modification,
waiver or supplement under any Indenture, any Participation Agreement, any
Lease, any Equipment Note or any other related document, the Trustee shall
forthwith send a notice of such proposed amendment, modification, waiver or
supplement to each Certificateholder of the relevant Trust as of the date of
such notice. The Trustee shall request from the Certificateholders a direction
as to (a) whether or not to take or refrain from taking (or direct the
Subordination Agent to take or refrain from taking) any action which a holder of
such Equipment Note or the Controlling Party has the option to take, (b) whether
or not to give or execute (or direct the Subordination Agent to give or execute)
any waivers, consents, amendments, modifications or supplements as a holder of
such Equipment Note or as Controlling Party and (c) how to vote (or direct the
Subordination Agent to vote) any Equipment Note if a vote has been called for
with respect thereto. Provided such a request for Certificateholder direction
shall have been made, in directing any action or casting any vote or giving any
consent as the holder of any Equipment Note (or in directing the Subordination
Agent in any of the foregoing), (i) other than as Controlling Party, the Trustee
shall vote for or give consent to any such action with respect to such Equipment
Note in the same
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<PAGE> 64
proportion as that of (x) the aggregate face amounts of all Certificates
actually voted in favor of or for giving consent to such action by such
direction of certificateholders to (y) the aggregate face amount of all
outstanding Certificates of the relevant Trust and (ii) as the Controlling
Party, the Trustee shall vote as directed in such Certificateholder direction by
the Certificateholders evidencing fractional undivided interests aggregating not
less than a majority in interest in the relevant Trust (or, in the event that
the Trustees of the Class C Trusts jointly are the Controlling Party, as such
Trustees, considered in the aggregate, are directed in their respective
Certificateholder directions by the Certificateholders of such Trusts evidencing
fractional undivided interests aggregating not less than a majority in interest
in the Class C Trusts, taken together). For purposes of the immediately
preceding sentence, a Certificate shall have been "actually voted" if the Holder
of such Certificate has delivered to the Trustee an instrument evidencing such
Holder's consent to such direction prior to two Business Days before the Trustee
directs such action or casts such vote or gives such consent. Notwithstanding
the foregoing, but subject to certain rights of the Certificateholders under the
relevant Pass Through Trust Agreement and subject to the Intercreditor
Agreement, the Trustee may, in its own discretion and at its own direction,
consent and notify the relevant Loan Trustee of such consent (or direct the
Subordination Agent to consent and notify the relevant Loan Trustee of such
consent) to any amendment, modification, waiver or supplement under the relevant
Indenture, Participation Agreement or Lease, any relevant Equipment Note or any
other related document, if an Indenture Default under any Indenture shall have
occurred and be continuing, or if such amendment, modification, waiver or
supplement will not materially adversely affect the interests of the
Certificateholders. (Section 10.01)
OBLIGATION TO PURCHASE EQUIPMENT NOTES
The Trustees are obligated to purchase the Equipment Notes issued with
respect to the Aircraft during the Delivery Period, subject to the terms and
conditions of the Note Purchase Agreement. Under the Note Purchase Agreement,
Continental has agreed to finance each Aircraft in the manner provided therein
and in connection therewith will have the option of entering into a leverage
lease financing or a secured debt financing with respect to each Aircraft. The
Note Purchase Agreement provides for the relevant parties to enter into (i) with
respect to each Leased Aircraft, a Participation Agreement, a Lease and a Leased
Aircraft Indenture relating to the financing of such Leased Aircraft and (ii)
with respect to each Owned Aircraft, a Participation Agreement and an Owned
Aircraft Indenture relating to the financing of such Owned Aircraft. The
description of such agreements in this Prospectus is based on the forms of such
agreements contemplated by the Note Purchase Agreement. In the case of a Leased
Aircraft, the terms of the agreements actually entered into may differ from the
forms of such agreements and, consequently, may differ from the description of
such agreements contained in this Prospectus. See "Risk Factors -- Risk Factors
Relating to the Certificates and the Offering -- Owner Participant; Revisions to
Agreements". However, under the Note Purchase Agreement, the terms of such
agreements are required to (i) contain the Mandatory Document Terms and (ii) not
vary the Mandatory Economic Terms. In addition, Continental is obligated (i) to
certify to the Trustees that any such modifications do not materially and
adversely affect the Certificateholders and (ii) to obtain written confirmation
from each Rating Agency that the use of versions of such agreements modified in
any material respect will not result in a withdrawal, suspension or downgrading
of the rating of any Class of Certificates. Further, under the Note Purchase
Agreement, it is a condition precedent to the obligation of each Trustee to
purchase the Equipment Notes related to the financing of an Aircraft that no
Triggering Event shall have occurred. The Trustees will have no right or
obligation to purchase Equipment Notes after the Delivery Period Termination
Date.
The "Mandatory Economic Terms", as defined in the Note Purchase Agreement,
require, among other things, that (i) the maximum principal amount of all the
Equipment Notes issued with respect to an Aircraft not exceed $37,600,000 for
each Boeing 757-224 Aircraft, $18,400,000 for each Boeing 737-524 Aircraft and
$24,400,000 for each Boeing 737-724 Aircraft, (ii) the initial loan to aircraft
value with respect to an Aircraft (with the value of any Aircraft for these
purposes to equal the value for such Aircraft set forth in "Prospectus
Summary -- Terms of Certificates -- Equipment Notes and the Aircraft" under the
column "Appraised Value"), not exceed 41% in the case of Series A Equipment
Notes, 55% in the case of Series B Equipment Notes and 69.99% for Boeing 757-224
Aircraft, 66.19% for Boeing 737-524 Aircraft and 66.25% for Boeing 737-724
Aircraft in the case of Series C Equipment Notes, (iii) the initial average life
of the Series A
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<PAGE> 65
Equipment Notes not be less than 11.75 nor more than 12.60 years in the case of
the 757-224 Aircraft, less than 11.00 nor more than 12.55 years in the case of
the 737-524 Aircraft and less than 12.25 nor more than 12.55 years in the case
of the 737-724 Aircraft, of the Series B Equipment Notes not be less than 9.00
nor more than 9.75 years in the case of the 757-224 Aircraft, less than 6.90 nor
more than 10.52 years in the case of the 737-524 Aircraft and less than 9.75 nor
more than 10.05 years in the case of the 737-724 Aircraft and of the Series C
Equipment Notes not be less than 4.50 nor more than 5.55 years in the case of
the 757-224 Aircraft, less than 3.50 nor more than 7.60 years in the case of the
737-524 Aircraft and less than 5.25 nor more than 5.55 years in the case of the
737-724 Aircraft, (iv) the amortization schedules for each Series of Equipment
Notes, assuming the maximum amount thereof in respect of all of the Aircraft are
purchased by the Trusts and all Aircraft are delivered as currently scheduled,
shall be as set forth in the table under "Description of the New
Certificates -- Pool Factors", (v) as of the Delivery Period Termination Date
(or if earlier, the date of the occurrence of a Triggering Event), the average
life of the Class A Certificates, the Class B Certificates, the Class C-I
Certificates and the Class C-II Certificates shall not exceed, respectively,
12.91 years, 10.15 years, 6.00 years and 6.00 years (computed without regard to
the acceleration of any Equipment Notes and after giving effect to any special
distribution on the Certificates thereafter required in respect of unused
Deposits), (vi) the final maturity date of (a) the Series A Equipment Notes not
be in excess of 18.025 years after the Issuance Date, (b) the Series B Equipment
Notes not be in excess of 16.025 years after the Issuance Date and (c) the
Series C Equipment Notes not be in excess of 10.025 years after the Issuance
Date, (vii) the original aggregate principal amount of all of the Equipment
Notes of each Series shall not exceed the original aggregate face amount of the
Certificates issued by the corresponding Trust, (viii) the maximum aggregate
principal amount of the Equipment Notes issued with respect to all Boeing
757-224 Aircraft shall not exceed $300,800,000, all Boeing 737-524 Aircraft
shall not exceed $331,200,000 and all Boeing 737-724 Aircraft shall not exceed
$97,600,000, (ix) the interest rate applicable to each Series of Equipment Notes
must be equal to the rate applicable to the Certificates issued by the
corresponding Trust, (x) the payment dates for the Equipment Notes and basic
rent under the Leases must be April 1 and October 1, (xi) basic rent, stipulated
loss values and termination values under the Leases must be sufficient to pay
amounts due with respect to the related Equipment Notes, (xii) the amounts
payable under the all-risk aircraft hull insurance maintained with respect to
each Aircraft must be sufficient to pay the applicable stipulated loss value,
subject to certain rights of self-insurance and (xiii) (a) the past due rate in
the Indentures and the Leases, (b) the Make-Whole Premium payable under the
Indentures, (c) the provisions relating to the redemption and purchase of
Equipment Notes in the Indentures, (d) the minimum liability insurance amount on
Aircraft in the Leases, (e) the interest rate payable with respect to stipulated
loss value in the Leases, and (f) the indemnification of the Loan Trustees,
Subordination Agent, Liquidity Providers, Trustees, Escrow Agents and registered
holders of the Equipment Notes (in such capacity, the "Note Holders") with
respect to certain taxes and expenses, in each case be provided as set forth in
the form of Participation Agreements, Lease and Indentures (collectively, the
"Aircraft Operative Agreements").
The "Mandatory Document Terms" prohibit modifications in any material
adverse respect to certain specified provisions of the Aircraft Operative
Agreements contemplated by the Note Purchase Agreement. In the case of the
Indentures, such modifications are prohibited (i) to the Granting Clause of the
Indentures so as to deprive the Note Holders of a first priority security
interest in the Aircraft, certain of Continental's rights under its purchase
agreement with the related manufacturer and, in the case of a Leased Aircraft,
the Lease or to eliminate the obligations intended to be secured thereby, (ii)
to certain provisions relating to the issuance, redemption, purchase, payments,
and ranking of the Equipment Notes (including the obligation to pay the
Make-Whole Premium in certain circumstances), (iii) to certain provisions
regarding Indenture Defaults, remedies relating thereto and rights of the Owner
Trustee and Owner Participant in such circumstances, (iv) to certain provisions
relating to any replaced airframe or engines with respect to an Aircraft and (v)
to the provision that New York law will govern the Indentures. In the case of
the Lease, such modifications are prohibited to certain provisions regarding the
obligation of Continental (i) to pay basic rent, stipulated loss value and
termination value to the Leased Aircraft Trustee, (ii) to record the Leased
Aircraft Indenture with the Federal Aviation Administration and to maintain such
Indenture as a first-priority perfected mortgage on the related Aircraft, (iii)
to furnish certain opinions with respect to a replacement airframe and (iv) to
consent to the assignment of the Lease by the Owner Trustee as collateral under
the Leased Aircraft
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Indenture, as well as modifications which would either alter the provision that
New York law will govern the Lease or would deprive the Loan Trustee of rights
expressly granted to it under the Leases. In the case of the Participation
Agreement, such modifications are prohibited (i) to certain conditions to the
obligations of the Trustees to purchase the Equipment Notes issued with respect
to an Aircraft involving good title to such Aircraft, obtaining a certificate of
airworthiness with respect to such Aircraft, entitlement to the benefits of
Section 1110 with respect to such Aircraft and filings of certain documents with
the Federal Aviation Administration, (ii) to the provisions restricting the Note
Holder's ability to transfer such Equipment Notes, (iii) to certain provisions
requiring the delivery of legal opinions and (iv) to the provision that New York
law will govern the Participation Agreement. In the case of all of the Aircraft
Operative Agreements, modifications are prohibited in any material adverse
respect as regards the interest of the Note Holders, the Subordination Agent,
the Liquidity Providers or the Loan Trustee in the definition of "Make-Whole
Premium". Notwithstanding the foregoing, any such Mandatory Document Term may be
modified to correct or supplement any such provision which may be defective or
to cure any ambiguity or correct any mistake, provided that any such action
shall not materially adversely affect the interests of the Note Holders, the
Subordination Agent, the Liquidity Providers, the Mortgagee or the
Certificateholders.
LIQUIDATION OF ORIGINAL TRUSTS
At the Transfer Date, each of the Original Trusts will transfer and assign
all of its assets and rights to a Successor Trust with substantially identical
terms, except that (i) the Successor Trusts will not have the right to purchase
new Equipment Notes and (ii) Delaware law will govern the Original Trusts and
New York law will govern the Successor Trusts. The Trustee of each of the
Original Trusts will also act as Trustee of the corresponding Successor Trust,
and each New Trustee will assume the obligations of the Original Trustee under
each transaction document to which such Original Trustee was a party. Upon
effectiveness of such transfer, assignment and assumption, each of the Original
Trusts will be liquidated and each of the Certificates will represent the same
interest in the Successor Trust as it represented in the Original Trust
immediately prior to such transfer and assignment. Unless the context otherwise
requires, all references in this Prospectus to the Trusts, the Trustees, the
Pass Through Trust Agreements and similar terms shall be applicable with respect
to the Original Trusts until the effectiveness of such transfer, assignment and
assumption and thereafter shall be applicable with respect to the Successor
Trusts. If for any reason such transfer, assignment and assumption cannot be
effected to any Successor Trust, the related Original Trust will continue in
existence until it is effected.
TERMINATION OF THE TRUSTS
The obligations of Continental and the applicable Trustee with respect to a
Trust will terminate upon the distribution to Certificateholders of such Trust
of all amounts required to be distributed to them pursuant to the applicable
Pass Through Trust Agreement and the disposition of all property held in such
Trust. The applicable Trustee will send to each Certificateholder of 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)
THE TRUSTEES
The Trustee for each Trust is Wilmington Trust Company. With certain
exceptions, the Trustees make no representations as to the validity or
sufficiency of the Pass Through Trust Agreements, the Certificates, the
Intercreditor Agreement, the Equipment Notes, the Deposit Agreements, the Escrow
Agreements, the Indentures, the Participation Agreements, 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 Certificates of such Trust evidencing fractional undivided
interests aggregating not less than a majority in interest of such Trust.
Subject to certain provisions, the Trustees shall be under no obligation to
exercise any of their rights or powers
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under any Pass Through Trust Agreement at the request of any holders of
Certificates issued thereunder unless there shall have been offered to the
Trustees reasonable security and indemnity. (Section 7.03(e)) 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, with any Owner Trustee
or with any Loan Trustee with the same rights they would have if they were not
the Trustees. (Section 7.05)
Any Trustee may resign with respect to any or all of the Trusts of which it
is the Trustee at any time, in which event Continental will be obligated to
appoint a successor trustee. If any Trustee ceases to be eligible to continue as
Trustee with respect to a Trust or becomes incapable of acting as Trustee or
becomes insolvent, Continental may, with the consent of the Owner Participants
for the Leased Aircraft (which consent shall not be unreasonably withheld),
remove such Trustee, or any holder of the Certificates of such Trust for at
least six months may, on behalf of such holder 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) Pursuant to such resignation and
successor trustee provisions, it is possible that a different trustee could be
appointed to act as the successor trustee with respect to each Trust. All
references in this Prospectus to the Trustee should be read to take into account
the possibility that the Trusts could have different successor trustees in the
event of such a resignation or removal.
Each Pass Through Trust Agreement provides that Continental will pay or
cause to be paid 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 one or more
permanent global Certificates, in definitive, fully registered form without
interest coupons (the "Global Certificates"), to be deposited with the Trustee
as custodian for DTC and registered in the name of Cede, as nominee for DTC.
DTC has advised Continental as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a "banking
organization" within the meaning of the New York Banking law, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provision of Section 17A of the Exchange Act. DTC was created to hold securities
for its participants and facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry changes in
accounts of its participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and certain other organizations.
Indirect access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly ("indirect
participants").
Ownership of beneficial interests in 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.
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.
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Payments of the principal of, premium, if any, and interest on the Global
Certificates will be made to DTC or its nominee, as the case may be, as the
registered owner thereof. Neither Continental, the Trustee, nor any paying agent
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests in the Global
Certificates or for maintaining, supervising or reviewing any records relating
to such beneficial ownership interests.
Continental expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, or interest in respect of the Global Certificates
will credit participants' accounts with payments in amounts proportionate to
their respective beneficial ownership interests in the principal amount of such
Global Certificates, as shown on the records of DTC or its nominee. Continental
also expects that payments by participants to owners of beneficial interests in
such Global Certificates held through such participants will be governed by
standing instructions and customary practices, as is now the case with
securities held for the accounts of customers registered in the names of
nominees for such customers. Such payments will be the responsibility of such
participants.
Neither Continental nor the Trustee has any responsibility for the
performance by DTC or its participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
If DTC is at any time unwilling or unable to continue as a depositary for
the Global Certificates and a successor depositary is not appointed by within 90
days, the Trusts will issue certificates in definitive, fully registered form in
exchange for the Global Certificates.
DESCRIPTION OF THE DEPOSIT AGREEMENTS
The following summary describes all material terms of the Deposit
Agreements. The summary does not purport to be complete and is qualified in its
entirety by reference to all of the provisions of the Deposit Agreements which
have been filed as exhibits to the Registration Statement and copies of which
are available as set forth under the heading "Available Information". The
provisions of the Deposit Agreements are substantially identical except as
otherwise indicated.
GENERAL
Under the Escrow Agreements, the Escrow Agent with respect to each Trust
has entered into a separate Deposit Agreement with the Depositary pursuant to
which the Depositary has established separate accounts into which the proceeds
of the initial sale of the Old Certificates of such Trust were deposited on
behalf of such Escrow Agent, from which the Escrow Agent, upon request from the
Trustee of such Trust, will make withdrawals and into which such Trustee will
make re-deposits during the Delivery Period. Pursuant to the Deposit Agreement
with respect to each Trust, on each Regular Distribution Date the Depositary
will pay to the Paying Agent on behalf of the applicable Escrow Agent, for
distribution to the Certificateholders of such Trust, an amount equal to
interest accrued on the Deposits relating to such Trust during the relevant
interest period at a rate per annum equal to the interest rate applicable to the
Certificates issued by such Trust. The interest rates payable on the Deposits
are subject to change under certain circumstances described in "The Exchange
Offer -- Terms of the Exchange Offer--General". Upon each delivery of an
Aircraft during the Delivery Period, the Trustees for the Class A Trust, the
Class B Trust and the Class C-I Trust (or, if the Deposits relating to the Class
C-I Trust have been fully withdrawn, the Class C-II Trust) will request the
Escrow Agent relating to such Trust to withdraw from the Deposits relating to
such Trust funds sufficient to enable the Trustee of such Trust to purchase the
Equipment Note of the series applicable to such Trust issued with respect to
such Aircraft. Accrued but unpaid interest on all such Deposits withdrawn will
be paid on the next Regular Distribution Date. Any portion of any Deposit
withdrawn which is not used to purchase such Equipment Note will be re-deposited
by each Trustee into an account relating to the applicable Trust. Prior to the
date of this Prospectus, two Boeing 757-224 Aircraft have been delivered and
funds were withdrawn from the Deposits to purchase Equipment Notes in respect of
such Aircraft in the aggregate principal amount of $74.4 million in leveraged
lease transactions. The Deposits relating to each Trust and interest paid
thereon are
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not subject to the subordination provisions of the Intercreditor Agreement and
will not be available to pay any other amount in respect to the Certificates.
UNUSED DEPOSITS
The Trustees' obligations to purchase the Equipment Notes issued with
respect to each Aircraft are subject to satisfaction of certain conditions at
the time of delivery, as set forth in the Note Purchase Agreement. See
"Description of the New Certificates -- Obligation to Purchase Equipment Notes".
Since the Aircraft are scheduled for delivery from time to time during the
Delivery Period, no assurance can be given that all such conditions will be
satisfied at the time of delivery for each Aircraft. Moreover, since the
Aircraft will be newly manufactured, their delivery as scheduled is subject to
delays in the manufacturing process and to the manufacturer's right to postpone
deliveries under its agreement with Continental. See "Description of the
Aircraft and Appraisals -- Deliveries of Aircraft". Depending on the
circumstances of the financing of each Aircraft, the maximum aggregate principal
amount of Equipment Notes may not be issued. In addition, Continental's
obligations to Boeing relating to ordered aircraft and the Predelivery Deposit
Revolver are secured by Continental's purchase agreements with Boeing relating
to the Aircraft. Accordingly, if Continental should breach its obligations
secured thereby, the secured parties could exercise remedies and prevent
delivery of Aircraft to Continental. If any funds remain as Deposits with
respect to any Trust at the Delivery Period Termination Date, they will be
withdrawn by the Escrow Agent and distributed, with accrued and unpaid interest
thereon, plus a premium payable by Continental (i) in the case of the holders of
Certificates issued by the Class A Trust, the Class B Trust and the Class C-I
Trust, equal to the Deposit Make-Whole Premium with respect to the aggregate
amount of funds so distributed (excluding accrued interest) and (ii) in the case
of the holders of Certificates issued by the Class C-II Trust, equal to the
Class C-II Premium with respect to such aggregate amount, to the
Certificateholders of such Trust after at least 20 days' prior written notice.
"Deposit Make-Whole Premium" means, with respect to the distribution of
unused Deposits to holders of any Class of Certificates, as of any date of
determination, an amount equal to the excess, if any, of (a) the present value
of the excess of (i) the scheduled payment of principal and interest to maturity
of the Equipment Notes, assuming the maximum principal amount thereof were
issued, on each remaining Regular Distribution Date for such Class under the
Assumed Amortization Schedule over (ii) the scheduled payment of principal and
interest to maturity of the Equipment Notes actually acquired by the Trustee for
such Class on each such Regular Distribution Date, such present value computed
by discounting such excess on a semiannual basis on each Regular Distribution
Date (assuming a 360-day year of twelve 30-day months) using a discount rate
equal to the Treasury Yield over (b) the amount of such unused Deposits to be
distributed to the holders of such Certificates plus accrued and unpaid interest
to but excluding the date of determination from and including the preceding
Regular Distribution Date (or if such date of determination precedes the first
Regular Distribution Date, the date of issuance of the Old Certificates).
"Class C-II Premium" means, as of any date of determination, with respect
to the distribution of unused Deposits to holders of Class C-II Certificates,
(a) if Equipment Notes with respect to all of the Aircraft (or Substitute
Aircraft in lieu thereof) have been purchased by the Trusts prior to the date of
determination, an amount equal to the excess, if any, of (i) the present value
of the excess of (x) the scheduled payment of principal and interest to maturity
of the Equipment Notes on each remaining Regular Distribution Date for the Class
C-II Certificates under the Assumed Amortization Schedule over (y) the scheduled
payment of principal and interest to maturity of the Equipment Notes actually
acquired by the Trustee for such Class on each such Regular Distribution Date,
such present value computed by discounting such excess on a semiannual basis on
each Regular Distribution Date (assuming a 360-day year of twelve 30-day months)
using a discount rate equal to the "Adjusted Treasury Yield" (meaning the
Treasury Yield plus 42 basis points) over (ii) the amount of such unused
Deposits to be distributed to the holders of such Certificates plus accrued and
unpaid interest to but excluding the date of determination from and including
the preceding Regular Distribution Date (or if such date of determination
precedes the first Regular Distribution Date, the date of issuance of the Old
Certificates) or (b) in any other case, an amount equal to the sum of (i) a
premium calculated pursuant to the preceding clause (a) determined with respect
to the portion of such
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unused Deposits that would have remained unused had the maximum principal amount
of Series C Equipment Notes been purchased with respect to each of the Aircraft
as to which Equipment Notes were not actually purchased by any of the Trusts and
as to which no replacement by a Substitute Aircraft was made and (ii) the
Deposit Make-Whole Premium determined with respect to the balance of such unused
Deposits.
DISTRIBUTION UPON OCCURRENCE OF TRIGGERING EVENT
If a Triggering Event shall occur prior to the Delivery Period Termination
Date, the Escrow Agent for each Trust will withdraw any funds then held as
Deposits with respect to such Trust and cause such funds, with accrued and
unpaid interest thereon but without any premium, to be distributed to the
Certificateholders of such Trust by the Paying Agent on behalf of the Escrow
Agent, after at least 20 days' prior written notice. Accordingly, if a
Triggering Event occurs prior to the Delivery Period Termination Date, the
Trusts will not acquire Equipment Notes issued with respect to Aircraft
delivered after the occurrence of such Triggering Event.
DEPOSITARY
The Depositary is Credit Suisse First Boston, New York Branch. Credit
Suisse First Boston is a Swiss Bank and is one of the largest banking
institutions in the world, with total consolidated assets of approximately Sfr
412 billion ($307 billion) and total consolidated shareholders' equity of
approximately Sfr 9.7 billion ($7.2 billion), in each case as of December 31,
1996, on a pro forma basis. As a "universal bank" (engaged in both commercial
and investment banking activities), Credit Suisse First Boston provides a full
range of banking and financial services from locations around the globe to
corporate, institutional and public sector clients. Credit Suisse, the
predecessor to Credit Suisse First Boston, was founded in 1856 in Zurich and is
the oldest of Switzerland's three principal banks. Banking operations of Credit
Suisse in the United States began in 1940 and are currently conducted through
branches of Credit Suisse First Boston in New York and Los Angeles and a
representative office in Chicago.
Effective January 1, 1997, Credit Suisse First Boston became the successor
to the institutional asset management business and the global corporate and
investment banking business of Credit Suisse Group (formerly CS Holding) and its
principal international banking subsidiary, Credit Suisse. The global corporate
and investment banking business is largely conducted through Credit Suisse First
Boston and its subsidiaries (together, the "CSFB Business Unit"), including
Credit Suisse First Boston Corporation, a U.S. registered broker-dealer, which
acted as an Initial Purchaser of the Old Certificates. The CSFB Business Unit
has four core business divisions: (i) the corporate and investment banking
division, (ii) the trading division, (iii) Credit Suisse Financial Products and
(iv) the private equity division.
Credit Suisse Group (formerly CS Holding) is the parent of Credit Suisse
First Boston. Credit Suisse Group is also the parent of Credit Suisse, a Swiss
bank which effective January 1, 1997 became the successor to the Swiss domestic
banking operations and global private banking operations of the former Credit
Suisse and its affiliate Swiss Volksbank.
Credit Suisse First Boston is subject to regulation by the Swiss Federal
Banking Commission and the Swiss National Bank. Under Swiss banking law, a bank
is subject to inspection and supervision by an independent auditing firm and is
required to maintain an adequate relationship between its equity resources and
its total liabilities. The New York Branch of Credit Suisse First Boston is
licensed and subject to supervision and regulation by the Superintendent of
Banks of the State of New York. It is examined by the New York State Banking
Department and is subject to banking laws and regulations applicable to a
foreign bank that operates a New York branch. It is also subject to review and
supervision by the Federal Reserve Bank.
Credit Suisse First Boston has long-term unsecured debt ratings of Aa3 from
Moody's and AA from Standard & Poor's and short-term unsecured debt ratings of
P-1 from Moody's and A-1+ from Standard & Poor's.
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Credit Suisse First Boston's principal office is at Uetlihof,
Uetlibergstrasse 231, CH-8045, Zurich, Switzerland, and its New York Branch has
executive offices at Eleven Madison Avenue, New York, New York 10010, (212)
325-9000. A copy of the Annual Report of Credit Suisse for the year ended
December 31, 1996 may be obtained from Credit Suisse First Boston by delivery of
a written request to its New York Branch, Attention: Corporate Affairs.
DESCRIPTION OF THE ESCROW AGREEMENTS
The following summary describes all material terms of the Escrow
Agreements, which have been filed as exhibits to the Registration Statement and
copies of which are available as set forth under the heading "Available
Information". The summary does not purport to be complete and is qualified in
its entirety by reference to the provisions of the Escrow Agreements.
Each Escrow Agent, each Paying Agent, each Trustee and the Initial
Purchasers have entered into a separate Escrow Agreement for the benefit of the
Certificateholders of each Trust as holders of the Escrow Receipts affixed
thereto (in such capacity, a "Receiptholder"). The cash proceeds of the initial
sale of Old Certificates of each Trust have been deposited on behalf of the
Escrow Agent (for the benefit of Receiptholders) with the Depositary as Deposits
relating to such Trust. The Escrow Agent of each Trust has been given
irrevocable instructions (i) to permit the Trustee of such Trust to cause funds
to be withdrawn from such Deposits on or prior to the Delivery Period
Termination Date for the purpose of enabling such Trustee to purchase Equipment
Notes on and subject to the terms and conditions of the Note Purchase Agreement
and (ii) to direct the Depositary to pay interest on the Deposits accrued in
accordance with the Deposit Agreement to the Paying Agent for distribution to
the Receiptholders.
Each Escrow Agreement requires that the Paying Agent establish and
maintain, for the benefit of the related Receiptholders, one or more Paying
Agent Account(s), which shall be non-interest-bearing. Pursuant to the terms of
the Escrow Agreement, the Paying Agent is required to deposit interest on
Deposits relating to each Trust and any unused Deposits withdrawn by the Escrow
Agent in the Paying Agent Account. All amounts so deposited will be distributed
by the Paying Agent on a Regular Distribution Date or Special Distribution Date,
as appropriate.
Upon receipt by the Depositary on behalf of the Escrow Agent of the cash
proceeds from the Old Certificates as described above, the Escrow Agent issued
Escrow Receipts which were affixed by the relevant Trustee to each Old
Certificate. Each Escrow Receipt evidences a fractional undivided interest in
amounts from time to time deposited into the Paying Agent Account and is limited
in recourse to amounts deposited into such Account. An Escrow Receipt may not be
assigned or transferred except in connection with the assignment or transfer of
the Certificate to which it is affixed. Each Escrow Receipt will be registered
by the Escrow Agent in the same name and manner as the Certificate to which it
is affixed. Escrow Receipts will be affixed to New Certificates issued pursuant
to the Exchange Offer.
DESCRIPTION OF THE LIQUIDITY FACILITIES
The following summary describes all material 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 all of the provisions of the Liquidity Facilities and certain
provisions of the Intercreditor Agreement, each of which has been filed as an
exhibit to the Registration Statement and copies of which are available as set
forth under the heading "Available Information". The provisions of the Liquidity
Facilities are substantially identical except as otherwise indicated.
GENERAL
Each Liquidity Provider will enter into a separate Liquidity Facility with
the Subordination Agent with respect to the Certificates of each of the Trusts
pursuant to which the Liquidity Providers will make one or more advances to the
Subordination Agent to pay interest on such Certificates subject to certain
limitations. The Liquidity Facilities for each Trust are intended to enhance the
likelihood of timely receipt by the
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Certificateholders of such Trust of the interest payable on the Certificates of
such Trust at the Stated Interest Rate therefor on up to three consecutive
semiannual Regular Distribution Dates. If interest payment defaults occur which
exceed the amount covered by or available under the Liquidity Facilities 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 ABN AMRO and ING are the initial Liquidity Providers for each of the
Trusts, ABN AMRO and ING each may be replaced by one or more other entities with
respect to the Trusts under certain circumstances. Therefore, the Liquidity
Providers for each Trust may differ.
DRAWINGS
The initial amount available under the Liquidity Facilities for the Class A
Trust, the Class B Trust, the Class C-I Trust and the Class C-II Trust at April
1, 1998, the first Regular Distribution Date after the scheduled Delivery Period
Termination Date, assuming that Equipment Notes in the maximum principal amount
with respect to all Aircraft are acquired by the Trusts and that all interest
and principal due on or prior to April 1, 1998 is paid, will be $48,564,521,
$16,426,917, $12,155,173 and $1,094,144, respectively. Except as otherwise
provided below, the Liquidity Facilities 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 a Liquidity
Facility with respect to any Trust on any Regular Distribution Date to fund any
shortfall of interest on Certificates of such Trust will not exceed the then
Maximum Available Commitment under such Liquidity Facility. The Liquidity
Facilities for any Trust do 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 three semiannual 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) In addition, the
Liquidity Facilities with respect to each Trust will not cover interest payable
by the Depositary on the Deposits relating to such Trust.
Each payment by the Liquidity Provider under each Liquidity Facility
reduces pro tanto the Maximum Available Commitment under such Liquidity
Facility, subject to reinstatement as hereinafter described. With respect to any
Interest Drawings under either Liquidity Facility for any Trust, upon
reimbursement of the relevant Liquidity Provider in full for the amount of such
Interest Drawings plus interest thereon, the Maximum Available Commitment under
such Liquidity Facility in respect of interest on the Certificates of such Trust
will be reinstated to an amount not to exceed the Stated Portion of the then
Required Amount of such Liquidity Facility; provided, however, that such
Liquidity Facility will not be so reinstated at any time after (i) a Liquidity
Event of Default shall have occurred and be continuing and (ii) less than 65% of
the then aggregate outstanding principal amount of all Equipment Notes are
Performing Equipment Notes. With respect to any other drawings under such
Liquidity Facility, amounts available to be drawn thereunder are not subject to
reinstatement. The Required Amount of the Liquidity Facilities for any Trust
will be automatically increased or reduced from time to time to an amount equal
to the next three 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, but excluding interest
payable by the Depositary as described above. (Liquidity Facilities, Section
2.04(a); Intercreditor Agreement, Section 3.6(j))
If at any time the short-term unsecured debt rating of a Liquidity Provider
for any Trust then issued by either Rating Agency is lower than the Threshold
Rating, the Liquidity Facility provided by such Liquidity Provider for the
related Class of Certificates will be required to be replaced. In the event that
such Liquidity Facility is not replaced within 10 days after notice of the
downgrading and as otherwise provided in the Intercreditor Agreement, the
Subordination Agent will request the Downgrade Drawing in an amount equal to the
then Maximum Available Commitment thereunder and will 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))
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A "Replacement Facility" for any Liquidity Facility means an irrevocable
liquidity facility in substantially the form of the replaced Liquidity Facility,
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 applicable
Liquidity Provider), in a face amount equal to the Stated Portion of 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 three Regular Distribution Dates following the date of replacement of
such Liquidity Facility (which will not cover scheduled interest payments with
respect to the Deposits relating to such Trust) and issued by a Person having
unsecured short-term debt ratings issued by both Rating Agencies which are equal
to or higher than the Threshold Rating. (Intercreditor Agreement, Section 1.1)
"Threshold Rating" means the short-term unsecured debt rating of P-1 by
Moody's and A-1+ by Standard & Poor's.
Each Liquidity Facility for each Trust provides that the relevant Liquidity
Provider's obligations thereunder will expire on the earliest of (i) 364 days
after the Issuance Date; (ii) the date on which the Subordination Agent delivers
to such Liquidity Provider a certification that all of the Certificates of such
Trust have been paid in full; (iii) the date on which the Subordination Agent
delivers to such Liquidity Provider 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 such
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 364-day periods
by mutual agreement. The Intercreditor Agreement will provide for the
replacement of any 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 by the 25th day prior to its then
scheduled expiration date, the Subordination Agent shall request the
Non-Extension Drawing in an amount equal to the then Maximum Available
Commitment 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))
Continental may, at its option, arrange for a Replacement Facility at any
time to replace either Liquidity Facility for any Trust (including without
limitation any Replacement Facility described in the following sentence). In
addition, if any Liquidity Provider shall determine not to extend its Liquidity
Facility, then such Liquidity Provider may, at its option, arrange for a
Replacement Facility to replace such Liquidity Facility during the period no
earlier than 40 days and no later than 25 days prior to the then scheduled
expiration date of such Liquidity Facility. If any Replacement Facility is
provided at any time after the Downgrade Drawing or a Non-Extension Drawing
under such Liquidity Facility, the funds with respect to the relevant Liquidity
Facility 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 relevant Liquidity Provider (given as described in
"-- Liquidity Events of Default"), the Subordination Agent will request a Final
Drawing under such Liquidity Facility in an amount equal to the then Maximum
Available Commitment thereunder and will 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 relevant
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Liquidity Provider is obligated to make payment of the drawing requested thereby
in immediately available funds. Upon payment by any Liquidity Provider of the
amount specified in any drawing under any Liquidity Facility, such 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.
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, with respect to the period from the date of its
borrowing to (but excluding) the third business day following the applicable
Liquidity Provider's receipt of the notice of such Interest Drawing, at the Base
Rate plus 1.75% per annum, and thereafter, at LIBOR for the applicable Interest
Period plus 1.75% per annum, provided that, in the case of a Final Drawing, the
Subordination Agent may convert the Final Drawing into a Drawing bearing
interest at the Base Rate plus 1.75% per annum on the last day of an Interest
Period for such Drawing; provided, further, that the Subordination Agent will be
obligated to reimburse such amounts only to the extent that the Subordination
Agent has funds available therefor.
The amount drawn under any Liquidity Facility for any Trust by reason of a
Downgrade Drawing or a Non-Extension Drawing will be treated as follows: (i)
such amount will be released on any Distribution Date to the relevant Liquidity
Provider to the extent that such amount exceeds the Stated Portion of the
Required Amount; (ii) any portion of such amount withdrawn from the Cash
Collateral Account for such Certificates to pay interest on such Certificates
will be treated in the same way as Interest Drawings; and (iii) the balance of
such amount will be invested in Eligible Investments. The Downgrade Drawing
under any Liquidity Facility (other than any portion thereof applied to the
payment of interest on the Certificates) will bear interest (i) during the
period from the date of its borrowing to (but excluding) the stated expiry date
of such Liquidity Facility, in an amount equal to the investment earnings on
amounts deposited in the relevant Cash Collateral Account attributable to such
Liquidity Facility plus .35% per annum on the amount of such Downgrade Drawing
and (ii) thereafter, at a rate equal to LIBOR for the applicable Interest Period
plus .40% per annum, and a Non-Extension Drawing (other than any portion thereof
applied to the payment of interest on the Certificates) will bear interest with
respect to the period from the date of borrowing to (but excluding) the third
Business Day following the applicable Liquidity Provider's receipt of the notice
of such Non-Extension Drawing, at the Base Rate plus .40% per annum, and
thereafter at LIBOR for the applicable Interest Period plus .40% per annum;
provided that the Subordination Agent will be obligated to pay such amount only
to the extent that the Subordination Agent has funds available therefor.
(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
(provided, that during the Delivery Period the aggregate principal amount
thereof exceeds $280 million) and (ii) certain bankruptcy or similar events
involving Continental. (Liquidity Facilities, Section 1.01)
If (i) any Liquidity Event of Default under any Liquidity Facility has
occurred and is continuing and (ii) less than 65% of the aggregate outstanding
principal amount of all Equipment Notes are Performing Equipment Notes, the
applicable Liquidity Provider may, in its discretion, give a notice of
termination of the related Liquidity Facility (a "Termination Notice") the
effect of which will 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) the Subordination Agent to promptly request,
and the Liquidity Provider to make, a Final Drawing thereunder in an amount
equal to the then Maximum Available Commitment thereunder, (iii) any Drawing
remaining unreimbursed as of the date of termination to be automatically
converted into a Final Drawing under such Liquidity Facility, and (iv) all
amounts owing to such Liquidity Provider automatically to become accelerated.
Notwithstanding the foregoing, the Subordination Agent will be obligated to pay
amounts owing to the Liquidity Providers 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
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Intercreditor Agreement -- Priority of Distributions". (Liquidity Facilities,
Section 6.01) Upon the circumstances described below under "Description of the
Intercreditor Agreement -- Intercreditor Rights", a Liquidity Provider may
become the Controlling Party with respect to the exercise of remedies under the
Indentures. (Intercreditor Agreement, Section 2.6(c))
LIQUIDITY PROVIDERS
The initial Liquidity Providers for each Trust are ABN AMRO and ING, each
of which is a bank organized under the laws of the Netherlands. ABN AMRO has
short term debt ratings of P-1 from Moody's and A-1+ from Standard & Poor's. ING
has short term debt ratings of P-1 from Moody's and A-1+ from Standard & Poor's.
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
all of the provisions of the Intercreditor Agreement, which has been filed as an
exhibit to the Registration Statement and is available as set forth under the
heading "Available Information".
INTERCREDITOR RIGHTS
Controlling Party
Pursuant to the Intercreditor Agreement, the Trustees and each Liquidity
Provider has 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 or with respect to the Equipment Notes issued 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 will act with respect to this clause (a) in accordance with
the directions of the Trustees (in the case of each such Trustee, with respect
to the Equipment Notes issued under such Indenture and held as Trust Property of
such Trust) constituting, in the aggregate, directions with respect to such
principal amount of Equipment Notes), so long as no Indenture Default (which,
with respect to Leased Aircraft, has not been cured by the applicable Owner
Trustee or Owner Participant) shall have occurred and be continuing thereunder,
and (b) after the occurrence and during the continuance of an Indenture Default
thereunder (which, with respect to Leased Aircraft, has not been cured by the
applicable Owner Trustee or Owner Participant), in taking, or refraining from
taking, any action thereunder or with respect to the Equipment Notes issued
thereunder, including exercising remedies thereunder or with respect to such
Equipment Notes (including acceleration of such Equipment Notes or foreclosing
the lien on the Aircraft securing such Equipment Notes), by the Controlling
Party, subject to the limitations described below. See "Description of the New
Certificates -- Indenture Defaults and Certain Rights Upon an Indenture Default"
for a description of the rights of the Certificateholders of each Trust to
direct the respective Trustees. Notwithstanding the foregoing, at any time after
18 months from the earlier to occur of (x) the date on which the entire
available amount under any Liquidity Facility shall have been drawn (for any
reason other than a Downgrade Drawing or a Non-Extension Drawing) and remain
unreimbursed and (y) the date on which all Equipment Notes shall have been
accelerated (provided, that prior to the Delivery Period Termination Date the
aggregate outstanding principal amount thereof exceeds $280 million), the
Liquidity Providers with at least two-thirds of unreimbursed Liquidity
Obligations will have the right to elect to become the Controlling Party with
respect to any Indenture. For purposes of giving effect to the foregoing, the
Trustees (other than the Controlling Party) will irrevocably agree, and the
Certificateholders (other than the Certificateholders represented by the
Controlling Party) will be deemed to agree by virtue of their purchase of
Certificates, that the Subordination Agent, as record holder of the Equipment
Notes, shall exercise its voting rights in respect of the Equipment Notes as
directed by the Controlling Party. (Intercreditor Agreement, Section 2.6) For a
description of certain limitations on the Controlling Party's rights to exercise
remedies, see "Description of the Equipment Notes -- Remedies".
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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 and (y) the
bankruptcy or insolvency of Continental, without the consent of each Trustee,
(a) no Aircraft subject to the lien of such Indenture or such Equipment Notes
may be sold, if the net proceeds from such sale would be less than the Minimum
Sale Price for such Aircraft or such Equipment Notes, and (b) with respect to
any Leased Aircraft, the amount and payment dates of rentals payable by
Continental under the Lease for such Leased Aircraft may not be adjusted, if, as
a result of such adjustment, the discounted present value of all such rentals
would be less than 75% of the discounted present value of the rentals payable by
Continental under such Lease before giving effect to such adjustment, in each
case, using the weighted average interest rate of the Equipment Notes issued
under such Indenture as the discount rate.
The Subordination Agent may from time to time during the continuance of an
Indenture Default (and before the occurrence of a Triggering Event) commission
Appraisals with respect to an Aircraft at the request of the Controlling Party.
(Intercreditor Agreement, Section 4.1(a)(iii))
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 Providers;
(ii) to pay interest accrued on the Liquidity Obligations to the
Liquidity Providers;
(iii) to pay or reimburse the Liquidity Providers for the Liquidity
Obligations (other than amounts payable pursuant to clauses (i) and (ii)
above) and/or, if applicable, to replenish each Cash Collateral Account up
to the Required Amount;
(iv) to pay Expected Distributions to the holders of Class A
Certificates;
(v) to pay Expected Distributions to the holders of Class B
Certificates;
(vi) to pay Expected Distributions to the holders of Class C
Certificates; and
(vii) to pay certain fees and expenses of the Subordination Agent and
the Trustees.
"Expected Distributions" means, with respect to the Certificates of any
Trust on any Current Distribution Date, the sum of (x) accrued and unpaid
interest on such Certificates (excluding interest, if any, payable with respect
to the Deposits relating to such Trust) 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 (i) 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 and (ii) the
principal of any Equipment Notes formerly held in such Trust that have been sold
pursuant to the Intercreditor Agreement has been paid in full and such payments
have been distributed to the holders of such Certificates, but without giving
effect to any reduction in the Pool Balance as a result of any distribution
attributable to Deposits.
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Subject to the terms of the Intercreditor Agreement, upon the occurrence of
a Triggering Event and at all times thereafter, all funds received by the
Subordination Agent in respect of the Equipment Notes and certain other payments
will be promptly distributed by the Subordination Agent in the following order
of priority:
(i) to pay certain out-of-pocket costs and expenses actually incurred
by the Subordination Agent or any Trustee or to reimburse any
Certificateholder or the Liquidity Providers in respect of payments made to
the Subordination Agent or any Trustee in connection with the protection or
realization of the value of the Equipment Notes or any Trust Indenture
Estate (the "Administration Expenses");
(ii) to the Liquidity Providers, to pay the Liquidity Expenses;
(iii) to the Liquidity Providers, to pay interest accrued on the
Liquidity Obligations;
(iv) to the Liquidity Providers, to pay the outstanding amount of all
Liquidity Obligations and/or, if applicable, with respect to any particular
Liquidity Facility, unless (x) less than 65% of the aggregate outstanding
principal amount of all Equipment Notes are Performing Equipment Notes and
a Liquidity Event of Default shall have occurred and be continuing under
such Liquidity Facility or (y) a Final Drawing shall have occurred under
such Liquidity Facility, to replenish the Cash Collateral Account with
respect to such Liquidity Facility up to the Stated Portion of the Required
Amount for the related Class of Certificates (less the amount of any
repayments of Interest Drawings under such Liquidity Facility while
sub-clause (x) is applicable);
(v) to pay certain fees, taxes, charges and other amounts payable to
the Subordination Agent, any Trustee or any Certificateholder;
(vi) to pay Adjusted Expected Distributions to the holders of Class A
Certificates;
(vii) to pay Adjusted Expected Distributions to the holders of Class B
Certificates; and
(viii) to pay Adjusted Expected Distributions to the holders of Class
C Certificates.
"Adjusted Expected Distributions" means, with respect to the Certificates
of any Trust on any Current Distribution Date, the sum of (x) accrued and unpaid
interest on such Certificates (excluding interest, if any, payable with respect
to the Deposits relating to such Trust) and (y) the greater of:
(A) the difference between (x) the Pool Balance of such Certificates
as of the immediately preceding Distribution Date and (y) the Pool Balance
of such Certificates as of the Current Distribution Date calculated on the
basis that (i) the principal of the Non-Performing Equipment Notes held in
such Trust has been paid in full and such payments have been distributed to
the holders of such Certificates, (ii) the principal of the Performing
Equipment Notes held in such Trust has been paid when due (but without
giving effect to any unpaid acceleration of Performing Equipment Notes) and
such payments have been distributed to the holders of such Certificates and
(iii) the principal of any Equipment Notes formerly held in such Trust that
have been sold pursuant to the Intercreditor Agreement has been paid in
full and such payments have been distributed to the holders of such
Certificates, but without giving effect to any reduction in the Pool
Balance as a result of any distribution attributable to Deposits, and
(B) the amount of the excess, if any, of (i) the Pool Balance of such
Class of Certificates as of the immediately preceding Distribution Date
(less the amount of the Deposits for such Class of Certificates as of such
preceding Distribution Date other than any portion of such Deposits
thereafter used to acquire Equipment Notes pursuant to the Note Purchase
Agreement), over (ii) the Aggregate LTV Collateral Amount for such Class of
Certificates for the Current Distribution Date;
provided that, until the date of the initial LTV Appraisals, clause (B) shall
not apply.
For purposes of calculating Expected Distributions or Adjusted Expected
Distributions with respect to the Certificates of any Trust, any premium paid on
the Equipment Notes held in such Trust that 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 Adjusted Expected Distributions.
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"Aggregate LTV Collateral Amount" for any Class of Certificates for any
Distribution Date means the sum of the applicable LTV Collateral Amounts for
each Aircraft, minus the Pool Balance for each Class of Certificates, if any,
senior to such Class, after giving effect to any distribution on such
Distribution Date of principal of the Equipment Notes held by the Trust or
Trusts of such senior Class or Classes.
"LTV Collateral Amount" of any Aircraft for any Class of Certificates
means, as of any Distribution Date, the lesser of (i) the LTV Ratio for such
Class of Certificates multiplied by the Appraised Current Market Value of such
Aircraft (or with respect to any such Aircraft that has suffered an Event or
Loss under and as defined in any Lease or Indenture, the amount of the insurance
proceeds paid to the related Loan Trustee in respect thereof to the extent then
held by such Loan Trustee (and/or on deposit in the Special Payments Account) or
payable to such Loan Trustee in respect thereof) and (ii) the outstanding
principal amount of the Equipment Notes secured by such Aircraft after giving
effect to any principal payments of such Equipment Notes on or before such
Distribution Date.
"LTV Ratio" means for the Class A Certificates 40.36%, for the Class B
Certificates 54.03% and for the Class C Certificates 65.19%.
"Appraised Current Market Value" of any Aircraft means the lower of the
average and the median of the most recent three Appraisals of such Aircraft.
After a Triggering Event occurs and any Equipment Note becomes a Non-Performing
Equipment Note, the Subordination Agent shall obtain LTV Appraisals for the
Aircraft as soon as practicable and additional LTV Appraisals on or prior to
each anniversary of the date of such initial LTV Appraisals; provided that if
the Controlling Party reasonably objects to the appraised value of the Aircraft
shown in such Appraisals, the Controlling Party shall have the right to obtain
or cause to be obtained substitute LTV Appraisals (including LTV Appraisals
based upon physical inspection of the Aircraft).
"Appraisal" means a fair market value appraisal (which may be a "desktop"
appraisal) performed by any Appraiser or any other nationally recognized
appraiser on the basis of an arm's-length transaction between an informed and
willing purchaser under no compulsion to buy and an informed and willing seller
under no compulsion to sell and both having knowledge of all relevant facts.
In the case of Leased Aircraft Indentures relating to transactions in which
Boeing or an affiliate of Boeing is the Owner Participant, certain amounts
payable to the Trustees, the Subordination Agent and the Liquidity Providers,
including fees and expenses of the Trustees and the Subordination Agent and
indemnification obligations of Continental, will not be entitled to the benefits
of the lien of the Indentures. Consequently, if a default occurs in the payment
of any such amounts, and to the extent that such amounts are distributed to any
such party in accordance with the priorities of distribution described above,
the holders of one or more junior Classes of Certificates may not receive the
full amount due them even if all Equipment Notes are eventually paid in full,
and any unpaid amounts will be unsecured claims against Continental.
Interest Drawings under the Liquidity Facility and withdrawals from the
Cash Collateral Account, in each case in respect of interest on the Certificates
of any Trust, 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 that are in excess of the Required Amount will be paid to
the applicable 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, consent or waiver under such Equipment Note or the related
Indenture (or, if applicable, the Lease, the Participation Agreement or other
related document), (i) if no Indenture Default shall have occurred and be
continuing with respect to such Indenture, the Subordination Agent shall request
instructions from the Trustees and shall vote or consent in accordance with the
directions of the Trustees (in the case of each such Trustee, with respect to
the Equipment Notes held in such Trust) constituting, in the aggregate,
directions with respect to the requisite principal amount of Equipment Notes
under such Indenture and (ii) if any Indenture Default shall have occurred and
be continuing with respect to
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such Indenture, the Subordination Agent will exercise its voting rights as
directed by the Controlling Party, subject to certain limitations; provided that
no such amendment, modification, consent or waiver shall, without the consent of
each Liquidity Provider, reduce the amount of rent, supplemental rent or
stipulated loss values payable by Continental under any Lease or reduce the
amount of principal or interest payable by Continental under any Equipment Note
issued under any Owned Aircraft Indenture. (Intercreditor Agreement, Section
9.1)
THE SUBORDINATION AGENT
Wilmington Trust Company is the Subordination Agent under the Intercreditor
Agreement. Continental and its affiliates may from time to time enter into
banking and trustee relationships with the Subordination Agent and its
affiliates. The Subordination Agent's address is Wilmington Trust Company,
Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001,
Attention: Corporate Trust Administration.
The Subordination Agent may resign at any time, in which event a successor
Subordination Agent will be appointed as provided in the Intercreditor
Agreement. The Controlling Party may remove the Subordination Agent for cause as
provided in the Intercreditor Agreement. In such circumstances, a successor
Subordination Agent will be appointed as provided in the Intercreditor
Agreement. Any resignation or removal of the Subordination Agent and appointment
of a successor Subordination Agent does not become effective until acceptance of
the appointment by the successor Subordination Agent. (Intercreditor Agreement,
Section 8.1)
DESCRIPTION OF THE AIRCRAFT AND THE APPRAISALS
THE AIRCRAFT
The Aircraft consist of eight Boeing 757-224 aircraft, eighteen Boeing
737-524 and four Boeing 737-724 aircraft, all of which will be newly delivered
by the manufacturer at the time that the Equipment Notes relating thereto are
issued. The Aircraft have been designed to be in compliance with Stage 3 noise
level standards, which are the most restrictive regulatory standards currently
in effect in the United States for aircraft noise abatement.
Boeing 757-200 Aircraft
The Boeing 757-200 aircraft is a medium-range aircraft with a seating
capacity of approximately 183 passengers. The engine type utilized on
Continental's 757-224 is anticipated to be the Rolls Royce RB211-535E4B.
Boeing 737-500 Aircraft
The Boeing 737-500 aircraft is a medium-range aircraft with a seating
capacity of approximately 104 passengers. The engine type utilized on
Continental's 737-524 is anticipated to be the CFM International CFM56-3-B2.
Boeing 737-700 Aircraft
The Boeing 737-700 aircraft is a medium-range aircraft with a seating
capacity of approximately 124 passengers. The Boeing 737-700 has not yet entered
commercial airline service, and the initial delivery of such model is scheduled
for November 1997. The engine type utilized on Continental's 737-724 is
anticipated to be the CFM International CFM 56-7B24. Deliveries of the Boeing
737-724 aircraft to Continental are subject to Boeing obtaining certain
approvals of the U.S. Federal Aviation Administration with respect to such
model. See "-- Deliveries of Aircraft".
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THE APPRAISALS
The table below sets forth the appraised values and certain additional
information regarding the Aircraft.
<TABLE>
<CAPTION>
AIRCRAFT APPRAISED VALUE
TAIL MANUFACTURER'S --------------------------------
AIRCRAFT TYPE NUMBER SERIAL NUMBER DELIVERY MONTH* AISI BK MBA
- ------------- ------ -------------- --------------- ------ ------ ------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
757-224 118 27560 March 1997 $53.72 $53.25 $59.43
757-224 119 27561 May 1997 53.80 53.25 59.68
757-224 120 27562 June 1997 53.97 53.25 60.18
757-224 121 27563 July 1997 54.05 53.75 60.43
757-224 122 27564 August 1997 54.13 53.75 60.68
757-224 126 28966 December 1997 54.47 54.00 61.69
757-224 123 27565 January 1998 54.55 54.25 61.94
757-224 127 28967 January 1998 54.55 54.25 61.94
737-524 638 28899 July 1997 31.09 27.80 27.61
737-524 639 28900 July 1997 31.09 27.80 27.61
737-524 640 28901 August 1997 31.14 27.80 27.72
737-524 641 28902 August 1997 31.14 27.80 27.72
737-524 642 28903 August 1997 31.14 27.80 27.72
737-524 643 28904 September 1997 31.19 27.80 27.83
737-524 644 28905 September 1997 31.19 27.80 27.83
737-524 645 28906 October 1997 31.24 27.80 27.93
737-524 646 28907 October 1997 31.24 27.80 27.93
737-524 647 28908 November 1997 31.29 28.00 28.04
737-524 648 28909 November 1997 31.29 28.00 28.04
737-524 649 28910 December 1997 31.34 28.00 28.15
737-524 650 28911 December 1997 31.34 28.00 28.15
737-524 651 28912 December 1997 31.34 28.00 28.15
737-524 652 28913 January 1998 31.39 28.25 28.26
737-524 653 28914 January 1998 31.39 28.25 28.26
737-524 654 28915 February 1998 31.43 28.25 28.36
737-524 655 28916 February 1998 31.43 28.25 28.36
737-724 701 28762 January 1998 36.83 37.75 36.49
737-724 702 28763 January 1998 36.83 37.75 36.49
737-724 703 28764 February 1998 36.89 37.75 36.57
737-724 704 28765 February 1998 36.89 37.75 36.57
</TABLE>
- ---------------
* Reflects the scheduled delivery month under Continental's purchase agreement
with the manufacturer. Aircraft 118, 119 and 120 were delivered in March, May
and June, 1997, respectively. The actual delivery date for the other Aircraft
may be subject to delay. See "-- Deliveries of Aircraft".
The aggregate appraised value of the Aircraft, determined as of April 1,
1998, is $1,081,740,200, based upon the lesser of the average and median values
of each Aircraft as appraised by the Appraisers and assuming that all Aircraft
are delivered prior to such date and that the Aircraft delivered before April 1,
1997 depreciates at 2% of its initial appraised value for such year, although
actual depreciation may differ.
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 provided its opinion as to the appraised value of
each Aircraft as of February 25, 1997, January 8, 1997 and February 21, 1997,
respectively, and projected as of the scheduled delivery month of each such
Aircraft. As part of this process, all three Appraisers performed "desk-top"
appraisals without any physical inspection of the Aircraft. The appraisals are
based on various assumptions and methodologies, which vary among the appraisals.
The Appraisers have delivered letters summarizing their respective appraisals,
copies of which are annexed to this Prospectus as Appendix II. For a discussion
of the assumptions and methodologies used in each of the appraisals, reference
is hereby made to such summaries.
79
<PAGE> 81
An appraisal is only an estimate of value, is not indicative of the price
at which an aircraft may be purchased from the manufacturer 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 or the Certificates.
DELIVERIES OF AIRCRAFT
The Aircraft are scheduled for delivery under Continental's purchase
agreement with Boeing from March 1997 to February 1998. See the table under
"-- The Appraisals" for the scheduled month of delivery of each Aircraft. Under
such purchase agreement, delivery of an Aircraft may be delayed due to
"Excusable Delay", which is defined to include, among other things, acts of God,
governmental acts or failures to act, strikes or other labor troubles, inability
to procure materials, or any other cause beyond Boeing's control or not
occasioned by Boeing's fault or negligence. In addition, the Boeing 737-700
aircraft model has not yet received the necessary U.S. Federal Aviation
Administration approvals, which Boeing is required to obtain under its purchase
agreement with Continental. Boeing has advised Continental that it expects to
receive such approvals by no later than October 1997, although no assurance can
be given that this will occur. The first of the four Boeing 737-724 aircraft
included in the Aircraft is scheduled for delivery in January 1998.
The Note Purchase Agreement provides that the Delivery Period will expire
on March 31, 1998, subject to extension, in the event that the Equipment Notes
relating to all of the Aircraft (or Substitute Aircraft in lieu thereof) have
not been purchased by the Trustees on or prior to such date due to any reason
beyond the control of Continental and not occasioned by Continental's fault or
negligence, to the earlier of (i) the purchase by the Trustees of Equipment
Notes relating to the last Aircraft (or a Substitute Aircraft in lieu thereof)
and (ii) June 30, 1998.
If delivery of any Aircraft is delayed by more than 30 days after the month
scheduled for delivery or beyond June 30, 1998, Continental has the right to
replace such Aircraft with a Substitute Aircraft, subject to certain conditions.
See "-- Substitute Aircraft". If delivery of any Aircraft is delayed beyond the
Delivery Period Termination Date and Continental does not exercise its right to
replace such Aircraft with a Substitute Aircraft, there will be unused Deposits
that will be distributed to Certificateholders together with accrued and unpaid
interest thereon and a premium. See "Description of the Deposit
Agreements -- Unused Deposits".
SUBSTITUTE AIRCRAFT
If the delivery date for any Aircraft is delayed (i) more than 30 days
after the month scheduled for delivery or (ii) beyond June 30, 1998, Continental
may identify for delivery a Substitute Aircraft therefor meeting the following
conditions: (i) a Substitute Aircraft must be a Boeing 757-200, 737-500 or
737-700 aircraft manufactured after the Issuance Date, (ii) one or more
Substitute Aircraft of the same or different types may be substituted for one or
more Aircraft of the same or different types so long as after giving effect
thereto the maximum principal amount of Equipment Notes of each Series issued in
respect of the Substitute Aircraft under the Mandatory Economic Terms would not
exceed the maximum principal amount of the Equipment Notes of each Series that
could have been issued under the Mandatory Economic Terms in respect of the
replaced Aircraft and (iii) Continental will be obligated to obtain written
confirmation from each Rating Agency that substituting such Substitute Aircraft
for the replaced Aircraft will not result in a withdrawal, suspension or
downgrading of the ratings of any Class of Certificates.
DESCRIPTION OF THE EQUIPMENT NOTES
The statements under this caption are summaries and do not purport to be
complete. The summaries make use of terms defined in and reference is made to
all of the provisions of the Equipment Notes, the Indentures, the Leases, the
Participation Agreements, the Trust Agreements and the Note Purchase
80
<PAGE> 82
Agreement. Except as otherwise indicated, the following summaries relate to the
Equipment Notes, the Indenture, the Lease, the Participation Agreement, and the
Trust Agreement that may be applicable to each Aircraft, forms of which are
filed as exhibits to the Registration Statement and are available as set forth
under the heading "Available Information".
Under the Note Purchase Agreement, Continental will have the option of
entering into a leveraged lease financing or a debt financing with respect to
each Aircraft. The Note Purchase Agreement provides for the relevant parties to
enter into either (i) with respect to each Leased Aircraft, a Participation
Agreement, a Lease and an Indenture (among other documents) relating to the
financing of such Aircraft and (ii) with respect to each Owned Aircraft, a
Participation Agreement and an Owned Aircraft Indenture relating to the
financing of such Owned Aircraft. The description of such agreements in this
Offering Circular is based on the forms of such agreements annexed to the Note
Purchase Agreement. Requests for the Note Purchase Agreement, including the
forms of such agreements annexed thereto, should be addressed to the Trustees.
Continental has obtained commitments of certain companies to act as the
Owner Participant with respect to the leveraged leases for all of the Aircraft
and, in certain cases, is seeking alternative commitments on more favorable
terms. The existing commitments are subject to satisfaction of certain
conditions with respect to each Aircraft and, in certain cases, Continental may
elect to terminate such commitments with respect to certain Aircraft.
Accordingly, Continental may select one or more other Owner Participants for
some or all of such Aircraft or finance such Aircraft as Owned Aircraft rather
than Leased Aircraft. Such Owner Participants may request revisions to the forms
of the Participation Agreement, the Lease and the Leased Aircraft Indenture that
are contemplated by the Note Purchase Agreement, so that the terms of such
agreements applicable to any particular Leased Aircraft may differ from the
description of such agreements contained in this Prospectus. However, under the
Note Purchase Agreement, the terms of such agreements are required to (i)
contain the Mandatory Documents Terms and (ii) not vary the Mandatory Economic
Terms. In addition, Continental will be obligated (i) to certify to the Trustees
that any such modifications do not materially and adversely affect the
Certificateholders and (ii) to obtain written confirmation from each Rating
Agency that the use of versions of such agreements modified in any material
respect would not result in a withdrawal, suspension or downgrading of the
ratings of any Class of Certificates. See "Description of the New
Certificates -- Obligation to Purchase Equipment Notes". Each Owner Participant
will be required to satisfy certain requirements, including having a minimum
combined capital and surplus or net worth.
GENERAL
The Equipment Notes will be issued in three series with respect to each
Aircraft. The Equipment Notes with respect to each Leased Aircraft will be
issued under a separate Leased Aircraft Indenture between First Security Bank,
National Association, as Owner Trustee of a trust for the benefit of the Owner
Participant who will be the beneficial owner of such Aircraft, and Wilmington
Trust Company, as Leased Aircraft Trustee. The Equipment Notes with respect to
each Owned Aircraft will be issued under a separate Owned Aircraft Indenture
between Continental and Wilmington Trust Company, as Owned Aircraft Trustee.
The related Owner Trustee will lease each Leased Aircraft to Continental
pursuant to a separate Lease between such Owner Trustee and Continental with
respect to such Leased Aircraft. Under each Lease, Continental will be obligated
to make or cause to be made rental and other payments to the related Leased
Aircraft Trustee on behalf of the related Owner Trustee, which rental and other
payments will be at least sufficient to pay in full when due all payments
required to be made on the Equipment Notes issued with respect to such Leased
Aircraft. The Equipment Notes issued with respect to the Leased Aircraft will
not, however, be direct obligations of, or guaranteed by, Continental.
Continental's rental obligations under each Lease and Continental's obligations
under the Equipment Notes issued with respect to each Owned Aircraft will be
general obligations of Continental.
SUBORDINATION
Series B Equipment Notes issued in respect of any Aircraft will be
subordinated in right of payment to Series A Equipment Notes issued in respect
of such Aircraft and Series C Equipment Notes issued in respect
81
<PAGE> 83
of such Aircraft will be subordinated in right of payment to such Series B
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 and (ii) payments of interest
and principal due on Series B Equipment Notes issued in respect of any Aircraft
will be made prior to payments of interest and principal due on Series C
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 with respect to Certificates issued
by such Trust (subject to change as provided in the Registration Rights
Agreement) until the final expected Regular Distribution Date for such Trust.
Subject to the provisions of the Intercreditor Agreement, principal paid on the
Equipment Notes held in each Trust will be passed through to the
Certificateholders of such Trust in scheduled amounts on the dates set forth
herein until the final expected Regular Distribution Date for such Trust.
Interest is payable on the unpaid principal amount of each Equipment Note
at the rate applicable to such Equipment Note on April 1 and October 1 in each
year, commencing on October 1, 1997, or, if later, the first such date to occur
after initial issuance thereof. Such interest is computed on the basis of a
360-day year of twelve 30-day months. Under certain circumstances described in
"The Exchange Offer -- Terms of the Exchange Offer-General", the interest rates
for the Equipment Notes may be increased to the extent described therein.
Scheduled principal payments on the Equipment Notes will be made on April 1
and October 1 in certain years, commencing April 1, 1998. See "Description of
the New Certificates -- Pool Factors" for a discussion of the scheduled payments
of principal of the Equipment Notes and possible revisions thereto.
If any date scheduled for any payment of principal, premium (if any) or
interest with respect to the Equipment Notes is not a Business Day, such payment
will be made on the next succeeding Business Day without any additional
interest.
REDEMPTION
If an Event of Loss occurs with respect to any Aircraft and such Aircraft
is not replaced by Continental under the related Lease (in the case of a Leased
Aircraft) or under the related Owned Aircraft Indenture (in the case of an Owned
Aircraft), the Equipment Notes issued with respect to such Aircraft will be
redeemed, in whole, in each case at a price equal to the aggregate unpaid
principal amount thereof, together with accrued interest thereon to, but not
including, the date of redemption, but without premium, on a Special
Distribution Date. (Indentures, Section 2.10(a))
If Continental exercises its right to terminate a Lease under Section 9 of
such Lease, the Equipment Notes relating to the applicable Leased Aircraft will
be redeemed, in whole, on a Special Distribution Date at a price equal to the
aggregate unpaid principal amount thereof, together with accrued interest
thereon to, but not including, the date of redemption, plus, in the case of any
series of Equipment Notes, if such redemption is made prior to the Premium
Termination Date applicable to such Series, a Make-Whole Premium. (Leased
Aircraft Indentures, Section 2.10(b)). See "-- The Leases -- Lease Termination".
All of the Equipment Notes issued with respect to a Leased Aircraft may be
redeemed prior to maturity as part of a refunding or refinancing thereof under
Section 11 of the applicable Participation Agreement, and all of the Equipment
Notes issued with respect to the Owned Aircraft may be redeemed prior to
maturity at any time at the option of Continental, in each case at a price equal
to the aggregate unpaid principal thereof, together with accrued interest
thereon to, but not including, the date of redemption, plus, in the case of any
series of Equipment Notes, if such redemption is made prior to the Premium
Termination Date applicable to such Series, a Make-Whole Premium. (Indentures,
Section 2.11) If notice of such a redemption shall have
82
<PAGE> 84
been given in connection with a refinancing of Equipment Notes with respect to a
Leased Aircraft, such notice may be revoked not later than three days prior to
the proposed redemption date. (Leased Aircraft Indentures, Section 2.12)
If, with respect to a Leased Aircraft, (x) one or more Lease Events of
Default shall have occurred and be continuing, (y) in the event of a bankruptcy
proceeding involving Continental, (i) during the Section 1110 Period, the
trustee in such proceeding or Continental does not agree to perform its
obligations under the related Lease or (ii) at any time after agreeing to
perform such obligations, such trustee or Continental ceases to perform such
obligations such that the stay period applicable under the U.S. Bankruptcy Code
comes to an end or (z) the Equipment Notes with respect to such Aircraft have
been accelerated or the Leased Aircraft Trustee with respect to such Equipment
Notes takes action or notifies the applicable Owner Trustee that it intends to
take action to foreclose the lien of the related Leased Aircraft Indenture or
otherwise commence the exercise of any significant remedy under such Indenture
or the related Lease, then in each case all, but not less than all, of the
Equipment Notes issued with respect to such Leased Aircraft may be purchased by
the Owner Trustee or Owner Participant on the applicable purchase date at a
price equal to the aggregate unpaid principal thereof, together with accrued and
unpaid interest thereon to, but not including, the date of purchase, but without
any premium (provided that a Make-Whole Premium shall be payable if such
Equipment Notes are to be purchased pursuant to clause (x) when a Lease Event of
Default shall have occurred and been continuing for less than 120 days). (Leased
Aircraft Indentures, Section 2.13) Continental as owner of the Owned Aircraft
has no comparable right under the Owned Aircraft Indentures to purchase the
Equipment Notes under such circumstances.
"Make-Whole Premium" means, with respect to any Equipment Note, an amount
(as determined by an independent investment banker of national standing) equal
to the excess, if any, of (a) the present value of the remaining scheduled
payments of principal and interest to maturity of such Equipment Note computed
by discounting such payments on a semiannual basis on each Payment Date
(assuming a 360-day year of twelve 30-day months) using a discount rate equal to
the Treasury Yield over (b) the outstanding principal amount of such Equipment
Note plus accrued interest to the date of determination.
For purposes of determining the Make-Whole Premium, "Treasury Yield" means,
at the date of determination with respect to any Equipment Note, the interest
rate (expressed as a semiannual decimal and, in the case of United States
Treasury bills, converted to a bond equivalent yield) determined to be the per
annum rate equal to the semiannual yield to maturity for United States Treasury
securities maturing on the Average Life Date of such Equipment Note and trading
in the public securities markets either as determined by interpolation between
the most recent weekly average yield to maturity for two series of United States
Treasury securities trading in the public securities markets, (A) one maturing
as close as possible to, but earlier than, the Average Life Date of such
Equipment Note and (B) the other maturing as close as possible to, but later
than, the Average Life Date of such Equipment Note, in each case as published in
the most recent H.15(519) or, if a weekly average yield to maturity for United
States Treasury securities maturing on the Average Life Date of such Equipment
Note is reported in the most recent H.15(519), such weekly average yield to
maturity as published in such H.15(519). "H.15(519)" means the weekly
statistical release designated as such, or any successor publication, published
by the Board of Governors of the Federal Reserve System. The date of
determination of a Make-Whole Premium shall be the third Business Day prior to
the applicable payment or redemption date and the "most recent H.15(519)" means
the H.15(519) published prior to the close of business on the third Business Day
prior to the applicable payment or redemption date.
"Average Life Date" for any Equipment Note shall be the date which follows
the time of determination by a period equal to the Remaining Weighted Average
Life of such Equipment Note. "Remaining Weighted Average Life" on a given date
with respect to any Equipment Note shall be the number of days equal to the
quotient obtained by dividing (a) the sum of each of the products obtained by
multiplying (i) the amount of each then remaining scheduled payment of principal
of such Equipment Note by (ii) the number of days from and including such
determination date to but excluding the date on which such payment of principal
is scheduled to be made, by (b) the then outstanding principal amount of such
Equipment Note.
83
<PAGE> 85
SECURITY
The Equipment Notes issued with respect to each Leased Aircraft will be
secured by (i) an assignment by the related Owner Trustee to the related Leased
Aircraft Trustee of such Owner Trustee's rights, except for certain limited
rights, under the Lease with respect to the related Aircraft, including the
right to receive payments of rent thereunder, (ii) a mortgage to such Leased
Aircraft Trustee of such Aircraft, subject to the rights of Continental under
such Lease, and (iii) an assignment to such Leased Aircraft Trustee of certain
of such Owner Trustee's rights under the purchase agreement between Continental
and the related manufacturer. Unless and until an Indenture Default with respect
to a Leased Aircraft has occurred and is continuing, the Leased Aircraft Trustee
may not exercise the rights of the Owner Trustee under the related Lease, except
the Owner Trustee's right to receive payments of rent due thereunder. The
assignment by the Owner Trustee to the Leased Aircraft Trustee of its rights
under the related Lease will exclude certain rights of such Owner Trustee and
the related Owner Participant, including the rights of the Owner Trustee and the
Owner Participant with respect to indemnification by Continental for certain
matters, insurance proceeds payable to such Owner Trustee in its individual
capacity or to such Owner Participant under public liability insurance
maintained by Continental under such Lease or by such Owner Trustee or such
Owner Participant, insurance proceeds payable to such Owner Trustee in its
individual capacity or to such Owner Participant under certain casualty
insurance maintained by such Owner Trustee or such Owner Participant under such
Lease and certain reimbursement payments made by Continental to such Owner
Trustee. (Leased Aircraft Indenture, Granting Clause) The Equipment Notes are
not cross-collateralized, and, consequently, the Equipment Notes issued in
respect of any one Aircraft are not secured by any of the other Aircraft or
replacement aircraft therefor (as described in "--The Leases--Events of Loss")
or the Leases related thereto.
The Equipment Notes issued with respect to each Owned Aircraft are secured
by (i) a mortgage to the Owned Aircraft Trustee of such Aircraft and (ii) an
assignment to the Owned Aircraft Trustee of certain of Continental's rights
under its purchase agreement with the related manufacturer.
Funds, if any, held from time to time by the Loan Trustee with respect to
any Aircraft, including funds held as the result of an Event of Loss to such
Aircraft or, in the case of a Leased Aircraft, termination of the Lease, if any,
relating thereto, will be invested and reinvested by such Loan Trustee, at the
direction of the related Owner Trustee in the case of the Leased Aircraft or
Continental in the case of the Owned Aircraft (except in the case of certain
Indenture Defaults), in investments described in the related Indenture. (Leased
Aircraft Indentures, Section 5.09; Owned Aircraft Indentures, Section 6.06)
LOAN TO VALUE RATIOS OF EQUIPMENT NOTES
The following tables set forth examples of loan to Aircraft value ratios
for the Equipment Notes issued in respect of Aircraft as of the Regular
Distribution Dates that occur after the scheduled date of original issuance of
such Equipment Notes, assuming that the Equipment Notes in the maximum principal
amount are issued in respect of each such Aircraft. These examples were utilized
by Continental in preparing the Assumed Amortization Schedule, although such
schedule may not be applicable in the case of any particular Aircraft. See
"Description of the New Certificates -- Pool Factors". The LTV 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 on each such Regular Distribution Date by (ii) the assumed
value (the "Assumed Aircraft Value") of the Aircraft securing such Equipment
Notes.
84
<PAGE> 86
The following tables are based on the assumption that the value of each
Aircraft set forth opposite the initial Regular Distribution Date included in
each table depreciates by approximately 2% of the initial appraised value per
year until the fifteenth year after the year of delivery of such Aircraft and by
approximately 4% of the initial appraised value per year thereafter. Other rates
or methods of depreciation would result in materially different loan to Aircraft
value ratios, and no assurance can be given (i) that the depreciation rates and
method assumed for the purposes of the tables are the ones most likely to occur
or (ii) as to the actual future value of any Aircraft. Thus the tables 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>
BOEING 757-224 BOEING 737-524
----------------------------------- -----------------------------------
EQUIPMENT EQUIPMENT
NOTE ASSUMED LOAN TO NOTE ASSUMED LOAN TO
OUTSTANDING AIRCRAFT VALUE OUTSTANDING AIRCRAFT VALUE
DATE BALANCE VALUE RATIO BALANCE VALUE RATIO
- ---------------------------------------- ----------- ------- ------- ----------- ------- -------
(MILLIONS) (MILLIONS) (MILLIONS) (MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
April 1, 1998........................... $36.324 $54.050 67.20% $16.878 $27.800 60.71%
April 1, 1999........................... 35.729 52.969 67.45 16.878 27.244 61.95
April 1, 2000........................... 34.843 51.888 67.15 16.548 26.688 62.00
April 1, 2001........................... 32.523 50.807 64.01 15.168 26.132 58.05
April 1, 2002........................... 29.609 49.726 59.54 13.866 25.576 54.22
April 1, 2003........................... 27.960 48.645 57.48 12.764 25.020 51.02
April 1, 2004........................... 26.184 47.564 55.05 11.547 24.464 47.20
April 1, 2005........................... 24.971 46.483 53.72 10.285 23.908 43.02
April 1, 2006........................... 24.377 45.402 53.69 10.285 23.352 44.04
April 1, 2007........................... 22.976 44.321 51.84 9.432 22.796 41.37
April 1, 2008........................... 18.196 43.240 42.08 8.711 22.240 39.17
April 1, 2009........................... 15.915 42.159 37.75 8.156 21.684 37.62
April 1, 2010........................... 12.274 41.078 29.88 5.678 21.128 26.88
April 1, 2011........................... 8.350 39.997 20.88 5.678 20.572 27.60
April 1, 2012........................... 4.124 38.916 10.60 4.239 20.016 21.18
April 1, 2013........................... 0.000 0.000 0.00 2.608 19.460 13.40
April 1, 2014........................... 0.000 0.000 0.00 1.531 18.348 8.35
</TABLE>
<TABLE>
<CAPTION>
BOEING 737-524 BOEING 737-724
----------------------------------- -----------------------------------
EQUIPMENT EQUIPMENT
NOTE ASSUMED LOAN TO NOTE ASSUMED LOAN TO
OUTSTANDING AIRCRAFT VALUE OUTSTANDING AIRCRAFT VALUE
DATE BALANCE VALUE RATIO BALANCE VALUE RATIO
- ---------------------------------------- ----------- ------- ------- ----------- ------- -------
(MILLIONS) (MILLIONS) (MILLIONS) (MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
April 1, 1998........................... $18.400 $28.040 65.62% $23.028 $36.830 62.52%
April 1, 1999........................... 18.005 27.479 65.52 22.725 36.093 62.96
April 1, 2000........................... 17.276 26.918 64.18 22.320 36.357 63.13
April 1, 2001........................... 16.657 26.358 63.20 21.915 34.620 63.30
April 1, 2002........................... 15.753 25.797 61.07 20.585 33.884 60.75
April 1, 2003........................... 14.424 25.236 57.16 19.106 33.147 57.64
April 1, 2004........................... 13.457 24.675 54.54 17.176 32.410 53.00
April 1, 2005........................... 12.629 24.114 52.37 15.462 31.674 48.82
April 1, 2006........................... 11.867 23.554 50.38 14.593 30.937 47.17
April 1, 2007........................... 10.883 22.993 47.33 13.352 30.201 44.21
April 1, 2008........................... 9.883 22.432 44.06 12.512 29.464 42.46
April 1, 2009........................... 8.835 21.871 40.39 11.563 28.727 40.25
April 1, 2010........................... 7.735 21.310 36.29 10.773 27.991 38.49
April 1, 2011........................... 6.245 20.750 30.10 9.382 27.254 34.42
April 1, 2012........................... 4.312 20.189 21.36 7.029 26.518 26.51
April 1, 2013........................... 2.229 19.628 11.36 4.407 25.781 17.09
April 1, 2014........................... 0.000 0.000 0.00 1.724 24.308 7.09
</TABLE>
85
<PAGE> 87
LIMITATION OF LIABILITY
The Equipment Notes issued with respect to the Leased Aircraft will not be
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 Leased Aircraft Trustees, or any affiliates thereof,
will be personally liable to any holder of an Equipment Note or, in the case of
the Owner Trustees and the Owner Participants, to the Leased Aircraft Trustees
for any amounts payable under the Equipment Notes or, except as provided in each
Leased Aircraft Indenture, for any liability under such Leased Aircraft
Indenture. All payments of principal of, premium, if any, and interest on the
Equipment Notes issued with respect to any Leased Aircraft (other than payments
made in connection with an optional redemption or purchase of Equipment Notes
issued with respect to a Leased Aircraft by the related Owner Trustee or the
related Owner Participant) will be made only from the assets subject to the lien
of the Indenture with respect to such Leased Aircraft or the income and proceeds
received by the related Leased Aircraft Trustee therefrom (including rent
payable by Continental under the Lease with respect to such Leased Aircraft).
The Equipment Notes issued with respect to the Owned Aircraft will be
direct obligations of Continental.
Except as otherwise provided in the Indentures, each Owner Trustee and each
Loan Trustee, in its individual capacity, will not be answerable or accountable
under the Indentures or under the Equipment Notes under any circumstances except
for its own willful misconduct or gross negligence. None of the Owner
Participants will have any duty or responsibility under any of the Leased
Aircraft Indentures or the Equipment Notes to the Leased Aircraft Trustees or to
any holder of any Equipment Note.
INDENTURE DEFAULTS, NOTICE AND WAIVER
Indenture Defaults under each Indenture will include: (a) in the case of a
Leased Aircraft Indenture, the occurrence of any Lease Event of Default under
the related Lease (other than the failure to make certain indemnity payments and
other payments to the related Owner Trustee or Owner Participant unless a notice
is given by such Owner Trustee that such failure shall constitute an Indenture
Default), (b) the failure by the related Owner Trustee (other than as a result
of a Lease Default or Lease Event of Default), in the case of a Leased Aircraft
Indenture, or Continental, in the case of an Owned Aircraft Indenture, to pay
any interest or principal or premium, if any, when due, under such Indenture or
under any Equipment Note issued thereunder that continues for more than 10
Business Days, in the case of principal, interest or Make-Whole Premium, and, in
all other cases, ten Business Days after the relevant Owner Trustee or Owner
Participant receives written demand from the related Loan Trustee or holder of
an Equipment Note, (c) the failure by the related Owner Participant or the
related Owner Trustee (in its individual capacity), in the case of a Leased
Aircraft Indenture, or Continental, in the case of an Owned Aircraft Indenture,
to discharge certain liens that continues after notice and specified cure
periods, (d) any representation or warranty made by the related Owner Trustee or
Owner Participant in the related Aircraft Operative Agreements, or certain
related documents furnished to the Loan Trustee pursuant thereto being false or
incorrect in any material respect when made that continues to be material and
adverse to the interests of the Loan Trustee or Note Holders and remains
unremedied after notice and specified cure periods, (e) failure by Continental
or the related Owner Trustee or Owner Participant to perform or observe any
covenant or obligation for the benefit of the Loan Trustee or holders of
Equipment Notes under such Indenture or certain related documents that continues
after notice and specified cure periods, (f) the registration of the related
Aircraft ceasing to be effective as a result of the Owner Participant (in the
case of a Leased Aircraft) or Continental (in the case of an Owned Aircraft) not
being a citizen of the United States, as defined in the Transportation Code
(subject to a cure period), (g) with respect to the Owned Aircraft, the lapse or
cancellation of insurance required under the Owned Aircraft Indenture or (h) the
occurrence of certain events of bankruptcy, reorganization or insolvency of the
related Owner Trustee or Owner Participant (in the case of a Leased Aircraft) or
Continental (in the case of the Owned Aircraft). (Leased Aircraft Indentures,
Section 4.02; Owned Aircraft Indenture, Section 5.01) There will not be
cross-default provisions in the Indentures or in the Leases (unless, in the case
of a Lease, otherwise agreed between an Owner Participant and Continental).
Consequently, events resulting in an Indenture Default under any particular
Indenture may or may not result in an Indenture Default
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occurring under any other Indenture, and a Lease Event of Default under any
particular Lease may or may not constitute a Lease Event of Default under any
other Lease.
If Continental fails to make any semiannual basic rental payment due under
any Lease, within a specified period after such failure the applicable Owner
Trustee may furnish to the Leased Aircraft Trustee the amount due on the
Equipment Notes issued with respect to the related Leased Aircraft, together
with any interest thereon on account of the delayed payment thereof, in which
event the Leased Aircraft Trustee and the holders of outstanding Equipment Notes
issued under such Indenture may not exercise any remedies otherwise available
under such Indenture or such Lease as the result of such failure to make such
rental payment, unless such Owner Trustee has previously cured three or more
immediately preceding semiannual basic rental payment defaults or, in total, six
or more previous semiannual basic rental payment defaults (or, in the case of
certain Owner Participants, six or more immediately preceding semiannual basic
rental payment defaults or, in total, eight or more previous semiannual basic
rental payment defaults). The applicable Owner Trustee also may cure any other
default by Continental in the performance of its obligations under any Lease
that can be cured with the payment of money. (Leased Aircraft Indentures,
Section 4.03)
The holders of a majority in principal amount of the outstanding Equipment
Notes issued with respect to any Aircraft, by notice to the Loan Trustee, may on
behalf of all the holders waive any existing default and its consequences under
the Indenture with respect to such Aircraft, except a default in the payment of
the principal of or premium or interest on any such Equipment Notes or a default
in respect of any covenant or provision of such Indenture that cannot be
modified or amended without the consent of each holder of Equipment Notes
affected thereby. (Leased Aircraft Indentures, Section 4.08; Owned Aircraft
Indenture, Section 5.06)
REMEDIES
If an Indenture Default occurs and is continuing under an Indenture, the
related Loan Trustee or the holders of a majority in principal amount of the
Equipment Notes outstanding under such Indenture may, subject to the applicable
Owner Participant's or Owner Trustee's right to cure, as discussed above,
declare the principal of all such Equipment Notes issued thereunder immediately
due and payable, together with all accrued but unpaid interest thereon, provided
that in the event of a reorganization proceeding involving Continental
instituted under Chapter 11 of the U.S. Bankruptcy Code, if no other Lease Event
of Default and no other Indenture Default (other than the failure to pay the
outstanding amount of the Equipment Notes which by such declaration shall have
become payable) exists at any time after the consummation of such proceeding,
such declaration will be automatically rescinded without any further action on
the part of any holder of Equipment Notes. 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 incipient Indenture Defaults under such Indenture have been cured.
(Leased Aircraft Indentures, Section 4.04(b); Owned Aircraft Indenture, Section
5.02(b))
Each Indenture will provide that if an Indenture Default under such
Indenture has occurred and is continuing, the related Loan Trustee may exercise
certain rights or remedies available to it under such Indenture or under
applicable law, including (if, in the case of a Leased Aircraft, the
corresponding Lease has been declared in default) one or more of the remedies
under such Indenture or, in the case of a Leased Aircraft, such Lease with
respect to the Aircraft subject to such Lease. If an Indenture Default arises
solely by reason of one or more events or circumstances which constitute a Lease
Event of Default, the related Leased Aircraft Trustee's right to exercise
remedies under a Leased Aircraft Indenture is subject, with certain exceptions,
to its having proceeded to exercise one or more of the dispossessory remedies
under the Lease with respect to such Leased Aircraft; provided that the
requirement to exercise one or more of such remedies under such Lease shall not
apply in circumstances where such exercise has been involuntarily stayed or
prohibited by applicable law or court order for a continuous period in excess of
60 days or such other period as may be specified in Section 1110(a)(1)(A) of the
U.S. Bankruptcy Code (plus an additional period, if any, resulting
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from (i) the trustee or debtor-in-possession in such proceeding agreeing to
perform its obligations under such Lease with the approval of the applicable
court and its continuous performance of such Lease under Section 1110(a)(1)(A-B)
of the U.S. Bankruptcy Code or such Leased Aircraft Trustee's consent to an
extension of such period, (ii) such Leased Aircraft Trustee's failure to give
any requisite notice, or (iii) Continental's assumption of such Lease with the
approval of the relevant court and its continuous performance of the Lease so
assumed). See "-- The Leases -- Lease Events of Default". Such remedies may be
exercised by the related Leased Aircraft Trustee to the exclusion of the related
Owner Trustee, subject to certain conditions specified in such Indenture, and of
Continental, subject to the terms of such Lease. Any Aircraft sold in the
exercise of such remedies will be free and clear of any rights of those parties,
including the rights of Continental under the Lease with respect to such
Aircraft; provided that no exercise of any remedies by the related Leased
Aircraft Trustee may affect the rights of Continental under any Lease unless a
Lease Event of Default has occurred and is continuing. (Leased Aircraft
Indentures, Section 4.04; Leases, Section 15) The Owned Aircraft Indentures will
not contain such limitations on the Owned Aircraft Trustee's ability to exercise
remedies upon an Indenture Default under an Owned Aircraft Indenture.
If a bankruptcy proceeding involving Continental under the U.S. Bankruptcy
Code occurs, all of the rights of the Owner Trustee as lessor under a particular
Lease will be exercised by the Owner Trustee in accordance with the terms
thereof unless (i) during the Section 1110 Period the trustee in such proceeding
or Continental does not agree to perform its obligations under such Lease, (ii)
at any time after agreeing to perform such obligations, such trustee or
Continental ceases to perform such obligations or (iii) the related Loan Trustee
takes action, or notifies the Owner Trustee that such Loan Trustee intends to
take action, to foreclose the lien of the related Leased Aircraft Indenture in
accordance with the provisions of the immediately preceding paragraph. The Owner
Trustee's exercise of such rights shall be subject to certain limitations and,
in no event, reduce the amount or change the time of any payment in respect of
the Equipment Notes or adversely affect the validity or enforceability of the
lien under the related Leased Aircraft Indenture.
If the Equipment Notes issued in respect of one Aircraft are in default,
the Equipment Notes issued in respect of the other Aircraft may not be in
default, and, if not, no remedies will be exercisable under the applicable
Indentures with respect to such other Aircraft.
Section 1110 of the U.S. Bankruptcy Code provides that the right of
lessors, conditional vendors and holders of security interests with respect to
"equipment" (as defined in Section 1110 of the U.S. Bankruptcy Code) to take
possession of such equipment in compliance with the provisions of a lease,
conditional sale contract or security agreement, as the case may be, is not
affected by (a) the automatic stay provision of the U.S. Bankruptcy Code, which
provision enjoins repossessions by creditors for the duration of the
reorganization period, (b) the provision of the U.S. Bankruptcy Code allowing
the trustee in reorganization to use property of the debtor during the
reorganization period, (c) Section 1129 of the U.S. Bankruptcy Code (which
governs the confirmation of plans of reorganization in Chapter 11 cases) and (d)
any power of the bankruptcy court to enjoin a repossession. Section 1110
provides, however, that the right of a lessor, conditional vendor or holder of a
security interest to take possession of an aircraft in the event of an event of
default may not be exercised for 60 days following the date of commencement of
the reorganization proceedings (unless specifically permitted by the bankruptcy
court) and may not be exercised at all if, within such 60-day period (or such
longer period consented to by the lessor, conditional vendor or holder of a
security interest), the trustee in reorganization agrees to perform the debtor's
obligations that become due on or after such date and cures all existing
defaults (other than defaults resulting solely from the financial condition,
bankruptcy, insolvency or reorganization of the debtor). "Equipment" is defined
in Section 1110 of the U.S. Bankruptcy Code, in part, as "an aircraft, aircraft
engine, propeller, appliance, or spare part (as defined in section 40102 of
title 49 of the U.S. Code) 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 of the U.S. Code) 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".
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It is a condition to the Trustee's obligation to purchase Equipment Notes
with respect to each Aircraft that outside counsel to Continental, which is
expected to be Hughes Hubbard & Reed LLP, provide its opinion to the Trustees
that (x) if such Aircraft is a Leased Aircraft, the Owner Trustee, as lessor
under the Lease for such Aircraft, and the Leased Aircraft Trustee, as assignee
of such Owner Trustee's rights under such Lease pursuant to the related Leased
Aircraft Indenture, will be entitled to the benefits of Section 1110 of the U.S.
Bankruptcy Code with respect to the airframe and engines comprising such
Aircraft or (y) if such Aircraft is an Owned Aircraft, the Owned Aircraft
Trustee will be entitled to the benefits of Section 1110 with respect to the
airframe and engines comprising such Owned Aircraft, in each case so long as
Continental continues to be a "citizen of the United States" as defined in
Section 40102 of title 49 of the U.S. Code 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".
The opinion of Hughes Hubbard & Reed LLP will 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 will be entitled
to Section 1110 benefits with respect to such replacement unless there is a
change in law or court interpretation that results in Section 1110 not being
available. See "-- The Leases -- Events of Loss". The opinion of Hughes Hubbard
& Reed LLP will also not address the availability of Section 1110 with respect
to any possible sublessee of a Leased Aircraft subleased by Continental or to
any possible lessee of an Owned Aircraft if it is leased by Continental.
If an Indenture Default under any Indenture occurs and is continuing, any
sums held or received by the related Loan Trustee may be applied to reimburse
such Loan Trustee for any tax, expense or other loss incurred by it and to pay
any other amounts due to such Loan Trustee prior to any payments to holders of
the Equipment Notes issued under such Indenture. (Indentures, Section 3.03)
In the event of bankruptcy, insolvency, receivership or like proceedings
involving an Owner Participant, it is possible that, notwithstanding that the
applicable Leased Aircraft is owned by the related Owner Trustee in trust, such
Leased Aircraft and the related Lease and Equipment Notes might become part of
such proceeding. In such event, payments under such Lease or on such Equipment
Notes might be interrupted and the ability of the related Leased Aircraft
Trustee to exercise its remedies under the related Leased Aircraft Indenture
might be restricted, although such Leased Aircraft Trustee would retain its
status as a secured creditor in respect of the related Lease and the related
Leased Aircraft.
MODIFICATION OF INDENTURES AND LEASES
Without the consent of holders of a majority in principal amount of the
Equipment Notes outstanding under any Indenture, the provisions of such
Indenture and any related Lease, Participation Agreement or Trust Agreement may
not be amended or modified, except to the extent indicated below.
Subject to certain limitations, certain provisions of any Leased Aircraft
Indenture, and of the Lease, the Participation Agreement, and the Trust
Agreement related thereto, may be amended or modified by the parties thereto
without the consent of any holders of the Equipment Notes outstanding under such
Indenture. In the case of each Lease, such provisions include, among others,
provisions relating to (i) the return to the related Owner Trustee of the
related Leased Aircraft at the end of the term of such Lease (except to the
extent that such amendment would affect the rights or exercise of remedies under
the Lease) and (ii) the renewal of such Lease and the option of Continental at
the end of the term of such Lease to purchase the related Leased Aircraft so
long as the same would not adversely affect the Note Holders. (Leased Aircraft
Indentures, Section 9.01(a)) In addition, any Indenture may be amended without
the consent of the holders of Equipment Notes to, among other things, cure any
defect or inconsistency in such Indenture or the Equipment Notes issued
thereunder, provided that such change does not adversely affect the interests of
any such holder. (Leased Aircraft Indentures, Section 9.01(c); Owned Aircraft
Indenture, Section 10.01)
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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) permit the creation of 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 benefit of the lien of such Indenture upon the property subject
thereto or (c) reduce the percentage in principal amount of outstanding
Equipment Notes issued under such Indenture necessary to modify or amend any
provision of such Indenture or to waive compliance therewith. (Leased Aircraft
Indentures, Section 9.01(b); Owned Aircraft Indenture, Section 10.01(a))
OWNER PARTICIPANT'S RIGHT TO RESTRUCTURE
Certain Owner Participants will have the right, subject to certain
conditions, to restructure the applicable leveraged lease transaction using a
"cross-border lease", a tax lease or a 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 Aircraft Operative Agreements or any
holder of Certificates or (ii) expose any such holder to any additional risks.
As a precondition to any such restructuring, the Owner Participant will be
obligated to deliver to the Leased Aircraft Trustee an appropriate officer's
certificate as to the satisfaction of the foregoing conditions and obtain a
written confirmation from the Rating Agencies prior to the implementation of
such restructuring to the effect that such restructuring will not adversely
affect the ratings of the Certificates.
INDEMNIFICATION
Continental will be required to indemnify each Loan Trustee, each Owner
Participant, each Owner Trustee, each Liquidity Provider, the Subordination
Agent, the Escrow Agent and each Trustee, but not the holders of Certificates,
for certain losses, claims and other matters. Continental will be required under
certain circumstances to indemnify each Owner Participant against the loss of
depreciation deductions and certain other benefits allowable for certain income
tax purposes with respect to the related Leased Aircraft. Each Owner Participant
will be required to indemnify the related Loan Trustee and the holders of the
Equipment Notes issued with respect to the Leased Aircraft in which such Owner
Participant has an interest for certain losses that may be suffered as a result
of the failure of such Owner Participant to discharge certain liens or claims on
or against the assets subject to the lien of the related Indenture.
THE LEASES AND CERTAIN PROVISIONS OF THE OWNED AIRCRAFT INDENTURES
Each Leased Aircraft will be leased to Continental by the relevant Owner
Trustee under the relevant lease agreement (each, a "Lease"). Each Owned
Aircraft will be owned by Continental.
The Note Purchase Agreement provides for two sets of leveraged leased
agreements, one set intended to be applicable to a transaction involving any
Owner Participant (the "Standard Agreements") and another set intended to be
used by a particular Owner Participant that has engaged in a significant number
of previous aircraft financings with Continental (the "Special Agreements").
Certain differences between the Standard Agreements and the Special Agreements
are noted below.
Lease Term Rentals and Payments
Each Leased Aircraft will be leased separately by the relevant Owner
Trustee to Continental for a term commencing on the date on which the Aircraft
is 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 semiannual basic rent payment under each Lease will be payable by
Continental on each related Lease Payment Date (or, if such day is not a
Business Day, on the next Business Day), and will be assigned by the Owner
Trustee under the corresponding Leased Aircraft Indenture to provide the funds
necessary to make payments of principal and interest due from
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the Owner Trustee on the Equipment Notes issued under such Indenture. In certain
cases, the semiannual 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 will be increased in an amount necessary
to pay additional interest due on the Equipment Notes on the relevant Lease
Payment Date as a result of any increase in the rate of interest on the
Equipment Notes as required by the terms of the Registration Rights Agreement.
See "The Exchange Offer -- Terms of the Exchange Offer -- General". Any balance
of each such semiannual basic rent payment under each Lease, after payment of
amounts due on the Equipment Notes issued under the Indenture corresponding to
such Lease, will be paid over to the Owner Trustee. (Leases, Section 3; Leased
Aircraft Indentures, Section 3.01)
"Lease Payment Date" means, with respect to each Lease, April 1 or October
1 during the term of such Lease.
Semiannual payments of interest on the Equipment Notes issued by
Continental under an Owned Aircraft Indenture will be payable each April 1 and
October 1 commencing on October 1, 1997 or, if later, the first such date after
issuance thereof. Semiannual payments of principal under the Equipment Notes
issued by Continental under an Owned Aircraft Indenture will be payable on April
1 and October 1 in certain years commencing on April 1, 1998. The amount of a
semiannual payment of interest or principal will be increased in an amount equal
to any increase in the amount of interest due on such Equipment Notes on the
relevant payment date as a result of any increase in the rate of interest on
such Equipment Notes as required by the terms of the Registration Rights
Agreement. (Owned Aircraft Indenture, Section 2.02)
Net Lease; Maintenance
Under the terms of each Lease, Continental's obligations in respect of each
Leased Aircraft will be those of a lessee under a "net lease". Accordingly,
Continental will be obligated under each Lease, among other things and at its
expense, to keep each Aircraft duly registered and insured, to pay all costs of
operating the Aircraft and to maintain, service, repair and overhaul the
Aircraft so as to keep it in as good an operating condition as when delivered to
Continental, ordinary wear and tear excepted, and in such condition as required
to maintain the airworthiness certificate for the Aircraft in good standing at
all times. (Leases, Sections 7.1, 8.1 and 11.1 and Annexes C and D) The Owned
Aircraft Indenture imposes comparable maintenance, service and repair
obligations on Continental with respect to the Owned Aircraft. (Owned Aircraft
Indenture, Section 4.02)
Possession, Sublease and Transfer
Each Aircraft may be operated by Continental or, subject to certain
restrictions, by certain other persons. Normal interchange and pooling
agreements with respect to any Engine are permitted. Subleases, in the case of
Leased Aircraft, and leases, in the case of Owned Aircraft, are also permitted
to U.S. air carriers and foreign air carriers that have their principal
executive office in certain specified countries or, in the case of the Special
Agreements, that are listed in the applicable Lease, subject to a reasonably
satisfactory legal opinion that, among other things, such country would
recognize (in the case of the Leased Aircraft) Owner Trustee's title to, and the
Loan Trustee's lien in respect of, the applicable Aircraft. In addition, a
sublessee or lessee may not be subject to insolvency or similar proceedings at
the commencement of such sublease or lease. (Leases, Section 7, Owned Aircraft
Indenture, Section 4.02) Permitted foreign air carriers are not limited to those
based in a country that is a party to the Convention on the International
Recognition of Rights in Aircraft (Geneva 1948) (the "Convention"). It is
uncertain to what extent the relevant Loan Trustee's security interest would be
recognized if an Aircraft is registered or located in a jurisdiction not a party
to the Convention. Moreover, in the case of an Indenture Event of Default, the
ability of the related Loan Trustee to realize upon its security interest in an
Aircraft could be adversely affected as a legal or practical matter if such
Aircraft were registered or located outside the United States.
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Registration
Continental is required to keep each Aircraft duly registered under the
Transportation Code with the FAA, except (in the case of a Leased Aircraft) if
the relevant Owner Trustee or the relevant Owner Participant fails to meet the
applicable citizenship requirements, and to record each Lease (in the case of a
Leased Aircraft) and Indenture and certain other documents under the
Transportation Code. (Leases, Section 7; Owned Aircraft Indenture, Section
4.02(e)) Such recordation of the Indenture and other documents with respect to
each Aircraft will give the relevant Loan Trustee a first-priority, perfected
security interest in such Aircraft whenever it is located in the United States
or any of its territories and possessions. The Convention provides that such
security interest will also be recognized, with certain limited exceptions, in
those jurisdictions that have ratified or adhere to the Convention.
So long as no Lease Event of Default exists, Continental has the right to
register the Leased Aircraft subject to such Lease in a country other than the
United States at its own expense in connection with a permitted sublease of the
Aircraft to permitted foreign air carriers, subject to certain conditions set
forth in the related Participation Agreement. These conditions include a
requirement that the lien of the applicable Indenture continue as a first
priority security interest in the applicable Aircraft. (Leases, Section 7.1.2;
Participation Agreements, Section 7.6.11 or, in the case of the Special
Agreements, Section 8.7.12) The Owned Aircraft Indentures contain comparable
provisions with respect to registration of the Owned Aircraft in connection with
a permitted lease of the Owned Aircraft. (Owned Aircraft Indenture, Section
4.02(e))
Liens
Continental is required to maintain each Aircraft free of any liens, other
than the rights of the relevant Loan Trustee, the holders of the related
Equipment Notes, Continental and, with respect to a Leased Aircraft, the Owner
Participant and Owner Trustee arising under the applicable Indenture, the Lease
(in the case of a Leased Aircraft) or the other operative documents related
thereto, and other than certain limited liens permitted under such documents,
including but not limited to (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 (in the case of the
Standard Agreements, for more than 60 days) or are being contested in good faith
by appropriate proceedings; (iii) judgment liens so long as such judgment is
discharged or vacated within 60 days (30 days in the case of the Special
Agreements) or the execution of such judgment is stayed pending appeal and
discharged, vacated or reversed within 60 days (30 days in the case of the
Special Agreements) after expiration of such stay; and (iv) any other lien as to
which Continental has provided a bond or other security adequate in the
reasonable opinion of the Owner Trustee; provided that in the case of each of
the liens described in the foregoing clauses (i), (ii) and (iii), such liens and
proceedings do not involve any material risk of the sale, forfeiture or loss of
such Aircraft or the interest of any Participant therein or impair the lien of
the relevant Indenture. (Leases, Section 6; Owned Aircraft Indenture, Section
4.01)
Replacement of Parts; Alterations
Continental is obligated to replace all parts at its expense that may from
time to time be incorporated or installed in or attached to any Aircraft and
that may become lost, damaged beyond repair, worn out, stolen, seized,
confiscated or rendered permanently unfit for use. Continental or any permitted
lessee or 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, so long as such
alteration, modification, addition or removal does not materially diminish the
fair market value, utility, or remaining useful life of the related Aircraft,
Airframe or Engine or invalidate the Aircraft's airworthiness certificate.
(Leases, Section 8.1 and Annex C; Owned Aircraft Indenture, Section 4.04(d))
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Insurance
Continental is required to maintain, at its expense (or at the expense of a
permitted lessee, in the case of the Owned Aircraft, or a permitted sublessee,
in the case of a Leased Aircraft), all-risk aircraft hull insurance covering
each Aircraft, at all times in an amount not less than the stipulated loss value
of the Aircraft (which exceeds the aggregate outstanding principal amount of the
Equipment Notes related to such Aircraft, together with accrued interest
thereon). However, after giving effect to self-insurance permitted as described
below, the amount payable under such insurance may be less than such amounts
payable with respect to the Equipment Notes. In the event of a loss involving
insurance proceeds in excess of $3,500,000 per occurrence ($3,000,000 per
occurrence in the case of the Special Agreements and $5,000,000 per occurrence
in the case of Boeing 757-224 aircraft), such proceeds up to the stipulated loss
value of the relevant Aircraft will be payable to the applicable Loan Trustee,
for so long as the relevant Indenture shall be in effect. In the event of a loss
involving insurance proceeds of up to $3,500,000 per occurrence ($3,000,000 per
occurrence in the case of the Special Agreements and $5,000,000 per occurrence
in the case of Boeing 757-224 aircraft) such proceeds will be payable directly
to Continental so long as an Indenture Event of Default does not exist with
respect to the Owned Aircraft Indenture or (in the case of a Leased Aircraft)
the Owner Trustee has not notified the insurance underwriters that a Lease Event
of Default exists. So long as the loss does not constitute an Event of Loss,
insurance proceeds will be applied to repair or replace the property. (Leases,
Sections 11 and Annex D; Owned Aircraft Indenture, Section 4.06)
In addition, Continental is obligated to maintain comprehensive airline
liability insurance at its expense (or at the expense of a permitted lessee, in
the case of an Owned Aircraft, or a permitted sublessee, in the case of a Leased
Aircraft), including, without limitation, passenger liability, baggage
liability, cargo and mail liability, hangarkeeper's liability and contractual
liability insurance with respect to each Aircraft. Such liability insurance must
be underwritten by insurers of nationally or internationally recognized
responsibility. The amount of such liability insurance coverage per occurrence
may not be 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 and operating on similar routes as such Aircraft.
(Leases, Section 11.1 and Annex D, Owned Aircraft Indenture, Section 4.06)
Continental is also required to maintain war-risk, hijacking or allied
perils insurance if it (or any permitted sublessee or lessee) operates any
Aircraft, Airframe or Engine in any area of recognized hostilities or if
Continental (or any permitted sublessee or lessee) maintains such insurance with
respect to other aircraft operated on the same routes or areas on or in which
the Aircraft is operated. (Leases, Annex D, Owned Aircraft Indenture, Section
4.06)
Continental may self-insure in such amounts as are then self-insured with
respect to similar owned or leased aircraft in its fleet, but the amount of such
self-insurance in the aggregate may not exceed 50% of the largest replacement
value of any single aircraft in Continental's fleet or 1 1/2% of the average
aggregate insurable value (during the preceding calendar year) of all aircraft
on which Continental carries insurance, whichever is less, unless an insurance
broker of national standing shall certify that the standard among all other
major U.S. airlines is a higher level of self-insurance, in which case
Continental may self-insure the Aircraft to such higher level. In addition,
Continental may self-insure to the extent of any applicable deductible per
Aircraft that does not exceed industry standards for major U.S. airlines.
(Leases, Section 11.1 and Annex D, Owned Aircraft Indenture, Section 4.06) Self
insurance permitted under the Special Agreements is more limited.
In respect of each Aircraft, Continental is required to name as additional
insured parties the relevant Loan Trustee and holders of the Equipment Notes and
(in the case of the Leased Aircraft) the relevant Owner Participant and Owner
Trustee, in its individual capacity and as owner of such Aircraft, and in some
cases certain other parties under all liability, hull and property and war risk,
hijacking and allied perils insurance policies required with respect to such
Aircraft. In addition, the insurance policies maintained under the Leases and
the Owned Aircraft Indenture will be required to provide that, in respect of the
interests of such additional insured persons, the insurance shall not be
invalidated or impaired by any act or omission of Continental or any other
person and to insure the respective interests of such additional insured
persons,
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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, Owned Aircraft
Indenture, Section 4.06)
Lease Termination
Unless a Lease Event of Default shall have occurred and be continuing,
Continental may terminate any Lease on any Lease Payment Date occurring after
the fifth anniversary (or, in the case of the Special Agreements, the tenth
anniversary) of the date on which such Lease commenced, if it makes a good faith
determination that the Leased Aircraft subject to such Lease is economically
obsolete or surplus to its requirements. In the case of the Special Agreements,
such determination must be made on a nondiscriminatory basis with respect to the
Aircraft subject to such Special Agreements 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 90 days (in the case of the Special Agreements, six months)
prior to the proposed date of termination, which notice may be withdrawn up to
ten Business Days (in the case of the Special Agreements, 25 days) prior to such
proposed date; provided that Continental may give only five (in the case of the
Special Agreements, three) such termination notices. In such a situation, unless
the Owner Trustee elects to retain title to such Aircraft, Continental is
required to use commercially reasonable efforts to sell such Aircraft as an
agent for such Owner Trustee, and Owner Trustee will 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. 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, the lien of the relevant Indenture
will be released, the relevant Lease will terminate, and the obligation of
Continental thereafter to make scheduled rent payments under such Lease will
cease. (Leases, Section 9; Leased Aircraft Indentures, Section 2.10(b))
The Owner Trustee has the option to retain title to the Leased Aircraft if
Continental has given a notice of termination under the Lease. In such event,
such Owner Trustee will pay to the applicable Loan Trustee an amount sufficient
to prepay the outstanding Equipment Notes issued with respect to such Aircraft
(including the Make-Whole Premiums), in which case the lien of the relevant
Indenture will be released, the relevant Lease will terminate and the obligation
of Continental thereafter to make scheduled rent payments under such Lease will
cease. (Leases, Section 9; Leased Aircraft Indentures, Sections 2.06 and
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 45 days (in the case of
the Special Agreements, 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 earliest of (i) the
120th day (in the case of the Special Agreements, the 60th day) following the
date of occurrence of such Event of Loss, and (ii) the fourth Business Day (in
the case of the Special Agreements, the second Business Day) following the
receipt of the insurance proceeds in respect of such Event of Loss, Continental
must either (i) pay to the applicable Owner Trustee (in the case of a Leased
Aircraft) the stipulated loss value of such Aircraft, together with certain
additional amounts, or to the Owned Aircraft Trustee (in the case of the Owned
Aircraft) the outstanding principal amount of and unpaid interest on the
Equipment Notes together with certain additional amounts (if any) but, in any
case, without any Make-Whole Premium or (ii) unless any Lease Event of Default
or failure to pay basic rent under the relevant Lease (in the case of a Leased
Aircraft), an Indenture Event of Default or failure to pay principal or interest
under the Owned Aircraft Indenture (in the case of the Owned Aircraft) or
certain bankruptcy defaults shall have occurred and be continuing, substitute an
airframe (or airframe and one or more engines, as the case may be) for the
Airframe, or Airframe and Engine(s), that suffered such Event
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of Loss. (Leases, Sections 10.1.1 and 10.1.2; Leased Aircraft Indentures,
Section 2.10(a); Owned Aircraft Indenture, Sections 2.10 and 4.05(a))
If Continental elects to replace an Airframe (or Airframe and one or more
Engines, as the case may be) that suffered such Event of Loss, it shall, in the
case of a Leased Aircraft, convey to the related Owner Trustee title to an
airframe (or airframe and one or more engines, as the case may be), and 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 a
value, utility and remaining useful life (without regard to hours or cycles
remaining until the next regular maintenance check) at least equal to the
Airframe or Airframe and Engines to be replaced, assuming that such Airframe and
such Engines had been maintained in accordance with the related Lease.
Continental is also required to provide to the relevant Loan Trustee and (in the
case of a Leased Aircraft) the relevant Owner Trustee and Owner Participant
reasonably acceptable opinions of counsel to the effect, among other things,
that (i) certain specified documents have been duly filed under the
Transportation Code and (ii) such Owner Trustee and Leased Aircraft Trustee (as
assignee of lessor's rights and interests under the Lease), in the case of a
Leased Aircraft, or the Owned Aircraft Trustee, in the case of an Owned
Aircraft, will be entitled to receive the benefits of Section 1110 of the U.S.
Bankruptcy Code with respect to any such replacement airframe (unless, as a
result of a change in law or court interpretation, such benefits are not then
available). (Leases, Sections 10.1.3 and 10.3; Owned Aircraft Indenture, Section
4.05(c))
If Continental elects not to replace such Airframe, or Airframe and
Engine(s), then upon payment of the outstanding principal amount of the
Equipment Notes issued with respect to such Aircraft (in the case of an Owned
Aircraft) or the stipulated loss value for such Aircraft (in the case of a
Leased Aircraft), together with all additional amounts then due and unpaid with
respect to such Aircraft, which must be at least sufficient to pay in full as of
the date of payment thereof the aggregate unpaid principal amount under such
Equipment Notes together with accrued but unpaid interest thereon and all other
amounts due and owing in respect of such Equipment Notes, the lien of the
Indenture and (in the case of a Leased Aircraft) the Lease relating to such
Aircraft shall terminate with respect to such Aircraft, the obligation of
Continental thereafter to make the scheduled rent payments (in the case of a
Leased Aircraft) or interest and principal payments (in the case of an Owned
Aircraft) with respect thereto shall cease and (in the case of a Leased
Aircraft) the related Owner Trustee shall transfer all of its right, title and
interest in and to the related Aircraft to Continental. The stipulated loss
value and other payments made under the Leases or the Owned Aircraft Indenture,
as the case may be, by Continental shall be deposited with the applicable Loan
Trustee. Amounts in excess of the amounts due and owing under the Equipment
Notes issued with respect to such Aircraft will be distributed by such Loan
Trustee to the applicable Owner Trustee or to Continental, as the case may be.
(Leases, Section 10.1.2; Leased Aircraft Indentures, Sections 2.06 and 3.02;
Owned Aircraft Indenture, Sections 2.10 and 4.05(a)(ii))
If 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, or an improved model, suitable for
installation and use on the Airframe, and having a value, utility and remaining
useful life (without regard to hours or cycles remaining until overhaul) at
least equal to the Engine to be replaced, assuming that such Engine had been
maintained in accordance with the relevant Lease or the Owned Aircraft
Indenture, as the case may be, immediately prior to the occurrence of the Event
of Loss. (Leases, Section 10.2; Owned Aircraft Indenture, Section 4.05(a)(i))
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 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 theft, hijacking or disappearance of such
property for a period of 180 days (in the case of the Special Agreements, 90
days) or more; (iv) any seizure, condemnation, confiscation, taking or
requisition of title to such property by any non-U.S. governmental entity or
purported non-U.S. governmental entity (other than the country of registration
of the relevant Aircraft), in the case of the Standard
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Agreements, for a period exceeding 180 days (exceeding 90 days in the case of a
requisition of title) or, if earlier, at the end of the term of such Lease (in
the case of a Leased Aircraft) or the final maturity of the Equipment Notes (in
the case of an Owned Aircraft); (v) in the case of any Leased Aircraft, any
seizure, condemnation, confiscation, taking or requisition of use of such
property by any U.S. government entity that continues until the 30th day after
the last day of the term of the relevant Lease (unless the Owner Trustee shall
have elected not to treat such event as an Event of Loss) or, in the case of the
Special Agreements, certain specified shorter periods; 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, unless Continental,
prior to the expiration of such 180 day period, shall have undertaken and shall
be diligently carrying forward steps which are necessary or desirable to permit
the normal use of such property by Continental, but in any event if such use
shall have been prohibited for a period of two consecutive years (360 days in
the case of the Special Agreements), provided that (in the case of the Standard
Agreements) no Event of Loss shall be deemed to have occurred if such
prohibition has been applicable to Continental's entire U.S. registered fleet of
similar property and Continental, prior to the expiration of such two-year
period, shall have conformed at least one unit of such property in its fleet to
the requirements of any such law, rule, regulation, order or other action and
commenced regular commercial use of the same and shall be diligently carrying
forward, in a manner which does not discriminate against applicable property in
so conforming such property, steps which are necessary or desirable to permit
the normal use of such property by Continental, but in any event if such use
shall have been prohibited for a period of three years or, in the case of the
Leased Aircraft, such use shall be prohibited at the expiration of the term of
the relevant Lease. (Leases, Annex A; Owned Aircraft Indenture, Annex A)
Renewal and Purchase Options
At the end of the term of each Lease after final maturity of the related
Equipment Notes and subject to certain conditions, Continental will have certain
options to renew such Lease for additional limited periods. In addition,
Continental will have the right at the end of the term of each Lease to purchase
the Aircraft subject thereto for an amount to be calculated in accordance with
the terms of such Lease. (Leases, Section 17)
Events of Default under the Leases
Lease Events of Default under each Lease include, among other things, (i)
failure by Continental to make any payment of basic rent, stipulated loss value
or termination value under such Lease within ten Business Days (in the case of
the Special Agreements, 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 ten Business Days (in the case
of the Special Agreements, 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 (as defined) within ten Business Days (in the case of
the Special Agreements, 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, in accordance with the provisions of such Lease; (iv) in
the case of the Special Agreements, failure by Continental to maintain its
corporate existence, except as permitted by the relevant Lease, the winding up,
liquidation or dissolution of Continental, 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); (v) in the case of the Special Agreements, breach of the covenants
in such Lease pertaining to possession, interchange and pooling of Engines and
subleasing or 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;
(vi) 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 the
related tax indemnity agreement between Continental and
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the Owner Participant), and such failure shall continue unremedied for a period
of 30 days (or, in the case of the Special Agreements, such other shorter
applicable period) after written notice of such failure by the applicable Owner
Trustee or Loan Trustee unless (in the case of the Standard Agreements), such
failure is capable of being corrected and Continental shall be diligently
proceeding to correct such failure, in which case there shall be no Lease Event
of Default unless and until such failure shall continue unremedied for a period
of 180 days after receipt of such notice; (vii) 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 or inaccurate in any material respect at the time made, such
representation or warranty is material at the time in question and the same
shall remain uncured (to the extent of the adverse impact thereof) for more than
30 days after the date of written notice thereof to Continental; and (viii) 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, unvacated or
unstayed for a period of 90 days (in the case of the Special Agreements, 60
days). (Leases, Section 14)
Indenture Events of Default under the Owned Aircraft Indenture are
discussed above under "-- Indenture Defaults, Notice and Waiver".
Remedies Exercisable upon Events of Default under the Lease
If a Lease Event of Default has occurred and is continuing, the applicable
Owner Trustee may (or, so long as the Indenture shall be in effect, the
applicable Loan Trustee may, subject to the terms of the Indenture) exercise one
or more of the remedies provided in such Lease with respect to the related
Aircraft. These remedies include the right to repossess and use or operate such
Aircraft, to rescind or terminate such Lease, to sell or re-lease such Aircraft
free and clear of Continental's rights, except as set forth in the Lease, and
retain the proceeds, and to require Continental to pay, as liquidated damages,
any due and unpaid basic rent plus an amount, at such Owner Trustee's (or,
subject to the terms of the relevant Leased Aircraft Indenture, the Leased
Aircraft Trustee's) option, either (i) the excess of the present value of all
unpaid rent during the remainder of the term of such Lease over the present
value of the fair market rental value of such Aircraft for the remainder of the
term of such Lease, or (ii) the excess of the stipulated loss value of such
Aircraft over the fair market sales value of such Aircraft or, if such Aircraft
has been sold, the net sales proceeds from the sale of such Aircraft. (Leases,
Section 15; Leased Aircraft Indentures, Section 4.04) The Leases for the Special
Agreements provide a different formula for determining liquidated damages. If
the Loan Trustee has validly terminated such Lease, the Loan Trustee may not
sell or lease or otherwise afford the use of such Aircraft to Continental or any
of its affiliates. (Leased Aircraft Indentures, Sections 4.03 and 4.04(a))
Remedies under the Owned Aircraft Indentures are discussed above under
"-- Remedies".
Transfer of Owner Participant Interests
Subject to certain restrictions, each Owner Participant may transfer all or
any part of its interest in the related Leased Aircraft. (Participation
Agreements, Section 10.1.1)
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CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
EXCHANGE OF OLD CERTIFICATES FOR NEW CERTIFICATES
The following summary describes all material generally applicable 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 or loss 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, but not limited to, the requirement of investment
prudence and diversification and the requirement that an ERISA Plan's
investments be made in accordance with the documents governing the Plan.
Section 406 of ERISA and Section 4975 of the Code prohibit certain
transactions involving the assets of an ERISA Plan (as well as those plans that
are not subject to ERISA but which are subject to Section 4975 of the Code, such
as individual retirement accounts (together with ERISA Plans, "Plans") and
certain persons (referred to as "parties in interest" or "disqualified persons")
having certain relationships to such Plans, unless a statutory or administrative
exemption is applicable to the transaction. A party in interest or disqualified
person who engages in a prohibited transaction may be subject to excise taxes
and other penalties and liabilities under ERISA and the Code.
The Department of Labor has promulgated a regulation, 29 CFR Section
2510.3-101 (the "Plan Asset Regulation"), describing what constitutes the assets
of a Plan with respect to the Plan's investment in an entity for purposes of
ERISA and Section 4975 of the Code. Under the Plan Asset Regulation, if a Plan
invests (directly or indirectly) in a Certificate, the Plan's assets will
include both the Certificate and an undivided interest in each of the underlying
assets of the corresponding Trust, including the Equipment Notes held by such
Trust, unless it is established that equity participation in the Trust by
benefit Plan investors (including but not limited to Plans and entities whose
underlying assets include plan assets by reason of an employee benefit plan's
investment in the entity) is not "significant" within the meaning of the Plan
Asset Regulation. In this regard, the extent to which there is equity
participation in a particular Trust by, or on behalf of, employee benefit plans
will not be monitored. If the assets of a Trust are deemed to constitute the
assets of a Plan, transactions involving the assets of such Trust could be
subject to the prohibited transaction provisions of ERISA and Section 4975 of
the Code unless a statutory or administrative exemption is applicable to the
transaction.
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The fiduciary of a Plan that proposes to purchase and hold any Certificates
should consider, among other things, whether such purchase and holding may
involve (i) the direct or indirect extension of credit to a party in interest or
a disqualified person, (ii) the sale or exchange of any property between a Plan
and a party in interest or a disqualified person, and (iii) the transfer to, or
use by or for the benefit of, a party in interest or a disqualified person, of
any Plan assets. Such parties in interest or disqualified persons could include,
without limitation, Continental and its affiliates, the Initial Purchasers, the
Trustees, the Escrow Agent, the Depositary, the Owner Trustees and the Liquidity
Provider. In addition, whether or not the assets of a Trust are deemed to be
Plan assets under the Plan Asset Regulation, if Certificates are purchased by a
Plan and Certificates of a subordinate Class are held by a party in interest or
a disqualified person with respect to such Plan, the exercise by the holder of
the subordinate Class of Certificates of its right to purchase the senior
Classes of Certificates upon the occurrence and during the continuation of a
Triggering Event could be considered to constitute a prohibited transaction
unless a statutory or administrative exemption were applicable. Depending on the
identity of the Plan fiduciary making the decision to acquire or hold
Certificates on behalf of a Plan, 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. However, there can be no
assurance that any of these Class Exemptions or any other exemption will be
available with respect to any particular transaction involving the Certificates.
Governmental plans and certain church plans, while not subject to the
fiduciary responsibility provisions of ERISA or the provisions of Section 4975
of the Code, may nevertheless be subject to state or other federal laws that are
substantially similar to the foregoing provisions of ERISA and the Code.
Fiduciaries of any such plans should consult with their counsel before
purchasing any Certificates.
Any Plan fiduciary which proposes to cause a Plan to purchase any
Certificates should consult with its counsel regarding the applicability of the
fiduciary responsibility and prohibited transaction provisions of ERISA and
Section 4975 of the Code to such an investment, and to confirm that such
purchase and holding will not constitute or result in a non-exempt prohibited
transaction or any other violation of an applicable requirement of ERISA.
CLASS A CERTIFICATES
In addition to the Class Exemptions referred to above, an individual
exemption may apply to the purchase, holding and secondary market sale of Class
A Certificates by Plans, provided that certain specified conditions are met. In
particular, the Department of Labor has issued individual administrative
exemptions to 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. 42,597 (1989), as amended (the
"Underwriter Exemption"). The Underwriter Exemption 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 that holds equipment
notes secured by leases and certain other assets, provided that certain
conditions set forth in the Underwriter Exemption are satisfied.
The Underwriter Exemption sets forth a number of general and specific
conditions which must be satisfied for a transaction involving the initial
purchase, holding or secondary market sale of certificates representing a
beneficial ownership interest in a trust to be eligible for exemptive relief
thereunder. In particular, the Underwriter Exemption requires that the
acquisition of certificates by a Plan 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 not be
subordinated to the rights and interests evidenced by other certificates of the
same trust estate; the certificates at the time of acquisition by the Plan be
rated in one of the three highest generic rating categories by Moody's, Standard
& Poor's, Duff & Phelps Inc. or Fitch
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Investors Service, Inc.; and the investing Plan be an accredited investor as
defined in Rule 501(a)(1) of Regulation D of the Commission under the Securities
Act.
In addition, the trust corpus generally must be invested in qualifying
receivables, such as the Equipment Notes, but may not in general include a
pre-funding account. The Underwriter Exemption may also be available where all
of the otherwise eligible assets of the trust are identified at the time of the
acquisition of certificates by a Plan even though such assets, for
administrative or other reasons, are not transferred to the trust at that time.
In order to comply with the investment restrictions set forth in the
Underwriter Exemption, an investment in a Certificate will evidence both an
interest in the respective Original Trust as well as an interest in the Deposits
held in escrow by an Escrow Agent for the benefit of the Certificateholder.
Pursuant to the terms of the Escrow Agreement, the proceeds from the Offering of
the Certificates of each Class were paid over by the Initial Purchasers to the
Depositary on behalf of the Escrow Agent (for the benefit of such
Certificateholders as the holders of the Escrow Receipts) and do not constitute
property of the Original Trusts. Under the terms of each Escrow Agreement, the
Escrow Agent entered into the Deposit Agreements with the Depositary and was
irrevocably instructed to effect withdrawals upon the receipt of appropriate
notice from the relevant Trustee so as to enable such Trustee to purchase the
identified Equipment Notes on the terms and conditions set forth in the Note
Purchase Agreement. Interest on the Deposits relating to each Trust will be paid
to the Certificateholders of such Trust as Receiptholders through a Paying Agent
appointed by the Escrow Agent. Pending satisfaction of such conditions and
withdrawal of such Deposits, the Escrow Agent's rights with respect to the
Deposits will remain plan assets subject to the fiduciary responsibility and
prohibited transaction provisions of ERISA and Section 4975 of the Code.
There can be no assurance that the Department of Labor would agree that the
Underwriter Exemption is applicable to Class A Certificates in these
circumstances. In particular, the Department of Labor might assert that the
escrow arrangement is tantamount to a pre-funding of the Original Trusts
rendering the Underwriter Exemption inapplicable to the Original Trusts,
although such issue should not exist with respect to the Successor Trusts. The
Department of Labor is currently considering an amendment to the Underwriter
Exemption to permit pre-funding arrangements with respect to a limited portion
of the assets to be acquired by a trust. In addition, 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 or Class
C Certificateholders of Class A Certificates in connection with the exercise of
their rights upon the occurrence and during the continuance of a Triggering
Event. Therefore, the fiduciary of a Plan considering the purchase of a Class A
Certificate should consider the availability of the exemptive relief provided by
the 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 AND CLASS C CERTIFICATES
The Underwriter Exemption does not apply to the Class B or Class C
Certificates. The Class B and Class C Certificates may not be acquired with the
assets of a Plan, except that such Certificates may be acquired with the assets
of an insurance company general account that may be deemed to constitute Plan
assets, provided that the conditions of PTCE 95-60 are satisfied at the time of
the acquisition (and during the holding) of such Certificates. Holders of Class
B Certificates or Class C Certificates that tender Old Certificates in exchange
for New Certificates will be deemed to have represented and warranted that
either (i) no Plan assets have been used to acquire and hold such Certificate or
(ii) the acquisition and holding of such Certificate is exempt from the
prohibited transaction restrictions of ERISA and the Code pursuant to PTCE
95-60.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives New Certificates for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Certificates. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of New Certificates received in
exchange for Old Certificates where such Old Certificates were acquired as a
result of market-making activities or other trading activities. The Company has
agreed that, starting on the Expiration Date and ending on the close of business
180 days after the Expiration Date, it will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale. In addition, until such date all broker-dealers effecting transactions
in the New Certificates may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of New Certificates
by broker-dealers. New Certificates received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Certificates or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Certificates. Any
broker-dealer that resells New Certificates that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such New Certificates may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit of any
such resale of New Certificates and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
Starting on the Expiration Date, the Company will promptly send additional
copies of this Prospectus and any amendment or supplement to this Prospectus to
any broker-dealer that requests such documents in the Letter of Transmittal. The
Company has agreed to pay all expenses incident to the Exchange Offer other than
commissions or concessions of any brokers or dealers, fees of counsel to the
Holders and certain transfer taxes, 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 will be passed upon for Continental by
Hughes Hubbard & Reed LLP, New York, New York. Hughes Hubbard & Reed LLP will
rely on the opinion of Richards, Layton & Finger, Wilmington, Delaware, counsel
for Wilmington Trust Company, as Trustee, as to certain matters of Delaware law
relating to the Pass Through Trust Agreements.
EXPERTS
The consolidated financial statements of Continental Airlines, Inc.
appearing in Continental Airlines, Inc.'s Annual Report (Form 10-K) for the year
ended December 31, 1996 have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and incorporated
herein by reference. Such consolidated financial statements are incorporated
herein by reference in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
The references to AISI, BK and MBA, and to their respective appraisal
reports, dated as of February 25, 1997 in the case of AISI, January 8, 1997 in
the case of BK and February 21, 1997 in the case of MBA, are included herein in
reliance upon the authority of each such firm as an expert with respect to the
matters contained in its appraisal report.
101
<PAGE> 103
APPENDIX I -- INDEX OF TERMS
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
ABN AMRO.............................. 2
Adjusted Expected Distributions.........27, 75
Adjusted Treasury Yield............... 67
Administration Expenses............... 75
Aeroflot.............................. 6
Aggregate LTV Collateral Amount.........28, 76
Air Partners.......................... 39
Aircraft.............................. 2
Aircraft Operative Agreements......... 63
AISI.................................. 14
Alitalia.............................. 6
America West.......................... 6
AMI................................... 35
APB................................... 33
Appraisal............................. 76
Appraised Current Market Value..........28, 76
Appraised Value....................... 63
Appraisers............................ 14
Assumed Aggregate Aircraft Value...... 15
Assumed Aircraft Value................ 84
Assumed Amortization Schedule......... 56
Average Life Date..................... 83
average yield......................... 39
BK.................................... 14
Boeing................................ 35
Book-Entry Confirmation............... 48
Book-Entry Transfer Facility.......... 48
Business Day.......................... 55
Cash Collateral Account............... 25
Cede.................................. 30
Certificate Account................... 55
Certificate Owners.................... 30
Certificateholders.................... 17
Certificates.......................... 1
City.................................. 37
Class A Certificates.................. 10
Class A Trust......................... 1
Class B Certificates.................. 10
Class B Trust......................... 1
Class C-I Certificates................ 10
Class C-I Trust....................... 1
Class C-II Trust...................... 1
Class Exemptions...................... 98
Class C Certificates.................. 10
Class C Trusts........................ 1
Class C-II Certificates............... 10
Class C-II Premium.................... 67
CMI................................... 6
Code.................................. 31
Commission............................ 3
Company............................... 1
Continental........................... 1
Controlling Party..................... 29
Convention............................ 91
CSFB Business Unit.................... 68
<CAPTION>
PAGE
-------
<S> <C>
Current Distribution Date............. 26
default............................... 59
Delivery Period....................... 2
Delivery Period Termination Date...... 2
Deposit............................... 2
Deposit Agreement..................... 2
Deposit Make-Whole Premium............ 67
Depositary............................ 2
Distribution Date..................... 26
Downgrade Drawing..................... 25
DTC................................... 30
DTC Participants...................... 30
EDGAR................................. 5
eligible guarantor.................... 48
Eligible Institution.................. 48
Equipment............................. 88
Equipment Notes....................... 2
ERISA................................. 31
ERISA Plans........................... 97
Escrow Agent.......................... 2
Escrow Agreement...................... 2
Escrow Receipts....................... 11
Exchange.............................. 97
Exchange Act.......................... 5
Exchange Agent........................ 9
Exchange Offer........................ 1
Exchange Offer No-Action Letters...... 3
Excusable Delay....................... 79
Expected Distributions..................26, 75
Expiration Date....................... 8
Express............................... 6
Exxon Capital Letter.................. 3
FAA................................... 40
Final Distributions................... 29
Final Drawing......................... 26
Final Maturity Date................... 54
$575 million Dollar Credit Facility... 36
Global Certificates................... 65
H.15(519)............................. 82
holder................................ 48
Holdings.............................. 5
IAH Bonds............................. 37
Indenture Default..................... 58
Indentures............................ 12
indirect participants................. 65
ING................................... 2
Initial Purchasers.................... 4
Intercreditor Agreement............... 26
Interest Drawings..................... 24
Issuance Date......................... 18
Lease................................. 90
Lease Event of Default................ 56
Lease Payment Date.................... 90
Leased Aircraft....................... 2
Leased Aircraft Indenture............. 12
</TABLE>
I-1
<PAGE> 104
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
Leased Aircraft Trustee............... 12
Letter of Transmittal................. 1
Liquidity Event of Default............ 72
Liquidity Expenses.................... 74
Liquidity Facility.................... 24
Liquidity Obligations................. 24
Liquidity Providers................... 2
Loan Trustees......................... 12
LTV Appraisals........................ 28
LTV Collateral Amount...................28, 76
LTV Ratio...............................28, 76
LTVs.................................. 15
Make-Whole Premium.................... 82
Mandatory Document Terms.............. 63
Mandatory Economic Terms.............. 62
Maximum Available Commitment.......... 24
MBA................................... 14
Minimum Sale Price.................... 30
Morgan Stanley Letter................. 3
most recent H.15(519)................. 83
net lease............................. 90
New Certificates...................... 1
New Trustee........................... 3
NOLs.................................. 38
Non-Extension Drawing................. 25
Non-Performing Equipment Notes........ 27
Note Holders.......................... 63
Note Purchase Agreement............... 12
NYSE.................................. 50
Old Certificates...................... 1
Original Trustee...................... 3
Original Trusts....................... 3
Owned Aircraft........................ 2
Owned Aircraft Indenture.............. 12
Owned Aircraft Trustee................ 12
Owner Participant..................... 23
Owner Trustee......................... 2
participants.......................... 65
Participating Broker-Dealer........... 4
Participation Agreement............... 20
Pass Through Trust Agreements......... 1
Paying Agent.......................... 11
Paying Agent Account.................. 55
Performing Equipment Note............. 25
Plan Asset Regulation................. 97
Plans................................. 97
PAGE
-------
Pool Balance.......................... 55
Pool Factor........................... 55
Predelivery Deposit Revolver.......... 37
Premium Termination Date.............. 21
PTC Event of Default.................. 17
PTCE.................................. 31
Receiptholder......................... 69
Registration Event.................... 47
Registration Statement................ 5
Regular Distribution Dates............ 54
Remaining Weighted Average Life....... 83
Replacement Facility.................. 71
Required Amount....................... 24
Scheduled Payments.................... 54
Section 382........................... 38
Section 1110 Period................... 25
Securities Act........................ 1
Series A Equipment Notes.............. 2
Series B Equipment Notes.............. 2
Series C Equipment Notes.............. 2
Shearman & Sterling Letter............ 3
Shelf Registration Statement.......... 46
SOP 90-7.............................. 35
Special Agreements.................... 90
Special Distribution Date............. 54
Special Payment....................... 54
Special Payments Account.............. 55
Standard Agreements................... 90
Stated Interest Rates................. 24
Stated Portion........................ 24
Subordination Agent................... 11
Successor Trust....................... 3
Termination Notice.................... 73
Threshold Rating...................... 71
ticket tax............................ 40
Transfer Date......................... 3
Transportation Code................... 60
Treasury Yield........................ 82
Triggering Event...................... 18
Trust Property........................ 11
Trustee............................... 1
Trusts................................ 1
UMDA.................................. 35
Underwriter Exemption................. 98
universal bank........................ 68
Virgin................................ 6
</TABLE>
I-2
<PAGE> 105
APPENDIX II -- APPRAISAL LETTERS
[AIRCRAFT INFORMATION SERVICES, INC. LOGO]
25 February 1997
Continental Airlines
2929 Allen Parkway, Suite 1588
Houston, TX 77019
Subject: AISI Report No.: A7D00lBVO
AISI Sight Unseen New Aircraft Current Market Value Appraisal, Eight
B757-200,
Eighteen B737-500 and Four B737-700 Aircraft.
Dear Gentlemen:
In response to your request, Aircraft Information Services, Inc. (AISI) is
pleased to offer Continental Airlines our opinion of the sight unseen current
market value of various new aircraft to be delivered from the manufacturer to
Continental Airlines between March 1997 and February 1998 as listed and defined
in Table I.
1. METHODOLOGY AND DEFINITIONS
The method used by AISI in its valuation of the Aircraft was based both on a
review of information and Aircraft specifications supplied by Continental
Airlines and also on a review of present and past market conditions, various
expert opinions (such as aircraft brokers and financiers) and information
contained in AISI's databases that help determine aircraft availability and
price data and thus arrive at the appraised values for the new aircraft to be
delivered to Continental Airlines.
The historical standard term of reference for commercial aircraft value has been
"half-life fair market value" of an "average" aircraft. However, "fair market
value" could mean a fair value in the given market or a value in a hypothetical
"fair" or balanced market, and the two definitions are not equivalent. Recently,
the term "base value" has been created to describe the theoretical balanced
market condition and to avoid the potentially misleading term "fair market
value" which has now become synonymous with the term "current market value" or a
"fair" value in the actual current market. AISI value definitions are consistent
with those of the International Society of Transport Aircraft Trading (ISTAT) of
01 January 1994; AISI is a member of that organization and employs an ISTAT
Certified Senior Aircraft Appraiser.
AISI defines a "base value" as that of a transaction between equally willing and
informed buyer and seller, neither under compulsion to buy or sell, for a single
unit cash transaction with no hidden value or liability, and with supply and
demand of the sale item roughly in balance.
AISI defines a "current market value" or "fair market value" as that value which
reflects the real market conditions, whether at, above or below the base value
conditions. Definitions of aircraft condition, buyer/seller qualifications and
type of transaction remain unchanged from that of base value. Current market
value takes into consideration the status of the economy in which the aircraft
is used, the status of supply and demand for the particular aircraft type, the
value of recent transactions and the opinions of informed buyers and sellers.
Current market value assumes that there is no short term time constraint to buy
or sell.
2. MARKET ANALYSIS B737-500, B737-700 & B757-200
B737-500
The B737-500 is a twin engine, narrowbody, stage 3, two man crew domestic
aircraft, the smallest of the B737-300/400/500 family, typically seating 108
passengers, dual class. With the same fuel capacity as the large B737-300 and
- -400 but lighter empty weight, the B737-500 full passenger range is considerably
greater; approximately 1,800 nautical miles at low MTOW's up to 3,000 nautical
miles at higher MTOW's.
<PAGE> 106
25 February 1997 [AIRCRAFT INFORMATION SERVICES, INC. LOGO]
AISI File No. A70001BVO
Page -2-
There are 308 aircraft in the B737-500 fleet, making it the smallest fleet of
the B737-300/400/500 family, but 33 airlines operate the -500, distributed
worldwide. 148 of the fleet are operated on a form of lease, either financial or
operational.
The aircraft was first delivered in 1989, and we would anticipate termination of
production prior to year 2000. Major competitors included hushkitted B737-200's
and DC-9 variants, the MD-87, the Fokker 100, the Airbus A319 and soon the
replacement B737-600 and the new MD-95.
The B737-500 market has been reasonably strong and values have held steady in
the face of demand which, while strong is not as strong as for the larger
B737-300 and -400. For the short term we see no significant reduction in
B737-500 values. Long term however, the aircraft, like the B737-300/400, faces
significant competition from newer more advanced aircraft, and we expect the
B737-500 to be significantly more vulnerable than its larger variants, to either
competition or an economic downturn.
Another factor tending to lower values long term is the major manufacturers
policy of deep discounts of list prices to battle for market share -- which
softens market values of all newer 100-160 seat aircraft. The B737-500 has even
more limited appeal than the B737-300 as a converted freighter, and none have
yet been converted.
B737-700
The B737-700 is a twin engine, narrowbody, stage 3, two man crew aircraft
typically seating 128 passengers in mixed class configuration. Typical range
with full passengers at low MTOW is approximately 2,500 nautical miles, while at
high MTOW the range increases to approximately 3,200 nautical miles, sufficient
for transcontinental domestic operations. The aircraft is part of the new Boeing
B737-600/700/800 family, replacing the present B737-500/300/400, respectively.
The aircraft has a larger wing, a higher cruise speed, longer range, and higher
initial cruise altitude capability than its predecessor, the B737-300, while
operating at higher gross weights, with the same size passenger cabin and more
powerful CFM56-7B variants of the same engine.
The B737-700 has a respectable firm order of 176 aircraft, with 93 ordered by
leasing companies, but the customer base is still quite small at 6 airlines.
This reflects the high percentage of leasing company orders and the probable
initial operator count is more like 20 airlines.
The major competitors to the B737-700 are the MD-90 and the Airbus A320 even
though these aircraft types are larger then the B737-700. The B737-700 also must
compete with its larger variant the B737-800 and the earlier B737-300/400/500
variants. In some markets it must also compete with the older B737-200A.
The first B737-700 is currently in flight test, with delivery scheduled for
October 1997. AISI analysis of the market for the new B737 family indicates that
the present strong demand for narrowbody stage 3 domestic aircraft has
stabilized and will continue at least until the next major economic downturn.
There are expected to be some B737-300 users who put insufficient value in the
advantages of the B737-700 over the B737-300 to support any significant price
differential between the two. Due to small size and relatively high cost, we
expect the future potential for freighter conversion to be confined to the older
B737 variants for domestic small package carrier market; it will be several
years before market growth and B737-700 values reductions coincide to make a
B737-700F practical.
Boeing in recent head-to-head B737-600/700/800 competition with Airbus A319 and
A320 aircraft has shown a willingness to offer aircraft at drastically reduced
prices; Airbus has generally matched or exceeded Boeing's discounts. This
willingness to discount, combined with significant increases in production
rates, produces an artificial softening of market prices of all new and newer
100 to 160 seat stage III narrowbody domestic aircraft.
<PAGE> 107
25 February 1997 [AIRCRAFT INFORMATION SERVICES, INC. LOGO]
AISI File No. A70001BVO
Page -3-
B757-200
The B757-200 is a twin engine, narrowbody, stage 3, two man crew aircraft
typically seating 186 passengers in mixed class configuration. Typical range
with full passengers at low MTOW is approximately 2,900 nautical miles, while at
high MTOW the range increases to approximately 4,000 nautical miles. The B757
has a relatively large fleet of 648 aircraft, of which 272 are Pratt & Whitney
powered and 376 are Rolls Royce powered. 17 airlines operate Pratt powered
aircraft, while 42 operate the more popular Rolls powered variant. 340 aircraft
are operated on some form of lease arrangement. A variant of the aircraft is
qualified for Extended Twin Engine Overwater Operation (ETOP) giving the
aircraft significant flexibility for use in both domestic and limited
international markets. The aircraft was first produced in 1982, and we do not
anticipate termination of production in the foreseeable future.
The B757-200 occupies a unique place in the family of commercial aircraft in
that it does not have a direct competitor. Its closest narrowbody competitors,
the MD-83 and A321 neither have the range to compete with the B757, and the
MD-83 has considerably smaller passenger capacity. Airbus has considered
increasing the size and weights of the A321, but a new larger wing would be
required for the A321 to be truly competitive with the B757. The closest
widebody competitors, the B767-200 and A310-200/300, are considerably larger
aircraft and cost considerably more per plane mile to operate. For the
foreseeable future, it appears Airbus is content to permit the B757 to remain
unchallenged at the top of the larger, long range, narrowbody market. Boeing,
realizing it has a significant market in which it is uncontested, has now
initiated studies to increase the size and weights of the B757-200 creating the
B757-300. This will further distance the B757 family from its narrowbody
competitors and place it closer to the smallest widebody competitors, over whom
it enjoys considerable plane mile operating cost advantages.
AISI analysis of the market for the B757-200 indicates that demand had
stabilized in late 1995 and through 1996 but has now increased and will continue
at least until the next major economic downturn; orders and backlog for new
aircraft have declined but availability of newer B757 aircraft is tight; a
production rate decrease in 3rd quarter 1996 will be reversed early in 1997.
Current market purchase prices and lease rates for newer used B757-200 aircraft
are now generally stable, although there is some reduction in prices for the
oldest, least capable aircraft. We expect increased production rates and
availability from leasing companies to hold prices steady in the face of
moderately increasing demand.
3. VALUATION
Following is AISI's opinion of the current market value for the subject aircraft
on their respective delivery dates. Valuations are presented in Table I subject
to the assumptions, definitions and disclaimers herein.
<PAGE> 108
CONTINENTAL AIRLINES -- AISI FILE # A7D001BVO
25 FEBRUARY 1997
TABLE I
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
1997 MILLION
USDOLLARS
MANUFACTURER'S AIRCRAFT TAIL MANUFACTURER'S NEW CURRENT MARKET
DELIVERY DATE NUMBER SERIAL NUMBER VALUE
- -------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C>
B757-200, RB211-535E4 Engines, 230,0001b MTOW
- -------------------------------------------------------------------------------------------------------------------------
Mar-97 118 27560 53.72
- -------------------------------------------------------------------------------------------------------------------------
Apr-97 119 27561 53.80
- -------------------------------------------------------------------------------------------------------------------------
Jun-97 120 27562 53.97
- -------------------------------------------------------------------------------------------------------------------------
Jul-97 121 27563 54.05
- -------------------------------------------------------------------------------------------------------------------------
Aug-97 122 27564 54.13
- -------------------------------------------------------------------------------------------------------------------------
Dec-97 126 28966 54.47
- -------------------------------------------------------------------------------------------------------------------------
Jan-98 123 27565 54.55
- -------------------------------------------------------------------------------------------------------------------------
Jan-98 127 28967 54.55
- -------------------------------------------------------------------------------------------------------------------------
B737-500, CFM56-3B1 Engines, 129,5001b MTOW
- -------------------------------------------------------------------------------------------------------------------------
Jul-97 638 28899 31.09
- -------------------------------------------------------------------------------------------------------------------------
Jul-97 639 28900 31.09
- -------------------------------------------------------------------------------------------------------------------------
Aug-97 640 28901 31.14
- -------------------------------------------------------------------------------------------------------------------------
Aug-97 641 28902 31.14
- -------------------------------------------------------------------------------------------------------------------------
Aug-97 642 28903 31.14
- -------------------------------------------------------------------------------------------------------------------------
Sep-97 643 28904 31.19
- -------------------------------------------------------------------------------------------------------------------------
Sep-97 644 28905 31.19
- -------------------------------------------------------------------------------------------------------------------------
Oct-97 645 28906 31.24
- -------------------------------------------------------------------------------------------------------------------------
Oct-97 646 28907 31.24
- -------------------------------------------------------------------------------------------------------------------------
Nov-97 647 28908 31.29
- -------------------------------------------------------------------------------------------------------------------------
Nov-97 648 28909 31.29
- -------------------------------------------------------------------------------------------------------------------------
Dec-97 649 28910 31.34
- -------------------------------------------------------------------------------------------------------------------------
Dec-97 650 28911 31.34
- -------------------------------------------------------------------------------------------------------------------------
Dec-97 651 28912 31.34
- -------------------------------------------------------------------------------------------------------------------------
Jan-98 652 28913 31.39
- -------------------------------------------------------------------------------------------------------------------------
Jan-98 653 28914 31.39
- -------------------------------------------------------------------------------------------------------------------------
Feb-98 654 28915 31.43
- -------------------------------------------------------------------------------------------------------------------------
Feb-98 655 28916 31.43
- -------------------------------------------------------------------------------------------------------------------------
B737-500, CFM56-7B24 Engines, 133,0001b MTOW
- -------------------------------------------------------------------------------------------------------------------------
Jan-98 701 28762 36.83
- -------------------------------------------------------------------------------------------------------------------------
Jan-98 702 28763 36.83
- -------------------------------------------------------------------------------------------------------------------------
Feb-98 703 28764 36.89
- -------------------------------------------------------------------------------------------------------------------------
Feb-98 704 28765 36.89
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 109
25 February 1997 [AIRCRAFT INFORMATION SERVICES, INC. LOGO]
AISI File No. A70001BVO
Page -4-
Unless otherwise agreed by Aircraft Information Services, Inc. (AISI) in
writing, this report shall be for the sole use of the client/addressee. This
report is offered as a fair and unbiased assessment of the subject aircraft.
AISI has no past, present, or anticipated future interest in the subject
aircraft. The conclusions and opinions expressed in this report are based on
published information, information provided by others, reasonable
interpretations and calculations thereof and are given in good faith. Such
conclusions and opinions are judgments that reflect conditions and values which
are current at the time of this report. The values and conditions reported upon
are subject to any subsequent change. AISI shall not be liable to any party for
damages arising out of reliance or alleged reliance on this report, or for any
parties action or failure to act as a result of reliance or alleged reliance on
this report.
Sincerely,
AIRCRAFT INFORMATION SERVICES. INC.
/s/ FRED E. BEARDEN
- ------------------------------------
Fred E. Bearden
President
FB/JDM/jm
<PAGE> 110
[BK ASSOCIATES, INC. LOGO]
1295 Northern Boulevard
Manhasset, New York 11030
(516) 365-6272 - Fax (516) 365-6287
January 8, 1997
CONTINENTAL AIRLINES
2929 Allen Parkway
Houston, TX 77019
Gentlemen:
In response to your request, BK Associates, Inc. is pleased to provide this
opinion on the fair market value (FMV) as of January 1997 on each of eight
B757-224, four B737-724 and 18 B737-524 aircraft (Aircraft), which will be
delivered to Continental Airlines between March 1997 and February 1998. The B757
aircraft are each powered by two Rolls-Royce RB211-535E4B engines, the B737-724
by CFM International CFM56-7B24 and the B737-524 by CFM International CFM56-3Bl
engines. We understand that, while they are being delivered as "standard"
aircraft with 230,000 pounds takeoff weight, the B757s have the physical
specifications of high gross weight and Extended Twin Overwater Operations
(ETOPS) and can be re-certified as such without physical changes to the
aircraft. The Aircraft are further identified in the conclusion to this letter.
Set forth below is a summary of the methodology, considerations and
assumptions utilized in this appraisal.
CURRENT FAIR MARKET VALUE
According to the International Society of Transport Aircraft Trading's (ISTAT)
definition of FMV, to which BK Associates subscribes, the quoted FMV is the
Appraiser's opinion of the most likely trading price that may be generated for
an aircraft under the market circumstances that are perceived to exist at the
time in question. The FMV assumes that the aircraft is valued for its highest
and best use, that the parties to the hypothetical sale transaction are willing,
able, prudent and knowledgeable, and under no unusual pressure for a prompt
sale, and that the transaction would be negotiated in an open and unrestricted
market on an arm's length basis, for cash or equivalent consideration, and given
an adequate amount of time for effective exposure to prospective buyers, which
BK Associates considers to be 12 to 18 months.
BASE VALUE
Base value is the Appraiser's opinion of the underlying economic value of an
aircraft in an open, unrestricted, stable market environment with a reasonable
balance of supply and demand, and assumes full consideration of its "highest and
best use". An aircraft's base value is founded in the historical trend of values
and in the projection of future value trends and presumes an arm's length, cash
transaction between willing, able and knowledgeable parties, acting prudently,
with an absence of duress and with a reasonable period of time available for
marketing.
VALUE METHODOLOGY
Fair market valuations are determined based upon one of three methods:
comparable recent sales, replacement cost or rate of return to investor. In this
appraisal, BK used the comparable sales method, which is the most common method,
in determining the base values of the Aircraft. This method uses industry data
to ascertain the prices realized in recent sales of comparable models. The fair
market value of the base Aircraft is based on BK's familiarity with the aircraft
type, its earnings potential in commercial service, its knowledge of its
capabilities and the uses to which it will be put worldwide, its knowledge of
the marketing of used aircraft, and the factors affecting the fair market value
of such aircraft, and on its knowledge of the asking, offered and transaction
prices for similar competitive, and alternative equipment, as well as
transactions and negotiations
<PAGE> 111
Continental Airlines, Inc. [BK ASSOCIATES, INC. LOGO]
January 8, 1997
Page 2
involving basically identical aircraft. These realizations, however, which
reflect the market supply and demand at the time of sale, are subject to minor
adjustments for other conditions existing at the time of the appraisal. In this
respect, we consider the market for B757 and B737 aircraft to be in reasonable
balance at this time, and thus, the FMV is equal to the base value. In addition,
values were adjusted for engine type and maximum gross takeoff weights (MGTOW).
In arriving at the current fair market value, BK considered the impact of many
factors affecting the market for used aircraft, including: the current demand
for and availability of aircraft, the projected demand for lift, the suitability
and operating economies of the aircraft, regulatory factors, and recent sales
experience.
LIMITING CONDITIONS AND ASSUMPTIONS
BK has neither inspected the Aircraft nor their maintenance records but relied
upon information supplied by you and from BK's own database. In determining the
fair market value of a used aircraft, the following assumptions apply to the
base aircraft:
1. Unless it is new, the aircraft has half-time remaining to its next
major overhauls or scheduled shop visit on its airframe, engines,
landing gear and auxiliary power unit.
2. The aircraft is in compliance under a Federal Aviation
Administration approved airline maintenance program, with all
airworthiness directives, mandatory modifications and applicable
service bulletins currently up to industry standard.
3. The interior of the aircraft is in a standard configuration for its
specific type, with the buyer furnished equipment and options of
the types and models generally accepted and utilized in the
industry.
4. The aircraft is in current flight operations.
5. The aircraft is sold for cash without seller financing.
6. The Aircraft is in average or better condition.
7. There is no accident damage.
<PAGE> 112
Continental Airlines, Inc. [BK ASSOCIATES, INC. LOGO]
January 8, 1997
Page 3
CONCLUSIONS
Based on the above methodology, considerations and assumptions, and since they
are all new and not yet in service, it is our opinion that the current fair
market value of each aircraft are as follows:
<TABLE>
<CAPTION>
MODEL DATE OF DELIVERY SERIAL NUMBER CFMV (EACH)
----- ---------------- ------------- -----------
<S> <C> <C> <C>
B757-224 03/97 27560 53,250,000
B757-224 04/97 27561 53,250,000
B757-224 06/97 27562 53,250,000
B757-224 07/97 27563 53,750,000
B757-224 08/97 27564 53,750,000
B757-224 12/97 28966 54,000,000
B757-224 01/98 27565 54,250,000
B757-224 01/98 28967 54,250,000
B737-524 07/97 28899 27,800,000
B737-524 07/97 28900 27,800,000
B737-524 08/97 28901 27,800,000
B737-524 08/97 28902 27,800,000
B737-524 08/97 28903 27,800,000
B737-524 09/97 28904 27,800,000
B737-524 09/97 28905 27,800,000
B737-524 10/97 28906 27,800,000
B737-524 10/97 28907 27,800,000
B737-524 11/97 28908 28,000,000
B737-524 11/97 28909 28,000,000
B737-524 12/97 28910 28,000,000
B737-524 12/97 28911 28,000,000
B737-524 12/97 28912 28,000,000
B737-524 01/98 28913 28,250,000
B737-524 01/98 28914 28,250,000
B737-524 02/98 28915 28,250,000
B737-524 02/98 28916 28,250,000
B737-724 01/98 28762 37,750,000
B737-724 01/98 28763 37,750,000
B737-724 02/98 28764 37,750,000
B737-724 02/98 28765 37,750,000
</TABLE>
<PAGE> 113
Continental Airlines, Inc. [BK ASSOCIATES, INC. LOGO]
January 8, 1997
Page 4
BK Associates, Inc. has no present or contemplated future interest in the
Aircraft, nor any interest that would preclude our making a fair and unbiased
estimate. This appraisal represents the opinion of BK Associates, Inc. and
reflects our best judgment based on the information available to us at the time
of preparation and the time and budget constraints imposed by the client. It is
not given as a recommendation, or as an inducement, for any financial
transaction and further, BK Associates, Inc. assumes no responsibility or legal
liability for any action taken or not taken by the addressee, or any other
party, with regard to the appraised equipment. By accepting this appraisal, the
addressee agrees that BK Associates, Inc. shall bear no such responsibility or
legal liability. This appraisal is prepared for the use of the addressee and
shall not be provided to other parties without the express consent of the
addressee.
Sincerely yours,
BK ASSOCIATES, INC.
/s/ JOHN F. KEITZ
------------------------------------
John F. Keitz
President
ISTAT Senior Certified Appraiser
JFK/kf
<PAGE> 114
[MORTEN BEYER AND ASSOCIATES LOGO]
February 21, 1997
Continental Airlines, Inc.
2929 Allen Parkway
Houston, TX 77019
Gentlemen:
Pursuant to your request, Morten Beyer & Associates (MBA) has set forth its
opinion regarding the value of thirty aircraft (as described in Schedule I
herein) being delivered new from the manufacturer to Continental Airlines during
1997 and 1998. More specifically, our mandate is to render our opinion on this
date as to the value of the aircraft on their delivery dates.
There are several terms used to describe the "value" of an aircraft. MBA
uses the definitions of various value terms as promulgated by the International
Society of Transport Aircraft Trading (ISTAT), a not-for-profit organization of
some 500 members who have an interest in the commercial aviation industry. The
membership consists of management level personnel from banks, leasing companies,
airlines, appraisers, brokers, manufacturers, etc. ISTAT has also established
standards for appraisal practice and a code of ethics for those members who want
to be certified by the Society as appraisers. To attain certification members
must meet rigid educational and experience requirements and must successfully
complete written examinations. Both Morten Beyer and Robert Minnich of MBA are
ISTAT Certified Senior Appraisers.
ISTAT defines Current Market Value (CMV) as the most likely trading price
that may be generated for an aircraft under the market conditions that are
perceived to exist at the time in question. Market Value (MV) assumes that the
aircraft is valued for its highest, best use, that the parties to the
hypothetical sales transaction are willing, able, prudent and knowledgeable, and
under no unusual pressure for a prompt sale, and that the transactions would be
negotiated in an open and unrestricted market on an arm's length basis, for cash
or equivalent consideration and given an adequate amount of time for effective
exposure to prospective buyers. Fair Market Value is synonymous to MV and
Current Fair Market Value is synonymous with CMV because the criteria typically
used in those documents that use the term "fair" reflect the same criteria set
forth in the above definition of Market Value.
Base Value (BV) contains the same elements as MV except the market
conditions are always assumed to be in a reasonable state of equilibrium. Base
values are related to long term trends, and may or may not reflect the actual
value of the aircraft in question. Base values are founded in the historical
values of aircraft and are usually used for analysis of historic values or for
future value projections.
The values set forth herein are Current Market Values. CMVs are provided
for each aircraft, identified by assigned manufacturer's serial numbers and FAA
registration numbers taking into account the expected month of delivery to
Continental.
The delivery period for the aircraft that are the subject of this report
terminates in February, 1998. As of the date of this report, we see no events
that may cause us to revise valuations. However, unforeseen
<PAGE> 115
circumstances can occur with little or no warning, and if something does occur,
MBA would revise its market valuations accordingly.
All of the aircraft included in this appraisal are new aircraft with
delivery dates starting in March 1997. The types of aircraft that are the
subject of this report are all considered to be effective competitors in the
industry for years to come, and they all meet or exceed Stage III noise level
standards. The Boeing 737-500 was first built in 1989, and there are currently
319 in service with 28 operators and another 56 on order. It is the truncated
version of the 737-300/400 series and offers a lower cost per aircraft mile.
Because of its smaller capacity, its unit costs as measured by the cost per
available seat mile are higher. Although we consider the aircraft to be a
competitive one, it suffers from the fact that aircraft that are smaller
versions of larger aircraft have historically not been as efficient as aircraft
that are originally designed as smaller machines.
The Boeing 737-700 is Boeing's newest entry into the advanced technology
market to compete with Airbus A319/320/321 series machines. The aircraft has not
yet entered service. There are 208 unfilled orders. We expect that this aircraft
will be very popular with the airlines and will have a long production run.
The Boeing 757 was first built in 1982 and was originally thought to be the
replacement for the Boeing 727 series aircraft. Orders started slowly, but as
time passed the aircraft became very popular because of its outstanding economic
and operational characteristics. At the present time there are 669 of these
aircraft in service with 62 operators. An additional 109 aircraft are on order.
This report has been prepared for the exclusive use of Continental and
shall not be provided to other parties by MBA without the express consent of
Continental.
MBA certifies that this report has been independently prepared and that if
fully and accurately reflects MBA's opinion, as of the date of this report, of
the values set forth herein. MBA further certifies that it does not have, and
does not expect to have, any financial interest in the subject or similar
aircraft.
This report represents MBA's opinion as to the subject aircraft, and is
intended to be advisory only, in nature. Therefore, MBA assumes no
responsibility or legal liability for any actions taken, or not taken, by
Continental or any other party with regard to the subject aircraft.
By accepting this report, all parties agree that MBA shall bear no such
responsibility or legal liability.
Sincerely,
/s/ MORTEN S. BEYER
------------------------------------
Morten S. Beyer
President
[MORTEN BEYER AND ASSOCIATES LOGO]
2
<PAGE> 116
PROJECTED AIRCRAFT VALUES AT DELIVERY
CONTINENTAL AIRLINES
Boeing 757-200
<TABLE>
<CAPTION>
MAR APR JUN JUL AUG DEC JAN
97 97 97 97 97 97 98
<S> <C> <C> <C> <C> <C> <C> <C>
# of Aircraft 1 ea 1 ea 1 ea 1 ea 1 ea 1 ea 2 ea
Current Mkt Val ($mm) 59.431 59.682 60.182 60.433 60.683 61.685 61.936
Serial Numbers 27560 27561 27562 27563 27564 28966 27565
27567
Tail #s 118 119 120 121 122 126 123
127
</TABLE>
Boeing 737-500
<TABLE>
<CAPTION>
JUL AUG SEP OCT NOV DEC JAN FEB
97 97 97 97 97 97 98 98
<S> <C> <C> <C> <C> <C> <C> <C> <C>
# of Aircraft 2 ea 3 ea 2 ea 2 ea 2 ea 3 ea 2 ea 2 ea
Current Mkt Val ($mm) 27.610 27.718 27.826 27.932 28.040 28.148 28.256 28.364
Serial Numbers 28899 28901 28904 28906 28908 28910 28913 28915
28900 28902 28905 28907 28909 28911 28914 28961
28903 28912
Tail #s 638 640 643 645 647 649 652 654
639 641 644 646 648 650 653 655
642 651
</TABLE>
Boeing 737-700
<TABLE>
<CAPTION>
JAN FEB
98 98
<S> <C> <C> <C> <C> <C> <C> <C> <C>
# of Aircraft 2 ea 2 ea
Current Mkt Val ($mm) 36.491 36.573
Serial Numbers 28762 28764
28763 28765
Tail #s 701 703
702 704
</TABLE>
[MORTEN BEYER AND ASSOCIATES LOGO]
3
<PAGE> 117
======================================================
NO OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING 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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 5
Reports to Certificateholders......... 5
Incorporation of Certain Documents by
Reference........................... 5
Prospectus Summary.................... 6
Risk Factors.......................... 35
Use of Proceeds....................... 44
Ratios of Earnings to Fixed Charges... 45
The Exchange Offer.................... 45
Description of the New Certificates... 52
Description of the Deposit
Agreements.......................... 67
Description of the Escrow
Agreements.......................... 70
Description of the Liquidity
Facilities.......................... 70
Description of the Intercreditor
Agreement........................... 74
Description of the Aircraft and the
Appraisals.......................... 78
Description of the Equipment Notes.... 80
Certain U.S. Federal Income Tax
Consequences........................ 98
ERISA Considerations.................. 98
Plan of Distribution.................. 101
Legal Matters......................... 101
Experts............................... 101
Index of Terms........................ I-1
Appraisal Letters..................... II-2
</TABLE>
======================================================
======================================================
CONTINENTAL AIRLINES, INC.
OFFER TO EXCHANGE
PASS THROUGH CERTIFICATES, SERIES 1997-1,
WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED,
FOR ANY AND ALL OUTSTANDING
PASS THROUGH CERTIFICATES, SERIES 1997-1
PROSPECTUS
July , 1997
======================================================
<PAGE> 118
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 shall have power to 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 shall have power to 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.
(e) Expenses (including attorneys' fees) incurred by an officer or director
in defending any civil, criminal, administrative, or investigative action, suit
or proceeding may be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of undertaking by or on behalf
of such
II-1
<PAGE> 119
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 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
II-2
<PAGE> 120
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.
(The below-listed exhibits have been previously filed except Exhibit 23.1,
which is filed herewith.)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- -------------------- ------------------------------------------------------------------------
<C> <S>
4.1 -- Form of New 7.461% Continental Airlines Pass Through Certificate
Series 1997-1A-0 (included in Exhibit 4.5)
4.2 -- Form of New 7.461% Continental Airlines Pass Through Certificate
Series 1997-1B-0 (included in Exhibit 4.6)
4.3 -- Form of New 7.420% Continental Airlines Pass Through Certificate
Series 1997-1C-I-0 (included in Exhibit 4.7)
4.4 -- Form of New 7.420% Continental Airlines Pass Through Certificate
Series 1997-1C-II-0 (included in Exhibit 4.8)
4.5 -- Pass Through Trust Agreement, dated as of March 21, 1997, between
Continental Airlines, Inc., and Wilmington Trust Company, as Trustee,
made with respect to the formation of Continental Airlines Pass
Through Trust, Series 1997-1A-0 and the issuance of 7.461%
Continental Airlines Pass Through Trust, Series 1997-1A-0 Pass
Through Certificates representing fractional undivided interests in
the Trust
4.6 -- Pass Through Trust Agreement, dated as of March 21, 1997, between
Continental Airlines, Inc., and Wilmington Trust Company, as Trustee,
made with respect to the formation of Continental Airlines Pass
Through Trust, Series 1997-1B-0 and the issuance of 7.461%
Continental Airlines Pass Through Trust, Series 1997-1B-0 Pass
Through Certificates representing fractional undivided interests in
the Trust
4.7 -- Pass Through Trust Agreement, dated as of March 21, 1997, between
Continental Airlines, Inc., and Wilmington Trust Company, as Trustee,
made with respect to the formation of Continental Airlines Pass
Through Trust, Series 1997-1C-I-0 and the issuance of 7.420%
Continental Airlines Pass Through Trust, Series 1997-1C-I-0 Pass
Through Certificates representing fractional undivided interests in
the Trust
4.8 -- Pass Through Trust Agreement, dated as of March 21, 1997, between
Continental Airlines, Inc., and Wilmington Trust Company, as Trustee,
made with respect to the formation of Continental Airlines Pass
Through Trust, Series 1997-1C-II-0 and the issuance of 7.420%
Continental Airlines Pass Through Trust, Series 1997-1C-II-0 Pass
Through Certificates representing fractional undivided interests in
the Trust
4.9 -- Revolving Credit Agreement, dated March 21, 1997, between Wilmington
Trust Company, as Subordination Agent, as agent and trustee for the
Continental Airlines Pass Through Trust 1997-1A-0, as Borrower and
ABN AMRO Bank N.V., Chicago Branch as Liquidity Provider
4.10 -- Revolving Credit Agreement, dated March 21, 1997, between Wilmington
Trust Company, as Subordination Agent, as agent and trustee for the
Continental Airlines Pass Through Trust 1997-1A-0, as Borrower and
ING Bank N.V. as Liquidity Provider
</TABLE>
II-3
<PAGE> 121
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
4.11 -- Revolving Credit Agreement, dated March 21, 1997, between
Wilmington Trust Company, as Subordination Agent, as
agent and trustee for the Continental Airlines Pass
Through Trust 1997-1B-0, as Borrower and ABN AMRO Bank
N.V., Chicago Branch as Liquidity Provider
4.12 -- Revolving Credit Agreement, dated March 21, 1997, between
Wilmington Trust Company, as Subordination Agent, as
agent and trustee for the Continental Airlines Pass
Through Trust 1997-1B-0, as Borrower and ING Bank N.V. as
Liquidity Provider
4.13 -- Revolving Credit Agreement, dated March 21, 1997, between
Wilmington Trust Company, as Subordination Agent, as
agent and trustee for the Continental Airlines Pass
Through Trust 1997-1C-I-0, as Borrower and ABN AMRO Bank
N.V., Chicago Branch as Liquidity Provider
4.14 -- Revolving Credit Agreement, dated March 21, 1997, between
Wilmington Trust Company, as Subordination Agent, as
agent and trustee for the Continental Airlines Pass
Through Trust 1997-1C-I-0, as Borrower and ING Bank N.V.
as Liquidity Provider
4.15 -- Revolving Credit Agreement, dated March 21, 1997, between
Wilmington Trust Company, as Subordination Agent, as
agent and trustee for the Continental Airlines Pass
Through Trust 1997-1C-II-0, as Borrower and ABN AMRO Bank
N.V., Chicago Branch as Liquidity Provider
4.16 -- Revolving Credit Agreement, dated March 21, 1997, between
Wilmington Trust Company, as Subordination Agent, as
agent and trustee for the Continental Airlines Pass
Through Trust 1997-1C-II-0, as Borrower and ING Bank N.V.
as Liquidity Provider
4.17 -- Intercreditor Agreement dated as of March 21, 1997, among
Wilmington Trust Company, as Trustee under the
Continental Airlines Pass Through Trust 1997-1A-0,
Continental Airlines Pass Through Trust 1997-1B-0,
Continental Airlines Pass Through Trust 1997-1-C-I-0 and
Continental Pass Through Trust 1997-1C-II-0, ING Bank
N.V. and ABN AMRO Bank N.V., as Class A Liquidity
Provider, Class B Liquidity Provider, Class C Liquidity
Provider, and Wilmington Trust Company, as Subordination
Agent and Trustee
4.18 -- Exchange and Registration Rights Agreement, dated as of
March 21, 1997, among Continental Airlines, Inc.,
Wilmington Trust Company, as Trustee under Continental
Airlines Pass Through Trust, Series 1997-1A-O,
Continental Airlines Pass Through Trust, Series
1997-1B-O, Continental Airlines Pass Through Trust,
Series 1997-1C-I-O, Continental Airlines Pass Through
Trust, Series 1997-1C-II-O, and Credit Suisse First
Boston Corporation, Morgan Stanley & Co. Incorporated,
Chase Securities Inc. and Goldman, Sachs & Co.
4.19 -- Deposit Agreement (Class A) dated as of March 21, 1997
between First Security Bank, National Association as
Escrow Agent under the Escrow and Paying Agent Agreement,
and Credit Suisse First Boston, New York Branch, as
Depositary
4.20 -- Deposit Agreement (Class B) dated as of March 21, 1997
between First Security Bank, National Association as
Escrow Agent under the Escrow and Paying Agent Agreement,
and Credit Suisse First Boston, New York Branch, as
Depositary
4.21 -- Deposit Agreement (Class C-I) dated as of March 21, 1997
between First Security Bank, National Association as
Escrow Agent under the Escrow and Paying Agent Agreement,
and Credit Suisse First Boston, New York Branch, as
Depositary
</TABLE>
II-4
<PAGE> 122
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- -------------------- ------------------------------------------------------------------------
<C> <S>
4.22 -- Deposit Agreement (Class C-II) dated as of March 21, 1997 between
First Security Bank, National Association as Escrow Agent under the
Escrow and Paying Agent Agreement, and Credit Suisse First Boston,
New York Branch, as Depositary
4.23 -- Escrow and Paying Agent Agreement (Class A) dated as of March 21,
1997 among First Security Bank, National Association as Escrow Agent;
Credit Suisse First Boston Corporation, Morgan Stanley & Co.
Incorporated, Chase Securities Inc. and Goldman, Sachs & Co., as
Initial Purchasers under the Certificate Purchase Agreement;
Wilmington Trust Company, not in its individual capacity, but solely
as Pass Through Trustee for and on behalf of Continental Airlines
Pass Through Trust 1997-1A-0 as Pass Through Trustee; and Wilmington
Trust Company as Paying Agent
4.24 -- Escrow and Paying Agent Agreement (Class B) dated as of March 21,
1997 among First Security Bank, National Association as Escrow Agent;
Credit Suisse First Boston Corporation, Morgan Stanley & Co.
Incorporated, Chase Securities Inc. and Goldman, Sachs & Co., as
Initial Purchasers under the Certificate Purchase Agreement;
Wilmington Trust Company, not in its individual capacity, but solely
as Pass Through Trustee for and on behalf of Continental Airlines
Pass Through Trust 1997-1B-0 as Pass Through Trustee; and Wilmington
Trust Company as Paying Agent
4.25 -- Escrow and Paying Agent Agreement (Class C-I) dated as of March 21,
1997 among First Security Bank, National Association as Escrow Agent;
Credit Suisse First Boston Corporation, Morgan Stanley & Co.
Incorporated, Chase Securities Inc. and Goldman, Sachs & Co., as
Initial Purchasers under the Certificate Purchase Agreement;
Wilmington Trust Company, not in its individual capacity, but solely
as Pass Through Trustee for and on behalf of Continental Airlines
Pass Through Trust 1997-1C-I-0 as Pass Through Trustee; and
Wilmington Trust Company as Paying Agent
4.26 -- Escrow and Paying Agent Agreement (Class C-II) dated as of March 21,
1997 among First Security Bank, National Association as Escrow Agent;
Credit Suisse First Boston Corporation, Morgan Stanley & Co.
Incorporated, Chase Securities Inc. and Goldman, Sachs & Co., as
Initial Purchasers under the Certificate Purchase Agreement;
Wilmington Trust Company, not in its individual capacity, but solely
as Pass Through Trustee for and on behalf of Continental Airlines
Pass Through Trust 1997-1C-II-0 as Pass Through Trustee; and
Wilmington Trust Company as Paying Agent
4.27 -- Note Purchase Agreement dated as of March 21, 1997 among Continental
Airlines, Inc., Wilmington Trust Company as Pass Through Trustee
under each of the Pass Through Trust Agreements, Wilmington Trust
Company, as Subordination Agent, First Security Bank, National
Association, as Escrow Agent and Wilmington Trust Company as Paying
Agent
4.28 -- Form of Leased Aircraft Participation Agreement (included as Exhibit
A-1 to Exhibit 4.27 to this Registration Statement and incorporated
herein by reference)
4.29 -- Form of Lease (included as Exhibit A-2 to Exhibit 4.27 to this
Registration Statement and incorporated herein by reference)
4.30 -- Form of Leased Aircraft Indenture (included as Exhibit A-3 to Exhibit
4.27 to this Registration Statement and incorporated herein by
reference)
4.31 -- Form of Leased Aircraft Trust Agreement (included as Exhibit A-5 to
Exhibit 4.27 to this Registration Statement and incorporated herein
by reference)
</TABLE>
II-5
<PAGE> 123
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- -------------------- ------------------------------------------------------------------------
<C> <S>
4.32 -- Form of Owned Aircraft Participation Agreement (included as Exhibit
C-1 to Exhibit 4.27 to this Registration Statement and incorporated
herein by reference)
4.33 -- Form of Owned Aircraft Indenture (included as Exhibit C-2 to Exhibit
4.27 to this Registration Statement and incorporated herein by
reference)
4.34 -- Form of Special Participation Agreement (included as Exhibit D-1 to
Exhibit 4.27 to this Registration Statement and incorporated herein
by reference)
4.35 -- Form of Special Lease (included as Exhibit D-2 to Exhibit 4.27 to
this Registration Statement and incorporated herein by reference)
4.36 -- Form of Special Indenture (included as Exhibit D-3 to Exhibit 4.27 to
this Registration Statement and incorporated herein by reference)
4.37 -- Form of Special Trust Agreement (included as Exhibit D-4 to Exhibit
4.27 to this Registration Statement and incorporated herein by
reference)
5.1 -- Opinion of Hughes Hubbard & Reed LLP relating to validity of New
Certificates
12.1 -- Computation of Ratio of Earnings to Fixed Charges
23.1 -- Consent of Ernst & Young LLP
23.2 -- Consent of Hughes Hubbard & Reed LLP (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.
24.1 -- Powers of Attorney
25.1 -- Statement of Eligibility of Wilmington Trust Company for the 1997-1A
Pass Through Certificates, on Form T-1
25.2 -- Statement of Eligibility of Wilmington Trust Company for the 1997-1B
Pass Through Certificates, on Form T-1
25.3 -- Statement of Eligibility of Wilmington Trust Company for the
1997-1-C-I Pass Through Certificates, on Form T-1
25.4 -- Statement of Eligibility of Wilmington Trust Company for the
1997-1-C-II 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
</TABLE>
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
II-6
<PAGE> 124
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 posteffective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plans annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant, pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by any such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether or not
such indemnification is against public policy as expressed in the Securities Act
of 1933 and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-7
<PAGE> 125
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment 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 24, 1997.
CONTINENTAL AIRLINES, INC.
By: /s/ JEFFERY A. SMISEK
-----------------------------------
Jeffery A. Smisek
Executive Vice President, General
Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities indicated, on July 24, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
* Chairman of the Board and Chief Executive
- --------------------------------------------- Officer (Principal Executive Officer) and
Gordon M. Bethune Director
* Executive Vice President and Chief Financial
- --------------------------------------------- Officer (Principal Financial Officer)
Lawrence W. Kellner
* Vice President and Controller (Principal
- --------------------------------------------- Accounting Officer)
Michael P. Bonds
* Director
- ---------------------------------------------
Thomas J. Barrack, Jr.
* President, Chief Operating Officer and
- --------------------------------------------- Director
Gregory D. Brenneman
* Director
- ---------------------------------------------
Lloyd M. Bentsen, Jr.
* Director
- ---------------------------------------------
David Bonderman
* Director
- ---------------------------------------------
Patrick Foley
* Director
- ---------------------------------------------
Douglas H. McCorkindale
* Director
- ---------------------------------------------
George G.C. Parker
* Director
- ---------------------------------------------
Richard W. Pogue
</TABLE>
II-8
<PAGE> 126
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
* Director
- ---------------------------------------------
William S. Price III
* Director
- ---------------------------------------------
Donald L. Sturm
* Director
- ---------------------------------------------
Karen Hastie Williams
* Director
- ---------------------------------------------
Charles A. Yamarone
*By: /s/ JEFFERY A. SMISEK
- ---------------------------------------------
Jeffery A. Smisek, Attorney-In-Fact
</TABLE>
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<PAGE> 127
EXHIBIT INDEX
(The below-listed exhibits have been previously filed except Exhibit 23.1,
which is filed herewith.)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- -------------------- ------------------------------------------------------------------------
<C> <S>
4.1 -- Form of New 7.461% Continental Airlines Pass Through Certificate
Series 1997-1A-0 (included in Exhibit 4.5)
4.2 -- Form of New 7.461% Continental Airlines Pass Through Certificate
Series 1997-1B-0 (included in Exhibit 4.6)
4.3 -- Form of New 7.420% Continental Airlines Pass Through Certificate
Series 1997-1C-I-0 (included in Exhibit 4.7)
4.4 -- Form of New 7.420% Continental Airlines Pass Through Certificate
Series 1997-1C-II-0 (included in Exhibit 4.8)
4.5 -- Pass Through Trust Agreement, dated as of March 21, 1997, between
Continental Airlines, Inc., and Wilmington Trust Company, as Trustee,
made with respect to the formation of Continental Airlines Pass
Through Trust, Series 1997-1A-0 and the issuance of 7.461%
Continental Airlines Pass Through Trust, Series 1997-1A-0 Pass
Through Certificates representing fractional undivided interests in
the Trust
4.6 -- Pass Through Trust Agreement, dated as of March 21, 1997, between
Continental Airlines, Inc., and Wilmington Trust Company, as Trustee,
made with respect to the formation of Continental Airlines Pass
Through Trust, Series 1997-1B-0 and the issuance of 7.461%
Continental Airlines Pass Through Trust, Series 1997-1B-0 Pass
Through Certificates representing fractional undivided interests in
the Trust
4.7 -- Pass Through Trust Agreement, dated as of March 21, 1997, between
Continental Airlines, Inc., and Wilmington Trust Company, as Trustee,
made with respect to the formation of Continental Airlines Pass
Through Trust, Series 1997-1C-I-0 and the issuance of 7.420%
Continental Airlines Pass Through Trust, Series 1997-1C-I-0 Pass
Through Certificates representing fractional undivided interests in
the Trust
4.8 -- Pass Through Trust Agreement, dated as of March 21, 1997, between
Continental Airlines, Inc., and Wilmington Trust Company, as Trustee,
made with respect to the formation of Continental Airlines Pass
Through Trust, Series 1997-1C-II-0 and the issuance of 7.420%
Continental Airlines Pass Through Trust, Series 1997-1C-II-0 Pass
Through Certificates representing fractional undivided interests in
the Trust
4.9 -- Revolving Credit Agreement, dated March 21, 1997, between Wilmington
Trust Company, as Subordination Agent, as agent and trustee for the
Continental Airlines Pass Through Trust 1997-1A-0, as Borrower and
ABN AMRO Bank N.V., Chicago Branch as Liquidity Provider
4.10 -- Revolving Credit Agreement, dated March 21, 1997, between Wilmington
Trust Company, as Subordination Agent, as agent and trustee for the
Continental Airlines Pass Through Trust 1997-1A-0, as Borrower and
ING Bank N.V. as Liquidity Provider
4.11 -- Revolving Credit Agreement, dated March 21, 1997, between Wilmington
Trust Company, as Subordination Agent, as agent and trustee for the
Continental Airlines Pass Through Trust 1997-1B-0, as Borrower and
ABN AMRO Bank N.V., Chicago Branch as Liquidity Provider
</TABLE>
<PAGE> 128
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- -------------------- ------------------------------------------------------------------------
<C> <S>
4.12 -- Revolving Credit Agreement, dated March 21, 1997, between Wilmington
Trust Company, as Subordination Agent, as agent and trustee for the
Continental Airlines Pass Through Trust 1997-1B-0, as Borrower and
ING Bank N.V. as Liquidity Provider
4.13 -- Revolving Credit Agreement, dated March 21, 1997, between Wilmington
Trust Company, as Subordination Agent, as agent and trustee for the
Continental Airlines Pass Through Trust 1997-1C-I-0, as Borrower and
ABN AMRO Bank N.V., Chicago Branch as Liquidity Provider
4.14 -- Revolving Credit Agreement, dated March 21, 1997, between Wilmington
Trust Company, as Subordination Agent, as agent and trustee for the
Continental Airlines Pass Through Trust 1997-1C-I-0, as Borrower and
ING Bank N.V. as Liquidity Provider
4.15 -- Revolving Credit Agreement, dated March 21, 1997, between Wilmington
Trust Company, as Subordination Agent, as agent and trustee for the
Continental Airlines Pass Through Trust 1997-1C-II-0, as Borrower and
ABN AMRO Bank N.V., Chicago Branch as Liquidity Provider
4.16 -- Revolving Credit Agreement, dated March 21, 1997, between Wilmington
Trust Company, as Subordination Agent, as agent and trustee for the
Continental Airlines Pass Through Trust 1997-1C-II-0, as Borrower and
ING Bank N.V. as Liquidity Provider
4.17 -- Intercreditor Agreement dated as of March 21, 1997, among Wilmington
Trust Company, as Trustee under the Continental Airlines Pass Through
Trust 1997-1A-0, Continental Airlines Pass Through Trust 1997-1B-0,
Continental Airlines Pass Through Trust 1997-1-C-I-0 and Continental
Pass Through Trust 1997-1C-II-0, ING Bank N.V. and ABN AMRO Bank
N.V., as Class A Liquidity Provider, Class B Liquidity Provider,
Class C Liquidity Provider, and Wilmington Trust Company, as
Subordination Agent and Trustee
4.18 -- Exchange and Registration Rights Agreement, dated as of March 21,
1997, among Continental Airlines, Inc., Wilmington Trust Company, as
Trustee under Continental Airlines Pass Through Trust, Series
1997-1A-O, Continental Airlines Pass Through Trust, Series 1997-1B-O,
Continental Airlines Pass Through Trust, Series 1997-1C-I-O,
Continental Airlines Pass Through Trust, Series 1997-1C-II-O, and
Credit Suisse First Boston Corporation, Morgan Stanley & Co.
Incorporated, Chase Securities Inc. and Goldman, Sachs & Co.
4.19 -- Deposit Agreement (Class A) dated as of March 21, 1997 between First
Security Bank, National Association as Escrow Agent under the Escrow
and Paying Agent Agreement, and Credit Suisse First Boston, New York
Branch, as Depositary
4.20 -- Deposit Agreement (Class B) dated as of March 21, 1997 between First
Security Bank, National Association as Escrow Agent under the Escrow
and Paying Agent Agreement, and Credit Suisse First Boston, New York
Branch, as Depositary
4.21 -- Deposit Agreement (Class C-I) dated as of March 21, 1997 between
First Security Bank, National Association as Escrow Agent under the
Escrow and Paying Agent Agreement, and Credit Suisse First Boston,
New York Branch, as Depositary
4.22 -- Deposit Agreement (Class C-II) dated as of March 21, 1997 between
First Security Bank, National Association as Escrow Agent under the
Escrow and Paying Agent Agreement, and Credit Suisse First Boston,
New York Branch, as Depositary
</TABLE>
<PAGE> 129
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- -------------------- ------------------------------------------------------------------------
<C> <S>
4.23 -- Escrow and Paying Agent Agreement (Class A) dated as of March 21,
1997 among First Security Bank, National Association as Escrow Agent;
Credit Suisse First Boston Corporation, Morgan Stanley & Co.
Incorporated, Chase Securities Inc. and Goldman, Sachs & Co., as
Initial Purchasers under the Certificate Purchase Agreement;
Wilmington Trust Company, not in its individual capacity, but solely
as Pass Through Trustee for and on behalf of Continental Airlines
Pass Through Trust 1997-1A-0 as Pass Through Trustee; and Wilmington
Trust Company as Paying Agent
4.24 -- Escrow and Paying Agent Agreement (Class B) dated as of March 21,
1997 among First Security Bank, National Association as Escrow Agent;
Credit Suisse First Boston Corporation, Morgan Stanley & Co.
Incorporated, Chase Securities Inc. and Goldman, Sachs & Co., as
Initial Purchasers under the Certificate Purchase Agreement;
Wilmington Trust Company, not in its individual capacity, but solely
as Pass Through Trustee for and on behalf of Continental Airlines
Pass Through Trust 1997-1B-0 as Pass Through Trustee; and Wilmington
Trust Company as Paying Agent
4.25 -- Escrow and Paying Agent Agreement (Class C-I) dated as of March 21,
1997 among First Security Bank, National Association as Escrow Agent;
Credit Suisse First Boston Corporation, Morgan Stanley & Co.
Incorporated, Chase Securities Inc. and Goldman, Sachs & Co., as
Initial Purchasers under the Certificate Purchase Agreement;
Wilmington Trust Company, not in its individual capacity, but solely
as Pass Through Trustee for and on behalf of Continental Airlines
Pass Through Trust 1997-1C-I-0 as Pass Through Trustee; and
Wilmington Trust Company as Paying Agent
4.26 -- Escrow and Paying Agent Agreement (Class C-II) dated as of March 21,
1997 among First Security Bank, National Association as Escrow Agent;
Credit Suisse First Boston Corporation, Morgan Stanley & Co.
Incorporated, Chase Securities Inc. and Goldman, Sachs & Co., as
Initial Purchasers under the Certificate Purchase Agreement;
Wilmington Trust Company, not in its individual capacity, but solely
as Pass Through Trustee for and on behalf of Continental Airlines
Pass Through Trust 1997-1C-II-0 as Pass Through Trustee; and
Wilmington Trust Company as Paying Agent
4.27 -- Note Purchase Agreement dated as of March 21, 1997 among Continental
Airlines, Inc., Wilmington Trust Company as Pass Through Trustee
under each of the Pass Through Trust Agreements, Wilmington Trust
Company, as Subordination Agent, First Security Bank, National
Association, as Escrow Agent and Wilmington Trust Company as Paying
Agent
4.28 -- Form of Leased Aircraft Participation Agreement (included as Exhibit
A-1 to Exhibit 4.27 to this Registration Statement and incorporated
herein by reference)
4.29 -- Form of Lease (included as Exhibit A-2 to Exhibit 4.27 to this
Registration Statement and incorporated herein by reference)
4.30 -- Form of Leased Aircraft Indenture (included as Exhibit A-3 to Exhibit
4.27 to this Registration Statement and incorporated herein by
reference)
4.31 -- Form of Leased Aircraft Trust Agreement (included as Exhibit A-5 to
Exhibit 4.27 to this Registration Statement and incorporated herein
by reference)
4.32 -- Form of Owned Aircraft Participation Agreement (included as Exhibit
C-1 to Exhibit 4.27 to this Registration Statement and incorporated
herein by reference)
</TABLE>
<PAGE> 130
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- -------------------- ------------------------------------------------------------------------
<C> <S>
4.33 -- Form of Owned Aircraft Indenture (included as Exhibit C-2 to Exhibit
4.27 to this Registration Statement and incorporated herein by
reference)
4.34 -- Form of Special Participation Agreement (included as Exhibit D-1 to
Exhibit 4.27 to this Registration Statement and incorporated herein
by reference)
4.35 -- Form of Special Lease (included as Exhibit D-2 to Exhibit 4.27 to
this Registration Statement and incorporated herein by reference)
4.36 -- Form of Special Indenture (included as Exhibit D-3 to Exhibit 4.27 to
this Registration Statement and incorporated herein by reference)
4.37 -- Form of Special Trust Agreement (included as Exhibit D-4 to Exhibit
4.27 to this Registration Statement and incorporated herein by
reference)
5.1 -- Opinion of Hughes Hubbard & Reed LLP relating to validity of New
Certificates
12.1 -- Computation of Ratio of Earnings to Fixed Charges
23.1 -- Consent of Ernst & Young LLP
23.2 -- Consent of Hughes Hubbard & Reed LLP (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.
24.1 -- Powers of Attorney
25.1 -- Statement of Eligibility of Wilmington Trust Company for the 1997-1A
Pass Through Certificates, on Form T-1
25.2 -- Statement of Eligibility of Wilmington Trust Company for the 1997-1B
Pass Through Certificates, on Form T-1
25.3 -- Statement of Eligibility of Wilmington Trust Company for the
1997-1-C-I Pass Through Certificates, on Form T-1
25.4 -- Statement of Eligibility of Wilmington Trust Company for the
1997-1-C-II 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
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 3 to the Registration Statement (Form S-4) and related Prospectus
of Continental Airlines, Inc. for the registration of Pass Through Certificates,
Series 1997-1, and to the incorporation by reference therein of our reports
dated February 10, 1997, 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, 1996 filed with the Securities and
Exchange Commission.
/s/ ERNST & YOUNG LLP
---------------------------------
Houston, Texas
July 23, 1997
