UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
Commission File Number 0-9781
CONTINENTAL AIRLINES, INC.
(Exact name of registrant as specified in its charter)
Delaware 74-2099724
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1600 Smith Street, Dept. HQSEO
Houston, Texas 77002
(Address of principal executive offices)
(Zip Code)
713-324-2950
(Registrant's telephone number, including area code)
Indicate by check mark whether registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No _____
_______________
As of October 15, 1999, 11,379,349 shares of Class A common stock
and 57,871,179 shares of Class B common stock were outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
CONTINENTAL AIRLINES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Operating Revenue:
Passenger . . . . . . . $2,104 $1,969 $6,032 $5,571
Cargo and mail. . . . . 76 66 213 202
Other . . . . . . . . . 103 81 292 233
2,283 2,116 6,537 6,006
Operating Expenses:
Wages, salaries and
related costs. . . . . 644 581 1,882 1,599
Aircraft fuel . . . . . 208 181 512 554
Aircraft rentals. . . . 197 164 570 482
Maintenance, materials
and repairs. . . . . . 156 150 454 455
Commissions . . . . . . 154 155 439 448
Other rentals and
landing fees . . . . . 130 110 365 310
Depreciation and
amortization . . . . . 93 75 266 215
Fleet disposition/
impairment losses:
Jet. . . . . . . . . - 65 - 65
Turboprop. . . . . . - 57 - 57
Other . . . . . . . . . 489 435 1,421 1,248
2,071 1,973 5,909 5,433
Operating Income . . . . 212 143 628 573
Nonoperating Income
(Expense):
Interest expense. . . . (58) (47) (168) (131)
Interest capitalized. . 13 14 42 42
Interest income . . . . 16 16 46 42
Other, net. . . . . . . (6) (1) 3 11
(35) (18) (77) (36)
</TABLE>
(continued on next page)
<TABLE>
CONTINENTAL AIRLINES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions of dollars, except per share data)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Income before Income
Taxes, Cumulative
Effect of a Change in
Accounting Principle
and Extraordinary
Charge. . . . . . . . . $ 177 $ 125 $ 551 $ 537
Income Tax Provision . . (67) (49) (214) (206)
Distributions on
Preferred Securities
of Trust, Net of
Applicable Income
Taxes of $2 and $6,
in 1998, respectively . - (3) - (10)
Income before Cumulative
Effect of a Change in
Accounting Principle
and Extraordinary
Charge. . . . . . . . . 110 73 337 321
Cumulative Effect of a
Change in Accounting
Principle, Net of
Applicable Income Taxes
of $3 . . . . . . . . . - - (6) -
Extraordinary Charge,
Net of Applicable
Income Taxes of $2. . . - - - (4)
Net Income . . . . . . . $ 110 $ 73 $ 331 $ 317
</TABLE>
(continued on next page)
<TABLE>
CONTINENTAL AIRLINES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions of dollars, except per share data)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Earnings per Share:
Income Before Cumulative
Effect of Change in
Accounting Principle
and Extraordinary
Charge. . . . . . . . $ 1.56 $ 1.21 $ 4.81 $ 5.33
Cumulative Effect of a
Change in Accounting
Principle, net of tax - - (0.08) -
Extraordinary Charge,
net of tax. . . . . . - - - (0.06)
Net Income . . . . . . $ 1.56 $ 1.21 $ 4.73 $ 5.27
Earnings per Share
Assuming Dilution:
Income Before Cumulative
Effect of Change in
Accounting Principle and
Extraordinary Charge. $ 1.53 $ 0.97 $ 4.51 $ 4.15
Cumulative Effect of a
Change in Accounting. - - (0.07) -
Principle, net of tax
Extraordinary Charge,
net of tax. . . . . . - - - (0.05)
Net Income . . . . . . $ 1.53 $ 0.97 $ 4.44 $ 4.10
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
<TABLE>
CONTINENTAL AIRLINES, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except for share data)
<CAPTION>
September 30, December 31,
ASSETS 1999 1998
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents . . . . . . . . $1,145 $1,399
Short-term investments. . . . . . . . . . 155 -
Accounts receivable, net. . . . . . . . . 606 449
Spare parts and supplies, net . . . . . . 225 166
Deferred income taxes . . . . . . . . . . 234 234
Prepayments and other . . . . . . . . . . 155 106
Total current assets . . . . . . . . . . 2,520 2,354
Property and Equipment:
Owned property and equipment:
Flight equipment . . . . . . . . . . . . 3,460 2,459
Other. . . . . . . . . . . . . . . . . . 793 632
4,253 3,091
Less: Accumulated depreciation. . . . . 780 625
3,473 2,466
Purchase deposits for flight equipment 489 410
Capital leases:
Flight equipment. . . . . . . . . . . . . 360 361
Other . . . . . . . . . . . . . . . . . . 60 56
420 417
Less: Accumulated amortization . . . . . 201 178
219 239
Total property and equipment . . . . . . 4,181 3,115
Other Assets:
Routes, gates and slots, net. . . . . . . 1,143 1,181
Investments . . . . . . . . . . . . . . . 180 151
Other assets, net . . . . . . . . . . . . 272 285
Total other assets . . . . . . . . . . . 1,595 1,617
Total Assets. . . . . . . . . . . . . . $8,296 $7,086
</TABLE>
(continued on next page)
<TABLE>
CONTINENTAL AIRLINES, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except for share data)
<CAPTION>
September 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
(Unaudited)
<S> <C> <C>
Current Liabilities:
Current maturities of long-term debt. . . $ 223 $ 184
Current maturities of capital leases. . . 43 47
Accounts payable. . . . . . . . . . . . . 830 843
Air traffic liability . . . . . . . . . . 1,073 854
Accrued payroll and pensions. . . . . . . 257 265
Accrued other liabilities . . . . . . . . 268 249
Total current liabilities. . . . . . . . 2,694 2,442
Long-Term Debt . . . . . . . . . . . . . . 2,847 2,267
Capital Leases . . . . . . . . . . . . . . 183 213
Deferred Credits and Other Long-Term
Liabilities:
Deferred income taxes . . . . . . . . . . 583 372
Accruals for aircraft retirements and
excess facilities. . . . . . . . . . . . 61 95
Other . . . . . . . . . . . . . . . . . . 367 393
Total deferred credits and other
long-term liabilities . . . . . . . . . 1,011 860
Commitments and Contingencies
Continental-Obligated Mandatorily
Redeemable Preferred Securities of
Subsidiary Trust Holding Solely
Convertible Subordinated
Debentures. . . . . . . . . . . . . . . . - 111
</TABLE>
(continued on next page)
<TABLE>
CONTINENTAL AIRLINES, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except for share data)
<CAPTION>
September 30, December 31,
1999 1998
(Unaudited)
<S> <C> <C>
Stockholders' Equity:
Class A common stock - $.01 par,
50,000,000 shares authorized;
11,379,349 and 11,406,732 shares
issued and outstanding in 1999
and 1998, respectively . . . . . . . . . $ - $ -
Class B common stock - $.01 par,
200,000,000 shares authorized;
63,923,431 and 53,370,741 shares
issued, respectively . . . . . . . . . . 1 1
Additional paid-in capital . . . . . . . 867 634
Retained earnings . . . . . . . . . . . . 990 659
Accumulated other comprehensive loss. . . (70) (88)
Treasury stock - 5,602,818 and 399,524
Class B shares, respectively, at cost. . (227) (13)
Total stockholders' equity . . . . . . . 1,561 1,193
Total Liabilities and Stockholders'
Equity . . . . . . . . . . . . . . . . $8,296 $7,086
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
<TABLE>
CONTINENTAL AIRLINES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
<CAPTION>
Nine Months
Ended September 30,
1999 1998
(Unaudited)
<S> <C> <C>
Net Cash Provided by Operating
Activities. . . . . . . . . . . . . . .$ 679 $ 797
Cash Flows from Investing Activities:
Purchase deposits paid in connection
with future aircraft deliveries. . . . (950) (583)
Purchase deposits refunded in
connection with aircraft delivered . . 815 540
Capital expenditures. . . . . . . . . . (513) (492)
Purchase of short-term investments. . . (155) (44)
Proceeds from disposition of property
and equipment. . . . . . . . . . . . . 27 67
Proceeds from sale of investments . . . 20 9
Investment in partner airlines. . . . . - (53)
Other . . . . . . . . . . . . . . . . . (2) (27)
Net cash used by investing
activities. . . . . . . . . . . . . . (758) (583)
Cash Flows from Financing Activities:
Proceeds from issuance of long-term
debt, net. . . . . . . . . . . . . . . 369 477
Purchase of Class B common stock. . . . (344) (191)
Payments on long-term debt and
capital lease obligations. . . . . . . (243) (375)
Proceeds from issuance of common stock. 29 51
Dividends paid on preferred securities
of trust . . . . . . . . . . . . . . . - (16)
Proceeds from sale-leaseback
transactions . . . . . . . . . . . . . 14 41
Net cash used by financing activities. (175) (13)
Net (Decrease) Increase in Cash and
Cash Equivalents. . . . . . . . . . . . (254) 201
Cash and Cash Equivalents - Beginning
of Period . . . . . . . . . . . . . . . 1,399 1,025
Cash and Cash Equivalents - End of
Period. . . . . . . . . . . . . . . . . $1,145 $1,226
</TABLE>
(continued on next page)
<TABLE>
CONTINENTAL AIRLINES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
<CAPTION>
Nine Months
Ended September 30,
1999 1998
(Unaudited)
<S> <C> <C>
Supplemental Cash Flow Information:
Interest paid . . . . . . . . . . . . . $ 146 $ 98
Income taxes paid . . . . . . . . . . . $ 9 $ 13
Investing and Financing Activities
Not Affecting Cash:
Property and equipment acquired
through the issuance of debt . . . . . $ 673 $ 335
Capital lease obligations incurred. . . $ 21 $ 111
Conversion of trust originated
preferred securities . . . . . . . . . $ 111 $ -
Conversion of 6-3/4% Convertible
Subordinated Notes . . . . . . . . . . $ 230 $ -
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
<PAGE>
CONTINENTAL AIRLINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In the opinion of management, the unaudited consolidated financial
statements included herein contain all adjustments necessary to
present fairly the financial position, results of operations and
cash flows for the periods indicated. Such adjustments are of a
normal, recurring nature. The accompanying consolidated financial
statements should be read in conjunction with the consolidated
financial statements and the notes thereto contained in the Annual
Report of Continental Airlines, Inc. (the "Company" or
"Continental") on Form 10-K for the year ended December 31, 1998
(the "1998 10-K").
Certain reclassifications have been made in the prior year's
financial statements to conform to the current year presentation.
<PAGE>
NOTE 1 - EARNINGS PER SHARE
The following table sets forth the computations of basic and
diluted earnings per share (in millions):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Numerator:
Income before cumulative effect
of change in accounting
principle and extraordinary
charge . . . . . . . . . . . . $110 $ 73 $337 $321
Cumulative effect of change in
accounting principle . . . . . - - (6) -
Extraordinary charge. . . . . . - - - (4)
Numerator for basic earnings
per share - net income . . . . 110 73 331 317
Effect of dilutive securities:
Preferred Securities of Trust . - 3 - 9
6-3/4% convertible subordinated
notes. . . . . . . . . . . . . - 2 4 6
110 5 4 15
Numerator for diluted earnings
per share - net income after
assumed conversions. . . . . . $110 $ 78 $335 $332
Denominator:
Denominator for basic earnings
per share - weighted-average
shares . . . . . . . . . . . . 70.8 60.3 70.1 60.0
Effect of dilutive securities:
Employee stock options . . . . 1.3 1.7 1.4 1.9
Warrants . . . . . . . . . . . - - - 1.1
Preferred Securities of Trust. - 10.3 0.1 10.3
6-3/4% convertible subordinated
notes . . . . . . . . . . . . - 7.6 3.9 7.6
Dilutive potential common
shares. . . . . . . . . . . . 1.3 19.6 5.4 20.9
Denominator for diluted
earnings per share - adjusted
weighted-average and assumed
conversions. . . . . . . . . . 72.1 79.9 75.5 80.9
</TABLE>
<PAGE>
NOTE 2 - INCOME TAXES
Income taxes for the three and nine months ended September 30, 1999
and 1998 were provided at the estimated annual effective tax rate.
Such rate differs from the federal statutory rate of 35%, primarily
due to state income taxes and the effect of certain expenses that
are not deductible for income tax purposes.
At December 31, 1998, the Company had estimated net operating
losses ("NOLs") of $1.1 billion for federal income tax purposes
that will expire through 2009 and federal investment tax credit
carryforwards of $45 million that will expire through 2001. As a
result of a change in ownership of the Company on April 27, 1993,
the ultimate utilization of the Company's NOLs and investment tax
credits may be limited. Reflecting this limitation, the Company
had a valuation allowance of $263 million as of December 31, 1998.
To the extent the Company were to determine in the future that
additional NOLs of the Company's predecessor could be recognized in
the accompanying consolidated financial statements, such benefit
would reduce the value ascribed to routes, gates and slots.
NOTE 3 - COMPREHENSIVE INCOME
The Company includes unrealized gains and losses on available-for-
sale securities, changes in minimum pension liabilities and changes
in the fair value of derivative financial instruments which qualify
for hedge accounting in other comprehensive income. During the
third quarter of 1999 and 1998, total comprehensive income amounted
to $109 and $70 million, respectively. For the nine months ended
1999 and 1998, total comprehensive income amounted to $349 million
and $313 million, respectively. The significant difference between
net income and total comprehensive income during the first nine
months of 1999 was attributable to the $18 million net increase in
fair value (net of applicable income taxes and hedge
ineffectiveness) related to petroleum call options held by the
Company as of September 30, 1999 to hedge a portion of anticipated
jet fuel purchases through December 1999.
NOTE 4 - ACCOUNTING PRONOUNCEMENTS
Continental adopted Statement of Position 98-5, "Reporting on the
Costs of Start-Up Activities" ("SOP 98-5") in the first quarter of
1999. SOP 98-5 amended Statement of Position 88-1, "Accounting for
Developmental and Preoperating Costs, Purchases and Exchanges of
Take-Off and Landing Slots, and Airframe Modifications" by
requiring preoperating costs related to the integration of new
types of aircraft to be expensed as incurred and requiring all
unamortized start-up costs (e.g., pilot training costs related to
induction of new aircraft) to be expensed upon adoption. This
resulted in the Company recording a $6 million cumulative effect of
a change in accounting principle, net of tax, in the first quarter
of 1999.
<PAGE>
On September 23, 1999, the Emerging Issues Task Force of the
Financial Accounting Standards Board reached a consensus on Issue
No. 99-13, "Application of EITF Issue No. 97-10, The Effect of
Lessee Involvement in Asset Construction, and FASB Interpretation
No. 23, Leases of Certain Property Owned by a Governmental Unit or
Authority, to Entities that Enter into Leases with Governmental
Entities", which may require certain future financings related to
airport construction projects to be recorded on the balance sheet.
Previously, these types of transactions were generally recorded as
operating leases. The Company does not expect the change in
accounting treatment to have a material impact on its results of
operations.
This consensus applies to construction projects committed to after
September 23, 1999, and also to those projects that were committed
to on or before such date, if construction does not commence by
March 31, 2000.
NOTE 5 - SHORT-TERM INVESTMENTS
The Company invests in commercial paper with original maturities in
excess of 90 days but less than 270 days. These investments are
classified as short-term investments in the consolidated balance
sheet. Short-term investments are stated at cost, which
approximates market value.
NOTE 6 - PREFERRED SECURITIES OF TRUST
In December 1998, the Company called for redemption its remaining
8-1/2% Convertible Trust Originated Preferred Securities ("TOPrS")
then outstanding. As a result, the remaining 2.3 million TOPrS
were converted into 4.8 million shares of Class B common stock
during January 1999.
NOTE 7 - 6-3/4% CONVERTIBLE SUBORDINATED NOTES DUE 2006
On April 15, 1999, the Company exercised its right and called for
redemption on May 25, 1999, all $230 million of its 6-3/4%
Convertible Subordinated Notes due 2006. The notes were converted
into 7.6 million shares of Class B common stock during May 1999.
NOTE 8 - REGULATORY MATTERS
As more fully described in the Risk Factors section of the
Company's 1998 10-K, airlines are subject to extensive regulatory
and legal compliance requirements that engender significant costs
and in some cases reduce revenue. For instance, "passenger bill of
rights" legislation has been introduced in Congress that would,
among other things, require the payment of compensation to
passengers as a result of certain delays, and limit the ability of
carriers to prohibit or restrict usage of certain tickets in
manners currently prohibited or restricted. The Department of
Transportation (the "DOT") has proposed rules that would
significantly limit major carriers' ability to compete with new
entrant carriers. If adopted, these measures could have the effect
of raising ticket prices, reducing revenue and increasing costs.
The Federal Aviation Administration has designated John F. Kennedy
International Airport ("John F. Kennedy"), New York LaGuardia
Airport ("LaGuardia"), Chicago O'Hare International Airport
("O'Hare") and Ronald Reagan Washington National Airport in
Washington, D.C. ("Reagan National") as "high density traffic
airports" and has limited the number of departure and arrival slots
at those airports. Currently, such slots may be voluntarily sold
or transferred between carriers. The DOT has in the past
reallocated slots to other carriers and reserves the right to
withdraw slots. Various amendments to the slot system proposed
from time to time could, if adopted, significantly affect
operations at high density traffic airports, significantly change
the value of the slots, grant slots to other carriers or for route
or aircraft specific usage, expand slots to other airports or
eliminate slots entirely. The DOT has proposed the elimination of
slot restrictions at high density airports other than Reagan
National. Legislation containing a similar proposal, which could
eliminate slots as early as 2002 at O'Hare and 2007 at LaGuardia
and John F. Kennedy, and which doubles the maximum passenger
facilities charges permitted to be charged by airport authorities,
has passed the full House of Representatives and the full Senate
and is currently being considered by a conference committee. The
Company cannot predict whether any of these proposals will be
adopted. However, if legislation or regulation eliminating slots
were adopted, the value of such slots could be deemed to be
permanently impaired, resulting in a loss being charged to earnings
for the relevant period. Moreover, the elimination of slots could
have an adverse effect upon future results of operations of the
Company.
NOTE 9 - OTHER
In January 1999, Continental's mechanics ratified an initial three-
year collective bargaining agreement between the Company and the
International Brotherhood of Teamsters ("IBT"). The contract
becomes amendable in January 2002.
In February 1999, the Company completed an offering of $806 million
of pass-through certificates to be used to finance (either through
leveraged leases or secured debt financings) the debt portion of
the acquisition cost of 22 aircraft delivered in 1999.
The Company holds a membership interest in The SITA Foundation
("SITA"), an organization providing data communication services to
the airline industry. SITA's primary asset is an ownership
interest in Equant N.V. ("Equant"). In February 1999, SITA sold a
portion of its Equant interest in a secondary public offering and
distributed the pro rata proceeds to certain of its members
(including Continental) that elected to participate in the
offering. Continental recorded a gain of $20 million ($12 million
after tax) related to this transaction. The gain is included in
other nonoperating income (expense) in the accompanying
consolidated statement of operations.
In March 1999, the Company obtained a $160 million Credit Facility,
with a maturity date of March 2001, to finance pre-delivery
deposits for certain new Boeing aircraft to be delivered between
March 1999 and March 2002.
On April 15, 1999, the Company announced a $500 million increase in
the size of its common stock repurchase program, bringing the total
size of the program to $800 million. As of October 15, 1999, the
Company had repurchased 13.4 million shares of Class B common stock
for $585 million.
In May 1999, the Company completed an offering of $742 million of
pass-through certificates to be used to finance (through either
leveraged leases or secured debt financings) the debt portion of
the acquisition cost of 21 new Boeing aircraft scheduled for
delivery from July 1999 to December 1999.
In August 1999, Express's mechanics ratified a four-year collective
bargaining agreement between Express and the IBT. The contract
becomes amendable in January 2003.
On September 22, 1999, the New Jersey Economic Development
Authority completed the offering of $730 million aggregate
principal amount of tax-exempt special facility revenue bonds to
finance a portion of Continental's Global Gateway Program at Newark
International Airport. Major construction began in the third
quarter of 1999 and is scheduled to be completed in 2002. The
program includes construction of a new concourse in Terminal C and
other facility improvements. Continental has unconditionally
guaranteed the bonds and has entered into a long-term lease with
the New Jersey Economic Development Authority under which rental
payments will be sufficient to service the related bonds, which
have a term of 30 years.
In September 1999, the Company and the International Association of
Machinists and Aerospace Workers ("IAM") entered into collective
bargaining negotiations to amend the Continental Airlines flight
attendants' contract (which becomes amendable in December 1999).
Also in September 1999, Express and the IAM entered into collective
bargaining negotiations to amend the Express flight attendants'
contract. The Express flight attendants' contract becomes
amendable in November 1999.
During the nine months ended September 30, 1999, the Company
recognized gains of approximately $79 million on its fuel hedging
program. The gains recognized during the quarter ending September
30, 1999 were $42 million. The gains are included in fuel expense
in the accompanying consolidated statement of operations.
<PAGE>
In April 1998, the Company completed an offering of $187 million of
pass-through certificates to be used to refinance the debt related
to 14 aircraft currently owned by Continental. In connection with
this refinancing, Continental recorded a $4 million after tax
extraordinary charge to consolidated earnings in the second quarter
of 1998.
In June 1998, the Company sold its remaining 317,140 shares of
America West Holding Corporation ("America West") Class B common
stock realizing net proceeds of approximately $8.9 million and a
gain of $6 million.
NOTE 10 - 1998 FLEET DISPOSITION/IMPAIRMENT LOSSES
On August 11, 1998, the Company announced that Continental
Micronesia, Inc. ("CMI"), a wholly owned subsidiary of the Company,
planned to accelerate the retirement of its four Boeing 747
aircraft by April 1999 and its remaining thirteen Boeing 727
aircraft by December 2000. The Boeing 747s have been replaced by
DC-10-30 aircraft and the Boeing 727 aircraft will be replaced with
a reduced number of Boeing 737 aircraft. In addition, Continental
Express, Inc. ("Express"), a wholly owned subsidiary of the
Company, has accelerated the retirement of certain turboprop
aircraft to the year 2000, including its fleet of 32 EMB-120
turboprop aircraft, as they will be replaced by regional jets.
In connection with its decision to accelerate the replacement of
these aircraft, the Company performed an evaluation to determine,
in accordance with Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" ("SFAS 121"), whether future
cash flows (undiscounted and without interest charges) expected to
result from the use and eventual disposition of these aircraft will
be less than the aggregate carrying amount of these aircraft and
the related assets. As a result of the evaluation, management
determined that the estimated future cash flows expected to be
generated by these aircraft will be less than their carrying
amount, and, therefore, these aircraft are impaired as defined by
SFAS 121. Consequently, the original cost basis of these aircraft
and related items was reduced to reflect the fair market value at
the date the decision was made, resulting in a $59 million fleet
disposition/impairment loss. In determining the fair market value
of these assets, the Company considered recent transactions
involving sales of similar aircraft and market trends in aircraft
dispositions. The remaining $63 million of the fleet
disposition/impairment loss includes cash and non-cash costs
related primarily to future commitments on leased aircraft past the
dates they will be removed from service and the write-down of
related inventory to its estimated fair market value. The combined
charge of $122 million ($77 million after tax) was recorded in the
third quarter of 1998.
<PAGE>
NOTE 11 - SUBSEQUENT EVENTS
Continental sold its interest in AMADEUS Global Travel
Distribution, S.A. ("AMADEUS") for $409 million, including a
special dividend. The sale, which occurred as part of AMADEUS's
initial public offering, closed on October 20, 1999 and will result
in a fourth quarter pre-tax gain of approximately $297 million
($182 million after tax).
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The following discussion may contain forward-looking statements.
In connection therewith, please see the risk factors set forth in
the Company's 1998 10-K which identify important factors such as
the Company's leverage and its liquidity, its history of operating
losses, the cost of aircraft fuel, labor matters, certain tax
matters, regional and global economic downturns, the significant
ownership interest of Northwest Airlines in the Company and risks
relating to the Company's strategic alliance with Northwest
Airlines, year 2000 computer risk, competition and industry
conditions, regulatory matters and the seasonal nature of the
airline business, that could cause actual results to differ
materially from those in the forward-looking statements.
Continental's results of operations are impacted by seasonality
(the second and third quarters are generally stronger than the
first and fourth quarters) as well as numerous other factors that
are not necessarily seasonal, including the extent and nature of
competition from other airlines, employee job actions (including at
other airlines), fare sale activities, excise and similar taxes,
changing levels of operations and capacity, fuel prices, foreign
currency exchange rates, changes in regulations and aviation
treaties and general economic conditions. Recently, industry
capacity and growth in the transatlantic markets have resulted in
lower yields and revenue per available seat mile in those markets,
which trend is expected to continue in 2000. Although the results
in Asia of CMI have declined in recent years, the Company has
successfully redeployed CMI capacity into the stronger U.S.
domestic markets and CMI's recent results continue to improve.
Continental will continue to critically review its growth plans in
light of industry conditions and will adjust or redeploy resources,
including aircraft capacity, as necessary. In addition, management
believes the Company is well positioned to respond to market
conditions in the event of a sustained economic downturn for the
following reasons: underdeveloped hubs with strong local traffic;
a flexible fleet plan; a strong cash balance, a $225 million unused
revolving credit facility and a well developed alliance network.
RESULTS OF OPERATIONS
The following discussion provides an analysis of the Company's
results of operations and reasons for material changes therein for
the three and nine months ended September 30, 1999 as compared to
the corresponding periods ended September 30, 1998.
Comparison of Three Months Ended September 30, 1999 to Three Months
Ended September 30, 1998
The Company recorded consolidated net income of $110 million for
the three months ended September 30, 1999 as compared to
consolidated net income of $73 million for the three months ended
September 30, 1998. Net income during that period in 1998 was
significantly impacted by a $77 million ($122 million before-tax)
fleet disposition/ impairment loss resulting from the Company's
decision to accelerate the retirement of certain jet and turboprop
aircraft.
Passenger revenue increased 6.9%, $135 million, during the quarter
ended September 30, 1999 as compared to the same period in 1998,
which was principally due to a 9.7% increase in revenue passenger
miles, partially offset by a 3.6% decrease in yield and weather-
related flight cancellations. The decrease in yield was due
primarily to a 6.9% increase in average stage length.
Cargo and mail revenue increased 15.2%, $10 million, in the third
quarter of 1999 compared to third quarter of 1998 due to increased
domestic and international volumes.
Other operating revenue increased 27.2%, $22 million, in the three
months ended September 30, 1999 as compared to the same period in
the prior year, primarily due to an increase in revenue related to
the Company's frequent flyer program ("OnePass").
Wages, salaries and related costs increased 10.8%, $63 million,
during the quarter ended September 30, 1999 as compared to the same
period in 1998, primarily due to an 8.3% increase in average full-
time equivalent employees to support increased flying and higher
wage rates resulting from the Company's decision to increase
employee wages to industry standards by the end of the year 2000.
Aircraft fuel expense increased 14.9%, $27 million, in the three
months ended September 30, 1999 as compared to the same period in
the prior year. The average price per gallon increased 9.2% from
44.59 cents in the third quarter of 1998 to 48.70 cents in the
third quarter of 1999. In addition, the quantity of jet fuel used
increased 3.9%, principally reflecting increased capacity offset in
part by the increased fuel efficiency of the Company's younger
fleet. This increase is net of gains of approximately $42 million
recognized during the third quarter of 1999 related to the
Company's fuel hedging program. See "Fuel Hedging" below.
Aircraft rentals increased 20.1%, $33 million, in the third quarter
of 1999 compared to the third quarter of 1998, due to the delivery
of new aircraft.
Commissions expense decreased 0.6%, $1 million, in the three months
ended September 30, 1999 compared to the same period in the prior
year due to lower rates resulting from international commission
caps and a lower volume of commissionable sales, partially offset
by increased passenger revenue.
Other rentals and landing fees increased 18.2%, $20 million, in the
three months ended September 30, 1999 as compared to the same
period in the prior year primarily due to higher facilities rent
due to increased space, and higher landing fees resulting from
increased operations.
<PAGE>
Depreciation and amortization expense increased 24.0%, $18 million,
in the third quarter of 1999 compared to the third quarter of 1998
due principally to the addition of new aircraft and related spare
parts.
Other operating expense increased 12.4%, $54 million, in the three
months ended September 30, 1999 as compared to the same period in
the prior year, as a result of increases in reservations and sales
expense, passenger services expense, aircraft servicing expense and
other miscellaneous expense, resulting primarily from an increase
in enplanements and revenue passenger miles.
Interest expense increased 23.4%, $11 million, due to an increase
in long-term debt resulting from the purchase of new aircraft and
$200 million of 8% unsecured senior notes issued in December 1998,
partially offset by interest savings of $4 million due to the
conversion of the Company's 6-3/4% Convertible Subordinated Notes
into Class B common stock.
The Company's other nonoperating income (expense) in the three
months ended September 1999 includes losses on equity investments
of $5 million.
Comparison of Nine Months Ended September 30, 1999 to Nine Months
Ended September 30, 1998
The Company recorded consolidated net income of $331 million and
$317 million for the nine months ended September 30, 1999 and 1998,
respectively. Net income in 1999 included the cumulative effect of
a change in accounting principle charge ($6 million, net of taxes)
related to the write-off of pilot training costs. Net income in
1998 was significantly impacted by a $77 million ($122 million
before-tax) fleet disposition/impairment loss resulting from the
Company's decision to accelerate the retirement of certain jet and
turboprop aircraft.
Passenger revenue increased 8.3%, $461 million, during the nine
months ended September 30, 1999 as compared to the same period in
1998. The increase was due to a 10.7% increase in revenue
passenger miles, partially offset by a 3.1% decrease in yield and
weather-related flight cancellations. The decrease in yield was
due primarily to a 6.7% increase in average stage length.
Cargo and mail revenue increased 5.4%, $11 million, in the nine
months ended September 30, 1999 as compared to the nine months
ended September 30, 1998 due to increased domestic and
international volumes.
Other operating revenue increased 25.3%, $59 million, in the nine
months ended September 30, 1999 compared to the same period in the
prior year primarily due to an increase in OnePass revenue.
Wages, salaries and related costs increased 17.7%, $283 million,
during the nine months ended September 30, 1999 as compared to the
same period in 1998, primarily due to a 9.0% increase in average
full-time equivalent employees to support increased flying and
higher wage rates resulting from the Company's decision to increase
employee wages to industry standards by the end of the year 2000.
Aircraft fuel expense decreased 7.6%, $42 million, in the nine
months ended September 30, 1999 as compared to the same period in
the prior year. The average price per gallon decreased 11.9% from
47.66 cents in the first nine months of 1998 to 41.97 cents in the
first nine months of 1999. This reduction was partially offset by
a 3.9% increase in the quantity of jet fuel used principally
reflecting increased capacity offset in part by the increased fuel
efficiency of the Company's younger fleet. During the first nine
months of 1999, the Company recognized approximately $79 million in
gains related to its fuel hedging program, which gains are included
in aircraft fuel expense. See "Fuel Hedging" below.
Aircraft rentals increased 18.3%, $88 million, during the nine
months ended September 30, 1999 as compared to the same period in
1998, due to the delivery of new aircraft.
Commissions expense decreased 2.0%, $9 million, during the nine
months ended September 30, 1999 as compared to the same period in
1998 due to lower rates resulting from international commission
caps and a lower volume of commissionable sales, partially offset
by increased passenger revenue.
Other rentals and landing fees increased 17.7%, $55 million,
primarily due to higher facilities rent due to increased rates and
volume, and higher landing fees resulting from increased
operations.
Depreciation and amortization expense increased 23.7%, $51 million,
in the first nine months of 1999 compared to the same period in
1998 primarily due to the addition of new aircraft and related
spare parts. These increases were partially offset by
approximately a $5 million reduction in the amortization of routes,
gates and slots resulting from the recognition of previously
unbenefitted NOLs during 1998.
Other operating expense increased 13.9%, $173 million, in the nine
months ended September 30, 1999 as compared to the same period in
the prior year, primarily as a result of increases in passenger
services expense, aircraft servicing expense, reservations and
sales expense and other miscellaneous expense, primarily due to an
increase in enplanements and revenue passenger miles.
Interest expense increased 28.2%, $37 million, due to an increase
in long-term debt resulting from the purchase of new aircraft and
$200 million of 8% unsecured senior notes issued in December 1998,
partially offset by interest savings of $6 million due to the
conversion of the Company's 6-3/4% Convertible Subordinated Notes
into Class B common stock.
<PAGE>
The Company's other nonoperating income (expense) in the nine
months ended September 30, 1999 includes a $20 million gain on the
sale of a portion of the Company's indirect interest in Equant
partially offset by foreign currency losses of $10 million and
losses on equity investments of $5 million. Other nonoperating
income (expense) in the first nine months of 1998 included a $6
million gain on the sale of certain stock of America West.
<PAGE>
Certain Statistical Information
An analysis of statistical information for Continental's jet
operations, excluding regional jet operations, for the periods
indicated is as follows:
<TABLE>
<CAPTION>
Three Months Ended Net
September 30, Increase/
1999 1998 (Decrease)
<S> <C> <C> <C>
Revenue passenger miles
(millions) (1). . . . . . . . . .16,394 14,944 9.7 %
Available seat miles
(millions) (2). . . . . . . . . .21,573 19,642 9.8 %
Passenger load factor (3). . . . . 76.0% 76.1% (0.1)pts.
Breakeven passenger load
factor (4). . . . . . . . . . . . 66.4% 62.8% 3.6 pts.
Passenger revenue per available
seat mile (cents). . . . . . . . 8.87 9.22 (3.8)%
Total revenue per available
seat mile (cents) . . . . . . . . 9.81 10.06 (2.5)%
Operating cost per available
seat mile (cents) (5) . . . . . . 8.90 8.82 0.9 %
Average yield per revenue
passenger mile (cents) (6) . . . 11.68 12.12 (3.6)%
Average fare per revenue
passenger . . . . . . . . . . . .$160.58 $155.39 3.3 %
Revenue passengers (thousands) . .11,922 11,655 2.3 %
Average length of aircraft
flight (miles) . . . . . . . . . 1,141 1,067 6.9 %
Average daily utilization of
each aircraft (hours) (7). . . . 10:44 10:20 3.9 %
Actual aircraft in fleet at
end of period (8) . . . . . . . . 359 359 0.0 %
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended Net
September 30, Increase/
1999 1998 (Decrease)
<S> <C> <C> <C>
Revenue passenger miles
(millions) (1). . . . . . . . . .45,050 40,691 10.7 %
Available seat miles
(millions) (2). . . . . . . . . .60,961 55,739 9.4 %
Passenger load factor (3). . . . . 73.9% 73.0% 0.9 pts.
Breakeven passenger load
factor (4). . . . . . . . . . . . 64.0% 60.9% 3.1 pts.
Passenger revenue per available
seat mile (cents). . . . . . . . 9.06 9.24 (1.9)%
Total revenue per available
seat mile (cents) . . . . . . . . 9.99 10.12 (1.3)%
Operating cost per available
seat mile (cents) (5) . . . . . . 9.02 8.93 1.0 %
Average yield per revenue
passenger mile (cents) (6) . . . 12.27 12.66 (3.1)%
Average fare per revenue
passenger . . . . . . . . . . . .$161.61 $156.17 3.5 %
Revenue passengers (thousands) . .34,193 32,988 3.7 %
Average length of aircraft
flight (miles) . . . . . . . . . 1,110 1,040 6.7 %
Average daily utilization of
each aircraft (hours) (7). . . . 10:30 10:17 2.1 %
Actual aircraft in fleet at
end of period (8) . . . . . . . . 359 359 0.0 %
</TABLE>
Continental has entered into block-space arrangements with certain
other carriers whereby one or both of the carriers is obligated to
purchase capacity on the other. For the three months ended
September 30, 1999 and September 30, 1998, the table above excludes
623 million and 554 million available seat miles, and related
revenue passenger miles and enplanements, operated by Continental
but purchased and marketed by the other carrier, and includes 261
million and 99 million available seat miles, and related revenue
passenger miles and enplanements, operated by other carriers but
purchased and marketed by Continental. For the nine months ended
September 30, 1999 and September 30, 1998, the table above excludes
1.9 billion and 1.2 billion available seat miles, and related
revenue passenger miles and enplanements, operated by Continental
but purchased and marketed by the other carrier, and includes 751
million and 164 million available seat miles, and related revenue
passenger miles and enplanements, operated by other carriers but
purchased and marketed by Continental.
__________________
(1) The number of scheduled miles flown by revenue passengers.
(2) The number of seats available for passengers multiplied by
the number of scheduled miles those seats are flown.
(3) Revenue passenger miles divided by available seat miles.
(4) The percentage of seats that must be occupied by revenue
passengers in order for the airline to break even on an
income before income taxes basis, excluding nonrecurring
charges, nonoperating items and other special items.
(5) 1998 excludes a fleet disposition/impairment loss totaling
$122 million.
(6) The average revenue received for each mile a revenue
passenger is carried.
(7) The average number of hours per day that an aircraft flown in
revenue service is operated (from gate departure to gate
arrival).
(8) Excludes four and six all-cargo 727 aircraft at CMI in 1999
and 1998, respectively. During the first nine months of
1999, the Company took delivery of 42 aircraft and removed 46
aircraft from service.
LIQUIDITY AND CAPITAL COMMITMENTS
In the first nine months of 1999, the Company completed several
transactions intended to strengthen its long-term financial
position and enhance earnings.
In February 1999, the Company completed an offering of $806 million
of pass-through certificates used to finance (either through
leveraged leases or secured debt financings) the debt portion of
the acquisition cost of 22 aircraft delivered in 1999.
In March of 1999, the Company completed a $160 million Credit
Facility, with a maturity date of March 2001, to finance pre-
delivery deposits for certain new Boeing aircraft to be delivered
between March 1999 and March 2002.
On April 15, 1999, the Company announced a $500 million increase in
the size of its common stock repurchase program, bringing the total
size of the program to $800 million. As of October 15, 1999, the
Company had repurchased 13.4 million shares of Class B common stock
for $585 million.
Also on April 15, 1999, the Company exercised its right and called
for redemption on May 25, 1999, all $230 million of its 6-3/4%
Convertible Subordinated Notes due 2006. The notes were converted
into 7.6 million shares of Class B common stock during May 1999.
In May 1999, the Company completed an offering of $742 million of
pass-through certificates to be used to finance (either through
leveraged leases or secured debt financings) the debt portion of
the acquisition cost of 21 new Boeing aircraft scheduled for
delivery from July 1999 to December 1999.
As of September 30, 1999, the Company had $1.3 billion in cash and
cash equivalents and short-term investments. Net cash provided by
operating activities decreased $118 million during the nine months
ended September 30, 1999 compared to the same period in the prior
year primarily due to changes in working capital. Net cash used by
investing activities increased $175 million for the nine months
ended September 30, 1999 compared to the same period in the prior
year, primarily as a result of increased purchases of short-term
investments in 1999, and higher net purchase deposits paid in 1999
in connection with future aircraft deliveries. Net cash used by
financing activities for the nine months ended September 30, 1999
compared to the same period in the prior year increased $162
million primarily due to an increase in the purchase of the
Company's Class B common stock.
Deferred Tax Assets. The Company had, as of December 31, 1998,
deferred tax assets aggregating $803 million, including
$372 million of NOLs and a valuation allowance of $263 million. To
the extent the Company were to determine in the future that
additional NOLs of the Company's predecessor could be recognized in
the accompanying consolidated financial statements, such benefit
would further reduce routes, gates and slots.
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, 1998. 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 a
corporation by more than 50 percentage points over a three-year
period.
On November 20, 1998, an affiliate of Northwest Airlines, Inc.
completed its acquisition of certain equity of the Company
previously held by Air Partners, L.P. and its affiliates, together
with certain Class A common stock of the Company held by certain
other investors, totaling 8.7 million shares of Class A common
stock (the "Air Partners Transaction"). Based on information
currently available, the Company does not believe that the Air
Partners Transaction resulted in an ownership change for purposes
of Section 382.
Purchase Commitments. Continental has substantial commitments for
capital expenditures, including for the acquisition of new
aircraft. As of October 15, 1999, Continental had agreed to
acquire a total of 88 Boeing jet aircraft through 2005. The
Company anticipates taking delivery of 61 Boeing jet aircraft in
1999 (42 of which were delivered during the first nine months of
1999 and financed through enhanced equipment trust certificates,
with the Company purchasing 22 of those aircraft and leasing the
other 20). Continental also has options for an additional 119
Boeing aircraft (exercisable subject to certain conditions). The
estimated aggregate cost of the Company's firm commitments for
Boeing aircraft is approximately $4.4 billion. Continental
currently plans to finance its new Boeing aircraft with a
combination of enhanced pass through trust certificates, lease
equity and other third-party financing, subject to availability and
market conditions. As of October 15, 1999, Continental had
approximately $559 million in financing arranged for such future
Boeing deliveries. In addition, Continental has commitments or
letters of intent for backstop financing for approximately 19% of
the anticipated remaining acquisition cost of such Boeing
deliveries. In addition, at October 15, 1999, Continental had firm
commitments to purchase 36 spare engines related to the new Boeing
aircraft for approximately $190 million which will be deliverable
through March 2005.
As of October 15, 1999, Express had firm commitments to acquire 23
Embraer ERJ-145 ("ERJ-145") 50-seat regional jets and 22 Embraer
ERJ-135 ("ERJ-135") 37-seat regional jets, with options for an
additional 125 ERJ-145 and 50 ERJ-135 aircraft exercisable through
2008. Express anticipates taking delivery of 19 ERJ-145 (16 of
which were delivered in the first nine months of 1999) and six ERJ-
135 (three of which were delivered in the first nine months of
1999) regional jets in 1999 and the remainder of its firm orders
through the third quarter of 2001. Neither Express nor Continental
will have any obligation to take any of the firm ERJ-145 or ERJ-135
aircraft that are not financed by a third-party and leased to
Continental.
Additional 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 continue to increase aircraft rental,
depreciation and interest costs while generating cost savings in
the areas of maintenance, fuel and pilot training.
At the beginning of the year, Continental estimated its cash
outlays for 1999 capital expenditures, exclusive of fleet plan
requirements, to aggregate $254 million, primarily relating to
mainframe, software application and automation infrastructure
projects, aircraft modifications and mandatory maintenance
projects, passenger terminal facility improvements and office,
maintenance, telecommunications and ground equipment.
Continental's capital expenditures during the nine months ended
September 30, 1999 aggregated $161 million, exclusive of fleet plan
expenditures.
The Company expects to fund its future capital commitments through
internally generated funds together with general Company financings
and aircraft financing transactions. However, there can be no
assurance that sufficient financing will be available for all
aircraft and other capital expenditures not covered by firm
financing commitments.
Year 2000. The Year 2000 issue arises as a result of computer
programs having been written using two digits (rather than four) to
define the applicable year, among other problems. Any information
technology ("IT") systems that have time-sensitive software might
recognize a date using "00" as the year 1900 rather than the year
2000, which could result in miscalculations and system failures.
The problem also extends to many "non-IT" systems; that is,
operating and control systems that rely on embedded chip systems.
In addition, the Company is at risk from Year 2000 failures on the
part of third-party suppliers and governmental agencies with which
the Company interacts.
<PAGE>
The Company uses a significant number of computer software programs
and embedded operating systems that are essential to its
operations. For this reason, the Company implemented a Year 2000
project in late 1996 so that the Company's computer systems would
function properly in the year 2000 and thereafter. The Company's
Year 2000 project involves the review of a number of internal and
third-party systems. Each system is subjected to the project's
five phases which consist of systems inventory, evaluation and
analysis, modification implementation, user testing and integration
compliance. The Company recently completed its systems review and
believes that, with the modifications to its existing software and
systems and/or conversions to new software it has made, the Year
2000 issue will not pose significant operational problems for its
computer systems.
The Company anticipates completing its extensive communications and
on-site visits with its significant suppliers, vendors and
governmental agencies with which its systems interface and exchange
data or upon which its business depends by November 15, 1999. The
Company is coordinating efforts with these parties to minimize the
extent to which its business may be vulnerable to their failure to
remediate their own Year 2000 problems. The Company's business is
dependent upon certain domestic and foreign governmental
organizations or entities such as the Federal Aviation
Administration ("FAA") that provide essential aviation industry
infrastructure. There can be no assurance that the systems of such
third parties on which the Company's business relies will be
modified on a timely basis. The Company's business, financial
condition or results of operations could be materially adversely
affected by the failure of its equipment or systems or those
operated by other parties to operate properly beyond 1999.
Although the Company currently has day-to-day operational
contingency plans, management is in the process of updating these
plans for possible Year 2000-specific operational requirements and
anticipates completing such updates by October 31, 1999. To
facilitate the completion of these plans, the Company has hired an
outside consultant. In addition, the Company will continue to
monitor third-party (including governmental) readiness and will
modify its contingency plans accordingly. While the Company does
not currently expect any significant modification of its operations
in response to the Year 2000 issue beyond normal demand-driven
holiday schedule adjustments, in a worst-case scenario the Company
could be required to suspend flights to certain locations or
otherwise alter its operations significantly.
The total cost of the Company's Year 2000 project (excluding
internal payroll) is currently estimated at $19-20 million and has
been and will be funded through cash from operations. As of
September 30, 1999, the Company had incurred and expensed
approximately $19 million relating to its Year 2000 project. The
cost of the Year 2000 project is limited by the substantial
outsourcing of the Company's systems and the significant
implementation of new systems in 1993. The costs of the Company's
Year 2000 project and the date on which the Company believes it
will be completed are based on management's best estimates and
include assumptions regarding third-party modification plans.
However, in particular due to the potential impact of third-party
modification plans, there can be no assurance that these estimates
will be achieved, and actual results could differ materially from
those anticipated.
Bond Financings. In July 1996, the Company announced plans to
expand its gates and related facilities into Terminal B at Bush
Intercontinental Airport, as well as planned improvements at
Terminal C and the construction of a new automated people mover
system linking Terminal B and Terminal C. The majority of the
Company's expansion project has been completed. In April 1997 and
January 1999, the City of Houston completed the offering of $190
million and $46 million, respectively, aggregate principal amount
of tax-exempt special facilities revenue bonds (the "IAH Bonds").
The IAH Bonds are unconditionally guaranteed by Continental. In
connection therewith, the Company has entered into long-term leases
(or amendments to existing leases) with the City of Houston
providing for the Company to make rental payments sufficient to
service the related tax-exempt bonds, which have a term no longer
than 30 years.
In September 1999, the City of Cleveland, Ohio (the "City of
Cleveland") completed the issuance of $71 million aggregate
principal amount of tax-exempt bonds. The bond proceeds were used
to refinance $75 million aggregate principal amount in bonds
originally issued by the City of Cleveland in 1990 for the purpose
of constructing certain terminal and other improvements at
Cleveland Hopkins International Airport. Continental has
unconditionally guaranteed the bonds and has a long-term lease with
the City of Cleveland under which rental payments will be
sufficient to service the related bonds, which have a term of 20
years. Continental estimates that it will save approximately $44
million in debt service payments over the 20-year term as a result
of the refinancing.
On September 22, 1999, the New Jersey Economic Development
Authority completed the offering of $730 million aggregate
principal amount of tax-exempt special facility revenue bonds to
finance a portion of Continental's Global Gateway Program at Newark
International Airport. Major construction began in the third
quarter of 1999 and is scheduled to be completed in 2002. The
program includes construction of a new concourse in Terminal C and
other facility improvements. Continental has unconditionally
guaranteed the bonds and has entered into a long-term lease with
the New Jersey Economic Development Authority under which rental
payments will be sufficient to service the related bonds, which
have a term of 30 years.
Employees. In September 1997, the Company announced a plan to
bring all employees to industry standard wages no later than the
end of the year 2000. Wage increases began in 1997, and will
continue to be phased in through 2000.
In January 1999, Continental's mechanics ratified an initial three-
year collective bargaining agreement between the Company and the
IBT. The contract becomes amendable in January 2002.
On June 4, 1999, following a mail ballot election, the National
Mediation Board ("NMB") determined that fewer than 29% of the
Company's and Express's 8,000 fleet service employees desired to be
represented by the IAM, and dismissed the IAM's representation
petition. Pursuant to the NMB's rules there is a one-year bar from
the date of the dismissal on union organizing for such workgroup.
In August 1999, Express's mechanics ratified a four-year collective
bargaining agreement between Express and the IBT. The contract
becomes amendable in January 2003.
In September 1999, the Company and the IAM entered into collective
bargaining negotiations to amend the Continental Airlines flight
attendants' contract (which becomes amendable in December 1999).
Also in September 1999, Express and the IAM entered into collective
bargaining negotiations to amend the Express flight attendants'
contract. The Express flight attendants' contract becomes
amendable in November 1999.
In addition, the Company's and Express's flight attendants, pilots
and dispatchers are represented by unions as are CMI's flight
attendants, mechanics and related employees and agents. The other
employees of Continental, Express and CMI are not represented and
are not covered by collective bargaining agreements.
Fuel Hedging. The Company uses a combination of petroleum swap
contracts, petroleum call options, and jet fuel purchase
commitments to provide some short-term protection against a sharp
increase in jet fuel prices. During the third quarter, the Company
entered into petroleum call options to hedge jet fuel prices for
approximately 95% of its anticipated fuel requirements through
December 1999. The fair value was approximately $32 million at
September 30, 1999 and has been recorded in other assets with the
offset to accumulated other comprehensive loss, net of applicable
income taxes and hedge ineffectiveness. As of October 15, 1999,
the fair value of the petroleum call options was approximately $24
million.
Other. Management believes that the Company's costs are likely to
be affected in the future by (i) higher aircraft ownership costs as
new aircraft are delivered, (ii) higher wages, salaries and related
costs as the Company compensates its employees comparable to
industry average, (iii) changes in the costs of materials and
services (in particular, the cost of fuel, which can fluctuate
significantly in response to global market conditions), (iv)
changes in distribution costs and structure, (v) changes in
governmental regulations and taxes affecting air transportation and
the costs charged for airport access, including new security
requirements, (vi) changes in the Company's fleet and related
capacity and (vii) the Company's continuing efforts to reduce costs
throughout its operations, including reduced maintenance costs for
new aircraft, reduced distribution expense from using Continental's
electronic ticket product and the internet for bookings, and
reduced interest expense.
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
The information called for by this item is provided under the
caption "Fuel Hedging" under Item 2 - Management's Discussion and
Analysis of Financial Condition and Results of Operations. Also
see Item 7A. Quantitative and Qualitative Disclosures About Market
Risk in Continental's 1998 10-K.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
10.1 Special Facilities Lease Agreement dated as of
December 1, 1989 by and between the Company and
the City of Cleveland, Ohio regarding Cleveland
Hopkins International Airport (the "1989 SFLA").
10.1(a) First Supplemental Special Facilities Lease
Agreement dated as of March 1, 1998, and relating
to the 1989 SFLA.
10.1(b) Second Supplemental Special Facilities Lease
Agreement dated as of March 1, 1998, and relating
to the 1989 SFLA.
10.2 Amendment to Employment Agreement between the
Company and Gordon M. Bethune, dated as of
September 16, 1999.
10.3 Amendment to Employment Agreement between the
Company and Gregory D. Brenneman, dated as of
September 16, 1999.
10.4 Amended and Restated Employment Agreement between
the Company and Lawrence W. Kellner, dated as of
September 16, 1999.
10.5 Amended and Restated Employment Agreement between
the Company and C.D. McLean, dated as of
September 16, 1999.
<PAGE>
10.6 Amended and Restated Employment Agreement between
the Company and Jeffery A. Smisek, dated as of
September 16, 1999.
10.7 Supplemental Agreement No. 16, including side
letters, to Boeing Purchase Agreement No. 1783,
dated July 2, 1999.
10.8 Supplemental Agreement No. 12 to Boeing Purchase
Agreement No. 1951, dated July 2, 1999.
10.9 Supplemental Agreement No. 1, including side
letters, to Boeing Purchase Agreement No. 2211,
dated July 2, 1999.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K:
(i) None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CONTINENTAL AIRLINES, INC.
(Registrant)
Date: October 25, 1999 by: /s/ Lawrence W. Kellner
Lawrence W. Kellner
Executive Vice President and
Chief Financial Officer
(On behalf of Registrant)
Date: October 25, 1999 /s/ Chris Kenny
Chris Kenny
Staff Vice President and Controller
(Principal Accounting Officer)
<PAGE>
INDEX TO EXHIBITS
OF
CONTINENTAL AIRLINES, INC.
10.1 Special Facilities Lease Agreement dated as of December
1, 1989 by and between the Company and the City of
Cleveland, Ohio regarding Cleveland Hopkins International
Airport (the "1989 SFLA").
10.1(a) First Supplemental Special Facilities Lease Agreement
dated as of March 1, 1998, and relating to the 1989 SFLA.
10.1(b) Second Supplemental Special Facilities Lease Agreement
dated as of March 1, 1998, and relating to the 1989 SFLA.
10.2 Amendment to Employment Agreement between the Company and
Gordon M. Bethune, dated as of September 16, 1999.
10.3 Amendment to Employment Agreement between the Company and
Gregory D. Brenneman, dated as of September 16, 1999.
10.4 Amended and Restated Employment Agreement between the
Company and Lawrence W. Kellner, dated as of September
16, 1999.
10.5 Amended and Restated Employment Agreement between the
Company and C.D. McLean, dated as of September 16, 1999.
10.6 Amended and Restated Employment Agreement between the
Company and Jeffery A. Smisek, dated as of September 16,
1999.
10.7 Supplemental Agreement No. 16, including side letters, to
Boeing Purchase Agreement No. 1783, dated July 2, 1999.
(1)
10.8 Supplemental Agreement No. 12 to Boeing Purchase
Agreement No. 1951, dated July 2, 1999. (1)
10.9 Supplemental Agreement No. 1, including side letters, to
Boeing Purchase Agreement No. 2211, dated July 2, 1999.
(1)
27.1 Financial Data Schedule.
__________________________
(1) The Company has applied to the Commission for confidential
treatment for a portion of this exhibit.
EXHIBIT 10.1
CLEVELAND HOPKINS INTERNATIONAL AIRPORT
SPECIAL FACILITIES LEASE AGREEMENT
WITH
CONTINENTAL AIRLINES, INC.
_______________________________________
$76,320,000
City of Cleveland, Ohio
Airport Special
Revenue Bonds, Series 1990
(Continental Airlines, Inc. Project)
________________________________________
Dated as of
December 1, 1989
________________________________________
Calfee, Halter & Griswold
Bond Counsel
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
Section Page
1.01 Basic Rent 2
1.02 Basic Rent Reserve 2
1.03 Basic Rent Reserve Fund 2
1.04 Bond Rent 2
1.05 Bonds 2
1.06 Commencement of Occupancy 2
1.07 Construction Fund 2
1.08 Continental Special Facilities 2
1.09 Continental Special Premises 2
1.10 Cost of the Facilities 2
1.11 Defeasance Date 3
1.12 Event of Default 3
1.13 Exclusive Continental Special Premises 3
1.14 Hangar Lease 3
1.15 Hangar Site 3
1.16 Hangar Site Improvements 3
1.17 Improvements 3
1.18 Indenture 3
1.19 Non-exclusive Continental Special Premises 3
1.20 Off-Site Improvements 3
1.21 On-Site Improvements 3
1.22 Qualified Successor Lessee 3
1.23 Series 1990 Bonds 4
1.24 Termination Date 4
1.25 Trustee 4
ARTICLE II
RIGHTS, PRIVILEGES AND PREMISES
2.01 Lease and Use of Continental Special Premises 5
2.02 Space in and Adjacent to Terminal Building 6
2.03 Access 6
2.04 Use by Airline 7
2.05 Concessions 8
ARTICLE III
OCCUPANCY; TERM
3.01 Term 10
3.02 Relationship to Other Agreements 10
ARTICLE IV
QUIET ENJOYMENT 14
ARTICLE V
ISSUANCE OF BONDS; CONSTRUCTION OF IMPROVEMENTS;
PAYMENT OF COSTS OF THE IMPROVEMENTS
5.01 Issuance of Bonds; Deposit of Bond Proceeds;
Deposit of the Airline's Funds into
the Special Funds 15
5.02 Disbursements from the Construction Fund 15
5.03 Construction of Improvements 15
5.04 Subsequent Improvements by Airline 17
5.05 Agreements with Contractors 17
ARTICLE VI
MAINTENANCE AND OPERATION OF
CONTINENTAL SPECIAL FACILITIES
6.01 Operation and Maintenance of Continental
Special Facilities 18
6.02 Maintenance by City 18
6.03 Heating and Cooling 18
6.04 Lighting and Public Areas 18
6.05 Water and Sanitary Sewer 19
6.06 Limitation on Obligation 19
ARTICLE VII
BASIC RENT, CHARGES AND FEES; BOND RENT
7.01 Payment of Rentals, Charges and Fees 20
7.02 Basic Rent 20
7.03 Annual Adjustment of Basic Rent 21
7.04 Basic Rent Reserve 22
7.05 Bond Rent 23
7.06 Utilities 25
7.07 Concession for Sale of Alcoholic Beverages 25
7.08 Additional Payments by City 26
ARTICLE VIII
[LEFT BLANK INTENTIONALLY] 27
ARTICLE IX
RULES AND REGULATIONS; COMPLIANCE WITH LAWS;
ADDITIONAL COVENANTS
9.01 Rules and Regulations 27
9.02 Compliance with Laws 27
9.03 Ramp Usage and Servicing 28
9.04 Noise Abatement 29
ARTICLE X
INDEMNIFICATION; DAMAGE OR
DESTRUCTION; INSURANCE
10.01 Indemnification 30
10.02 Liability Insurance 30
10.03 Damage or Destruction 31
10.04 Waiver of Subrogation; Property Insurance 32
ARTICLE XI
EMINENT DOMAIN 33
ARTICLE XII
DEFAULTS
12.01 Events of Default 34
12.02 Remedies 35
12.03 Effect of Termination 35
12.04 Additional Rights of City 36
ARTICLE XIII
ASSIGNMENT AND SUBLETTING
13.01 Assignment 37
13.02 Requests for Assignment 37
13.03 Filing of Assignment 37
13.04 Application of Rent 38
ARTICLE XIV
AIRLINE'S RIGHT TO TERMINATE 39
ARTICLE XV
DELIVERY OF POSSESSION 40
ARTICLE XVI
HOLDING OVER 41
ARTICLE XVIII
MISCELLANEOUS PROVISIONS
17.01 No Personal Liability 42
17.02 Tax-Exempt Status of Bonds 42
17.03 Taxes 42
17.04 Interpretation of Agreement 43
17.05 Notices 43
17.06 Entire Agreement; Amendment 44
17.07 Waiver 44
17.08 Non-Discrimination 44
17.09 Force Majeure 45
17.10 Severability 45
17.11 Headings 46
17.12 Non-Exclusivity 46
17.13 Approvals 46
17.14 Binding Nature 46
17.15 Inspection 46
17.16 Incorporation of Exhibits 46
17.17 Public Contract 47
17.18 Memorandum of Lease 49
17.19 Continuation of Warranties 49
17.20 No Agency 49
SIGNATURES 50
EXHIBIT A - Original Lease
EXHIBIT B - Continental Special Premises
EXHIBIT C - On-Site Improvements
EXHIBIT D - Hangar Site Improvements
EXHIBIT E - Off-Site Improvements
EXHIBIT F - Maintenance Responsibilities
EXHIBIT G - Noise Abatement Procedures
<PAGE>
THIS SPECIAL FACILITIES LEASE AGREEMENT (the
"Agreement"), made and entered into this 1st day of December, 1989,
by and between the CITY OF CLEVELAND, a municipal corporation and
political subdivision of the State of Ohio (the "City"), and
CONTINENTAL AIRLINES, INC., a corporation organized and existing
under the laws of the State of Delaware and authorized to do
business in the State of Ohio ("Airline").
WITNESSETH:
WHEREAS, City owns and operates Cleveland Hopkins
International Airport (the "Airport"); and
WHEREAS, the Council of City, pursuant to Ordinance No.
1585-A-76, passed by the Council on August 16, 1976, authorized
City to enter into agreements and leases substantially in the form
attached to said Ordinance as Exhibit "A" (the "Master Agreement")
with certain airlines, which agreements and leases would set forth
the terms on which such airlines would lease portions of the
Airport from City and be permitted to use the Airport's facilities;
and
WHEREAS, the Council of City, pursuant to Ordinance
No. 2551-A-82, passed by the Council of City on June 15, 1983,
authorized City to enter into additional such agreements and leases
with additional Scheduled Airlines (as defined therein); and
WHEREAS, pursuant to said Ordinance No. 2551-A-82, City
entered into an Agreement and Lease, dated as of May 15, 1987 (the
"Original Lease"), with Airline; and
WHEREAS, the Original Lease and the Indenture (as defined
in the Original Lease) permit City to issue Special Revenue Bonds
to finance the construction of any Special Facilities (both as
defined in the Original Lease); and
WHEREAS, Airline desires to construct Special Facilities
and to have City issue Special Revenue Bonds for the purpose of
financing certain of the costs thereof; and
WHEREAS, pursuant to Ordinance No. 2729-89, passed by the
Council of City on December 11, 1989 (the "Authorizing Ordinance"),
the Council of City authorized City, among other things, to execute
and deliver this Special Facilities Lease;
NOW, THEREFORE, for and in consideration of the premises
and the mutual covenants, agreements and conditions contained
herein, the parties hereto agree as follows:
<PAGE>
ARTICLE I - DEFINITIONS
Unless otherwise defined herein and except as otherwise
stated herein, all capitalized words and terms defined in the
Original Lease and used herein are used herein with the definition
assigned to them in the Original Lease as in effect on the date
hereof and as attached hereto as Exhibit A. The following words
and terms are used herein with the following definitions:
1.01 "Basic Rent" means the rent payable by Airline
pursuant to Article VII hereof.
1.02 "Basic Rent Reserve" means: (i) during the period
preceding the first adjustment in the Basic Rent pursuant to Sec-
tion 7.03 hereof, the amount of Basic Rent which would be payable
during the first full calendar year following the Commencement of
Occupancy if the amount thereof were based upon the numbers of
square feet of space in various categories set forth in
Section 7.02 hereof and the respective rents per square foot set
forth therein; and (ii) from and after the first adjustment in the
Basic Rent pursuant to Section 7.03 hereof, the amount of Basic
Rent payable during the then current calendar year.
1.03 "Basic Rent Reserve Fund" means the Fund of that
name established pursuant to Section 7.04 hereof.
1.04 "Bond Rent" means the rent payable by Airline
pursuant to Section 7.05 hereof.
1.05 "Bonds" means City of Cleveland, Ohio, Airport
Special Revenue Bonds, Series 1990 (Continental Airlines, Inc.
Project), dated December 1, 1989.
1.06 "Commencement of Occupancy" means with respect to
each of the various categories of Continental Special Premises set
forth in Section 7.02 hereof, the date, following the completion
date of the On-Site Improvements located in the applicable
category, on which the Airline commences to occupy said category of
the Continental Special Premises.
1.07 "Construction Fund" means the "Construction Fund" as
defined in the Indenture.
1.08 "Continental Special Facilities" means the
Continental Special Premises and the Off-Site Improvements.
1.09 "Continental Special Premises" means the real
property described in Exhibit B hereto and the On-Site
Improvements, exclusive of any concession space the construction
cost of which was paid to Airline by City pursuant to Section 2.05
hereof.
1.10 "Cost of the Facilities" means "Cost of the
Facilities" as defined in the Indenture.
1.11 "Defeasance Date" means the date on which all the
Bonds shall have been paid and discharged or shall be deemed paid
and discharged for purposes of and in accordance with the
Indenture, and the Indenture shall have be with its terms.
1.12 "Event of Default" means any of the circumstances
designated as such in Section 12.01 hereof.
1.13 "Exclusive Continental Special Premises" means the
areas of the Continental Special Premises described in Section
2.02(b) hereof, being generally those premises which are used and
controlled exclusively by Airline to service its passengers,
customers and operations and not open to, available for, or used by
the general public and/or by the passengers, customers or
operations of other airlines or persons.
1.14 "Hangar Lease" means the Lease, dated as of the date
of original issuance and delivery between City and Airline with
respect to the real property on which the Hangar Improvements are
to be located.
1.15 "Hangar Site" means the real property comprising the
leased premises under the Hangar Lease.
1.16 "Hangar Site Improvements" means the Improvements to
the Hangar described in Exhibit D hereto.
1.17 "Improvements" means the On-Site Improvements and
the Off-Site Improvements.
1.18 "Indenture" means the Trust Indenture, dated as of
December 1, 1989, between City and the Trustee.
1.19 "Non-exclusive Continental Special Premises" means
those areas of the Continental Special Premises not described in
Section 2.02(b) hereof, being generally those premises which are
not used and controlled exclusively by Airline to service its
passengers, customers and operations and which are open to,
available for, and used by the general public and/or by the
passengers, customers or operations of other airlines or persons.
1.20 "Off-Site Improvements" means the Hangar Site
Improvements and the other improvements described in Exhibit E
hereto, to be made at the Airport, but not on or at the Continental
Special Premises.
1.21 "On-Site Improvements" means the improvements
described in Exhibit C hereto, to be made on or at the Continental
Special Premises.
1.22 "Qualified Successor Lessee" means Qualified
Successor Lessee, as defined in the Indenture.
1.23 "Series 1990 Bonds" means the "Series 1990 Bonds" as
defined in the Indenture.
1.24 "Termination Date" means the earlier of the final
scheduled maturity of the Bonds or the date on which the
termination of this Lease occurs pursuant to Section 12.02 hereof.
1.25 "Trustee" means the "Trustee" as defined in the
Indenture.
(End of Article I)
<PAGE>
ARTICLE II - RIGHTS, PRIVILEGES
AND PREMISES
2.01 Lease and Use of Continental Special Premises
In addition to such rights as Airline has under the
Original Lease, any agreement which may succeed or supersede the
Original Lease, and any other agreements Airline may have with City
until the respective terminations thereof in accordance with their
respective terms, for the rent, upon the agreements, and subject to
the terms and conditions hereinafter set forth and subject to the
rules and regulations prescribed by City, City hereby agrees to
lease the Continental Special Premises to Airline, and Airline
agrees to lease the Continental Special Premises from City, and
City agrees that Airline shall have the right to conduct from and
at the Continental Special Premises its air transportation
activities for the carriage of persons, property and mail and to
operate an airline lounge. Specifically and without limitation,
the following rights are included among the rights hereby
conferred:
a. The use, in common with other duly authorized users,
of the public areas of the Terminal Complex.
b. The right of ticketing passengers, and of loading
and unloading persons, property and mail at the Continental Special
Premises by such motor vehicles or other means of conveyance as
Airline may require as is consistent with normal airport practice.
c. The right to install at Airline's expense
identifying signs on the Exclusive Continental Special Premises,
the number, type, size, design and location of which shall all be
consistent with such graphic standards as City may from time to
time adopt. Airline shall make no such installation without the
prior written approval of City, and such right shall be subject to
City's right to lease space for advertising signs throughout the
Non-exclusive Continental Special Premises.
d. The right to install, maintain and operate such
radio, communication, meteorological, security screening and aerial
navigation equipment and facilities as may be necessary in the
opinion of Airline for its operation; provided, however, that the
location of such equipment and facilities must be first approved by
City and shall not interfere with the full and proper use of the
Airport System.
e. Airline shall not install or operate pay telephones,
coin vending machines or coin-operated amusement machines and
devices in the Continental Special Premises but may have such
installed by companies having agreements with City for such
installations, if such shall be for the use of Airline's employees
and located in the Exclusive Continental Special Premises;
provided, however, that if such company or companies choose not to
install such devices, Airline may make arrangements for installa-
tion of such devices, subject to City's standard fees and charges,
and provided Airline shall have the right to charge for the cost of
electric power used in the operation of such machines.
2.02 Space in and Adjacent to Terminal Building
a. Prior to its commencing to occupy the Continental
Special Premises, Airline shall lease the Continental Special
Premises for the purpose of constructing the On-Site Improvements
thereon.
b. From and after its commencing to occupy the
Continental Special Premises, Airline shall lease the following
Exclusive Continental Special Premises for the respective purposes
shown:
(1) Holdroom, passenger
and related space 31,500 square feet
(2) Concourse Office
and Operations 20,000 square feet
(3) Bag make up and claim 24,000 square feet
(4) Airline Lounge 6,500 square feet
The foregoing areas are more particularly delineated on
Exhibit B, attached hereto.
c. The dimensions of the areas to be occupied by
Airline are approximate only, and upon completion of the
construction of the On-Site Improvements, actual dimensions thereof
shall be taken by City and Airline representatives, measuring from
the center line of walls for interior space and to the inside space
of exterior walls. The actual square foot dimensions shall
thereupon be incorporated in a writing signed by City and Airline
representatives within six months after the Commencement of
Occupancy for all elements of the Exclusive Continental Special
Premises, and shall be the basis for determining the amount of the
Basic Rent; provided, however, that until such actual dimensions
shall have been taken, Airline's rental payments shall be based
upon the approximations in Section 2.02(b) hereof.
2.03 Access
a. Subject to the provisions hereof, such restrictions
as Airline may impose with respect to the Exclusive Continental
Special Premises and the rules and regulations prescribed by City
with respect to the Airport System, City hereby grants to Airline,
its agents, suppliers, employees, contractors, passengers, guests
and invitees the right and privilege of ingress and egress to the
Continental Special Premises and to public areas and public
facilities of the Terminal Complex.
b. The ingress and egress provided for above:
(i) shall not be used, enjoyed or extended to any person engaging
in any activity or performing any act or furnishing any service for
or on behalf of Airline that Airline is not authorized to engage in
or perform under the provisions hereof unless expressly authorized
by City; and (ii) shall be used and exercised in accordance with
and subject to any security measures required by federal, state or
local law or otherwise deemed necessary by City.
c. All means of access provided by City pursuant to
this Section 2.03 shall, without exception, be in common with such
other persons as City may authorize or permit, and all of such
rights of access shall be exercised subject to and in accordance
with all applicable laws and ordinances whether federal, state, or
local.
d. City shall have the right at any time or times to
close, relocate, reconstruct, change, alter or modify any such
means of access provided for Airline's use pursuant to this
Agreement or otherwise, either temporarily or permanently; provided
that reasonable notice to Airline and a reasonably convenient and
adequate means of access for ingress and egress shall exist or be
provided in lieu thereof. City shall suffer no liability by reason
thereof and such action shall in no way alter or affect any of
Airline's obligations under this Agreement.
2.04 Use by Airline
In connection with the exercise of its rights under this
Agreement, Airline:
a. Shall not cause or create nor permit to be caused or
created within the Continental Special Premises any noxious odors
or smokes, or noxious gases or vapors. Neither the creation of
exhaust fumes by the operation of aircraft engines, when operated
in a manner approved by the Federal Aviation Administration, nor
the existence of gasoline or other fumes resulting from the proper
fueling of aircraft or motor vehicles, nor the existence of paint
fumes or odors, provided the same occur during lawful use of the
Continental Special Premises and lawful operation by Airline
therefrom in accordance with the other provisions of this Agree-
ment, shall constitute a violation of this subsection.
b. Shall not do or permit to be done anything at or on
the Continental Special Premises which may interfere with the
effectiveness or accessibility of the drainage and sewage system,
fire protection system, sprinkler system, alarm system, fire
hydrants and hoses, if any, installed or located on or within the
Continental Special Premises or the Airport.
c. Shall not do or permit to be done any act or thing
at or on the Continental Special Premises which will by itself
invalidate or conflict with any fire or other casualty insurance
policies (copies of which, together with premium schedules, shall
be furnished to Airline upon request) covering the Airport or any
part thereof.
d. Shall not dispose of or permit any other person to
dispose of any waste material (whether liquid or solid) taken from
or products used with respect to its aircraft into the sanitary or
storm sewers at the Airport unless such waste material or products
shall first have been properly treated by equipment installed with
the approval of City for that purpose.
e. Shall not keep or store, during any twenty-four hour
period, flammable liquids within the enclosed portion of the
Continental Special Premises in excess of Airline's working
requirements during said twenty-four hour period, except in rooms
or underground tanks especially constructed for such purposes in
accordance with standards established by the National Board of Fire
Underwriters, and approved by City from the standpoint of safety.
Any such liquids having a flash point of less than 101 F. shall be
kept and stored in safety containers of a type approved by the
Underwriters Laboratories.
2.05 Concessions
If any portion of the Continental Special Premises is
approved pursuant to Section 5.03 or Section 5.04 hereof for use as
concession space (other than for an Airline Lounge), then City
shall pay or shall reimburse Airline for the cost of construction
of said concession space, and City shall make such payment or
reimbursement no later than such time as Airline is required to pay
or has paid such cost of construction. Prior to the commencement
of construction of any such space, and as a condition to Airline's
commencement of such construction hereunder, Airline shall obtain
and provide to City an estimate of the cost of construction of such
space, based upon a contractor's estimate, or such other reasonable
basis as is agreed to by Airline and City. Upon payment by City to
Airline of the cost of construction for such space, which payment
may be in the form of a credit or credits against the Basic Rent
payable by Airline hereunder or amounts due to City from Airline
under the Original Lease, such concession space shall cease to be
part of the Continental Special Facilities, and any revenues
derived therefrom shall not constitute Pledged Revenues or be
otherwise pledged as security for the payment of the Bonds except
as set forth in Section 2.01(e) hereof, the City shall have the
exclusive right to operate or grant the right to operate
concessions in such concession space and Airline shall have no
right to the revenue derived therefrom unless such right is
otherwise conferred on Airline by other agreement with City. Any
amounts from the Construction Fund applied to the costs of
construction of such space shall, to the extent paid or reimbursed
by City pursuant hereto, be paid by Airline to the Trustee for
deposit in the Construction Fund.
(End of Article II)
<PAGE>
ARTICLE III - OCCUPANCY; TERM
3.01 Term
This Agreement shall commence upon the execution hereof
and shall terminate on the Termination Date; provided, however,
that if the Defeasance Date occurs more than one year before the
Termination Date, then on and after the Defeasance Date Airline
shall have the option to terminate this Agreement upon one (1)
year's written notice to City; and provided further, that if the
Airline vacates the Continental Special Premises subsequent to its
exercise of such option but prior to the expiration of such one-
year notice period, then City shall use its best efforts, but shall
be under no obligation, to fill the vacancy thereby created in the
Continental Special Premises for the balance of such one-year
period.
3.02 Relationship to Other Agreements
a. The execution and delivery of this Agreement shall
in no way affect the validity and binding effect of the Original
Lease or the Hangar Lease. No reference to the Original Lease or
the Hangar Lease herein shall be deemed an agreement of the parties
hereto to cause the Original Lease or the Hangar Lease to extend
beyond its terms in accordance with its terms.
b. The City acknowledges that Airline intends to occupy
and use the Continental Special Premises as part of a comprehensive
operation with passenger departure lounges and with ticket
counters, offices, and other support facilities that it occupies
and uses in the Terminal Complex under the Original Lease.
c. The City further acknowledges that the value of the
leasehold interest in the Continental Special Premises acquired
hereunder by Airline will be enhanced if Airline also acquires
hereunder the right to continue to occupy and use such facilities
in the Terminal Complex as are necessary for Airline to continue to
conduct its operations at the Continental Special Premises after
its rights to do so under the Original Lease have terminated.
Accordingly, the City agrees that, from and after the termination
of the Original Lease and until the earlier of (i) the date on
which Airline and the City shall have entered into a subsequent
lease or other agreement providing for Airline's occupancy and use
of such facilities, or (ii) the date on which this Agreement
terminates, Airline shall be entitled to occupy or use such
facilities in the Terminal Complex (including, without limitation
ticket counters and offices, but excluding holdrooms and passenger
departure lounges) as the City reasonably determines are necessary
for Airline to utilize the Continental Special Premises fully.
Airline understands, acknowledges, and agrees that its right
hereunder does not apply to any particular facilities and that the
City reserves the right and discretion to fulfill its obligations
hereunder by permitting Airline to use and occupy facilities other
than those actually used and occupied by Airline prior to the
termination of the Original Lease and to change the facilities
Airline is permitted to use and occupy hereunder from time to time.
The terms on which Airline shall be entitled to such occupancy and
use shall be those agreed upon by Airline and the City at the time,
provided that, in the absence of such agreement, the terms shall be
no less favorable than those which the City shall have offered to
any other scheduled airline for such occupancy and use at the time.
d. The City further acknowledges that the value of the
leasehold interest in the Continental Special Facilities acquired
hereunder by Airline will be further enhanced if Airline also
acquires hereunder the right to continue to occupy and use such
other facilities in the Terminal Complex (i.e., other than those
necessary for Airline to utilize the Continental Special Premises
fully) as it has under the Original Lease after its rights to do so
under the Original Lease have terminated. Accordingly, the City
agrees that, from and after the termination of the Original Lease
and until the earlier of (i) the date on which Airline and the City
shall have entered into a subsequent lease or other agreement
providing for Airline's occupancy and use of such other facilities,
or (ii) the date on which this Agreement terminates, Airline shall
be entitled, subject to the conditions hereinafter set forth, to
occupy or use facilities in the Terminal Complex comparable to
those used and occupied therein by Airline immediately prior to the
termination of the Original Lease. Airline understands,
acknowledges, and agrees that its right hereunder does not apply to
any particular facilities and that the City reserves the right and
discretion to fulfill its obligations hereunder by permitting
Airline to use and occupy facilities other than those actually used
and occupied by Airline prior to the termination of the Original
Lease and to change the facilities Airline is permitted to use and
occupy hereunder from time to time, and the City agrees that, in
exercising such right and discretion, it will not unnecessarily or
unreasonably cause the facilities made available to Airline
hereunder not to be as proximate to the Continental Special
Premises and to one another as the other facilities in the Terminal
Complex occupied by Airline under the Original Lease prior to its
termination. The terms on which Airline shall be entitled to such
occupancy and use shall be those agreed upon by Airline and the
City at the time, provided that, in the asence of such agreement,
the terms shall be no less favorable than those which the City
shall have offered to any other scheduled airline for such
occupancy and use at the time.
e. Airline's right to occupy and use facilities in the
Terminal Complex pursuant to Section 3.02.d. above shall be subject
to the condition that, at the time of such exercise, Airline shall
have met the then applicable Basic Schedule Requirement, determined
as set forth in Section 3.02.f. below.
f. (i) As used in paragraph (f)(iii) below, the
Commencement Basic Schedule Requirement shall be 12,000, being the
revenue seats daily average mutually determined by the Airline and
the City as of the date hereof.
(ii) Commencing with the calendar year
immediately preceding the year in which the Original Lease expires
(the "Expiration Year") and each and every calendar year thereafter
until the date on which Airline and City shall have entered into a
subsequent lease or other agreement in place of the Original Lease,
the Director of Port Control may ascertain the revenue seats daily
average of Airline for the Airport in accordance with paragraph
(f)(v) below, which revenue seats daily average shall be the "Basic
Schedule Requirement for the preceding calendar year", for purposes
of paragraph (f)(iii) below and shall be referred to as such.
(iii) As of January 1 of the first calendar year
following the Expiration Year, and as of January 1 of each
succeeding calendar year until Airline and City enter into a
subsequent lease or other agreement in place of the Original Lease
(A) in the event that Airline's Basic Schedule Requirement for the
immediately preceding calendar year for the Airport is less than
sixty percent (60%) of Airline's Commencement Basic Schedule
Requirement or (ii) in the event that because of reasons beyond the
control of Airline, Airline's Basic Schedule Requirements for the
immediately preceding two calendar years are less than sixty
percent (60%) of Airline's Commencement Basic Schedule Requirement,
then in either of such events and without limiting each and every
other right of termination of the City under this Agreement or
otherwise, City shall have the right, upon six (6) months' written
notice to Airline, to terminate the use by Airline of any portion
of the Airport provided to Airline pursuant to Section 3.02(d)
hereof that the Director of Port Control determines to be
underutilized by Airline. Such termination shall be effective on
the date set forth in said notice of termination. This Agreement
and the letting of all other portions of the Terminal Complex shall
continue in full force and effect.
The Director of Port Control shall give
thirty (30) days' prior notice of its intention to give the
termination notice set forth above, and it is expressly agreed that
the Director of Port Control shall not exercise the aforesaid right
of termination with respect to any portion or portions of the
Terminal Complex occupied by Airline pursuant to 3.02(d) hereof if
and for which Airline has submitted to the Director of Port Control
definite plans for the utilization of said portion or portions of
the Terminal Complex occupied by Airline pursuant to 3.02(d)
hereof; provided Airline in fact commences such use of said portion
or portions of the Terminal Complex within ninety (90) days after
the submission of the said plans.
(iv) The failure of City to exercise its right
of termination under this Section 3.02(f) during any year in which
it may have such a right shall not affect, waive or limit its right
to exercise said right of termination in any subsequent year.
(v) In the event the Director of Port Control
decides to ascertain the revenue seats daily average, it shall do
so as follows: based upon the Official Airline Guide (herein
called "the Guide"), the Director of Port Control shall ascertain
the total number of revenue seats that can be accommodated on the
aircraft equipment scheduled to be used by Airline on its published
aircraft arrivals at the Airport as set forth in the Guide during
two specified calendar weeks (Sunday through Saturday), the first
of which weeks is the one during which falls the fifteenth (15th)
day of April of the prior calendar year and the second is the one
during which falls the fifteenth (15th) day of October of the said
prior calendar year, and shall total the said number of revenue
seats which are hereinafter called "the total revenue seats" of
Airline. In determining the total revenue seats of Airline, the
total revenue seats as defined above of those Handled Airlines
(hereinafter defined), if any, of Airline who are Handled Airlines
as of the date of such determination shall be included. For
purposes of this paragraph (v), "Handled Airlines" means other
airlines for which Airline provides services from the Continental
Special Premises or the Terminal Complex.
In making said determination, the Director
of Port Control shall use the most recent configuration as supplied
by Airline with respect to the number of revenue seats that can be
accommodated on the particular aircraft equipment scheduled to be
used by Airline at the Airport. The total revenue seats of Airline
shall then be divided by fourteen, the resulting quotient being
herein called "the revenue seats daily average" of Airline.
g. The rights of Airline under Section 3.02(d) above
shall be exercisable by and for the benefit of Airline only.
Airline shall not have the right or power to assign such right or
sublet any facilities it occupies or uses pursuant to the exercise
of such right.
(End of Article III)
<PAGE>
ARTICLE IV - QUIET ENJOYMENT
As long as Airline shall have paid all rents required to
be paid hereunder, made all other payments required to be made
hereunder, and shall not have permitted any default hereunder on
its part to occur and be continuing, then City, so long as it is
the owner and operator of the Airport, and thereafter its
successors and assigns, shall take no act or action, except as
otherwise provided by this Agreement, that will prevent Airline
from peaceably having and enjoying the Continental Special
Premises, together with the appurtenances, facilities, rights, li
censes and privileges granted herein.
(End of Article IV)
<PAGE>
ARTICLE V - ISSUANCE OF BONDS; CONSTRUCTION OF IMPROVEMENTS;
PAYMENT OF COSTS OF THE IMPROVEMENTS
5.01 Issuance of Bonds; Deposit of Bond Proceeds; Deposit
of the Airline's Funds into the Special Funds
In order to provide funds for payment of the Cost of the
Facilities incurred under or in connection with this Agreement,
City agrees to authorize, issue, sell and deliver the Series 1990
Bonds, and City agrees to deposit the proceeds of the Series 1990
Bonds as provided in the Indenture.
Airline at its discretion may deposit its own funds into
the Construction Fund at any time for use for the purposes of that
Fund in accordance with the provisions of this Lease. In any
event, Airline covenants pursuant to Section 5.04 hereof to provide
to the Trustee moneys to pay that portion of the Cost of the
Facilities as may be in excess of the moneys otherwise available
therefor in the Construction Fund.
The Series 1990 Bonds are to be issued under, secured by,
and payable in accordance with the Indenture.
5.02 Disbursements from the Construction Fund
City has, in the Indenture, authorized and directed the
Trustee to use the moneys in the Construction Fund for payment of
the Cost of the Facilities.
5.03 Construction of Improvements
a. Airline covenants and agrees that it will undertake
such construction, remodeling, improvement, enlargement, furnishing
and equipping as will result in the completion of the Improvements
on or before December 31, 1992, and shall pay the cost thereof from
the proceeds of the Bonds which are available therefor and
otherwise as provided herein and in the Indenture, including
payments or reimbursement made by City to Airline for the costs of
construction of concession space pursuant to Section 2.05 hereof.
Failure by Airline to fulfill the foregoing covenant shall
constitute a default of Airline under Section 12.01 hereof and
shall give rise to all remedies of City upon a default, including,
without limitation, the right of City to terminate this Agreement.
Airline shall, at its expense and upon receipt of notification from
City that such work may be commenced, promptly commence the con-
struction of the Improvements, which improvements shall be promptly
completed, subject to the following conditions:
(1) Before the commencement of any such work,
the detailed plans and specifications shall be filed with and
approved by the Director of Port Control of City and all govern-
mental departments or authorities having jurisdiction thereover,
including, without limitation, (i) the Federal Aviation
Administration, and (ii) City Planning Commission and its Fine Arts
Committee. All such work shall be done subject to and in
accordance with the requirements of law and applicable regulations
of all such governmental departments or authorities, the Director
of Port Control and, where required, each affected public utility
company. The Director of Port Control shall approve such plans and
specifications only if the Director of Port Control determines that
the Improvements located in the Terminal Complex as planned and
specified will be consistent and compatible with the design and
decor of the Terminal Complex.
(2) Such work shall be performed in a first-
class, workmanlike manner and in accordance with the plans and
specifications approved for the same. Airline shall redo or
replace, at its sole cost and expense, any work which is not done
in accordance with such plans and specifications, as approved by
City prior to or after completion of such work; however, any
request to redo or replace any such work shall be made by City
within ninety days after its receipt of notice of completion from
Airline.
b. The Improvements, and all other alterations
additions or improvements at any time placed on, in or upon the
Continental Special Facilities, including moveable furniture,
movable personal property, and other removable trade fixtures, the
cost of which is financed in whole or in part with the proceeds of
Bonds, shall be deemed to be and become part of the realty and the
sole and absolute property of City upon completion thereof. Any
other alterations, additions improvements, or property in or upon
the Continental Special Facilities installed at the expense of
Airline, or at the expense of third parties (other than City)
leasing to Airline, shall not be deemed to become property of City
at the termination of this Agreement, and Airline shall have the
right to remove said property from the Continental Special
Facilities on or before the time of termination of this Agreement,
subject to any valid lien which City may have thereon; but any
damage to the Continental Special Facilities caused by such removal
shall be repaired at Airline's expense. Airline hereby makes an
irrevocable election, binding on itself and all successors in
interest, not to claim any depreciation or investment credit
(within the meaning of Section 142(b)(1)(B) of the Code) with
respect to the Continental Special Facilities.
c. Airline shall promptly pay all lawful claims and
discharge all liens made against it or against City by Airline's
contractors, subcontractors, materialmen and workmen, and all such
claims and liens made against Airline or City by other third
parties arising out of or in connection with, whether directly or
indirectly, any work done by Airline, its contractors,
subcontractors or materialmen; provided, however, that Airline
shall have the right to contest the amount or validity of any such
claim or lien without being in default of this Agreement upon
furnishing security satisfactory to the Director of Law of City
guaranteeing that such claim or lien will be properly and fully
discharged forthwith in the event that such contest is finally de
termined against Airline or City.
d. Airline shall procure and maintain effective during
construction of the Improvements and all other improvements by
Airline pursuant to this Article V, comprehensive public liability
insurance, or, if the work is to be done by an independent con-
tractor, Airline shall procure and maintain or require such
contractor to procure and maintain such insurance in Airline's
name, in either case, in limits and meeting the requirements
otherwise specified in Article X of this Agreement, and Airline
shall defend, indemnify and hold harmless City, its officers,
agents and employees for all loss, cost, damage or expense arising
out of or relating in any way to such construction unless the same
arises out of the negligence of City, its officers and employees.
e. Prior to commencing construction or installation of
any Improvement hereunder, the Airline shall furnish or cause to be
furnished to City a bond in an amount equal to 100% of the total
cost of such construction or installation to secure its obligation
to construct and install said Improvement hereunder.
f. Upon completion of construction or installation of
all the Improvements, Airline shall, at its expense, furnish the
Director of Port Control with "as built" drawings of the
Continental Special Facilities, which drawings shall be included as
part of Exhibit B hereto.
5.04 Subsequent Improvements by Airline
Subsequent to making the Improvements as expressly
provided herein, Airline shall make no alterations, additions or
improvements to the Continental Special Facilities or other
installation on the Continental Special Facilities without the
prior written approval of City. All subsequent improvements,
alterations or construction work done by Airline during the term of
this Agreement shall be performed in accordance with the
requirements of Section 5.01 hereof.
5.05 Agreements with Contractors
Unless such requirement is prohibited by law, Airline
agrees that all contractors working on the Project (as defined in
the Authorizing Ordinance) must be party to the usual and ordinary
agreement with the appropriate member union of the Cleveland
Building and Construction Trades Council.
(End of Article V)
<PAGE>
ARTICLE VI - MAINTENANCE AND
OPERATION OF CONTINENTAL SPECIAL FACILITIES
6.01 Operation and Maintenance of Continental Special
Facilities
Airline agrees that, except to the extent that City
is required to do so pursuant to Section 6.02 hereof, Airline will,
with reasonable diligence, prudently operate the Continental
Special Facilities, improve them and keep them in good repair,
employing at all times adequate and qualified personnel for the
purpose of doing so. Without limiting the generality of the fore
going, Airline shall: (i) at all times keep the Exclusive
Continental Special Premises neat, orderly, sanitary and
presentable and perform certain maintenance, repair and cleaning;
(ii) make such repairs and replacements to the Continental Special
Facilities as City may from time to time reasonably direct Airline
to make in order to keep the Continental Special Facilities in good
repair; (iii) furnish its own janitor service for the Exclusive
Continental Special Premises; (iv) provide and maintain toilet
facilities for the Continental Special Premises; and (v) cause to
be removed, at Airline's own expense, from the Continental Special
Facilities all waste, garbage, and rubbish and not deposit the same
on any part of the Airport, except that Airline may deposit the
same temporarily in the Terminal Complex at such spaces, if any,
designated by City in connection with collection for removal all as
further described in Exhibit F hereto.
6.02 Maintenance by City
City shall keep the Non-Exclusive Continental Special
Premises neat, orderly, sanitary and presentable, and in doing so
shall provide, with respect to the Non-Exclusive Continental
Special Premises, such maintenance and cleaning services as are
specified on Exhibit F hereto.
6.03 Heating and Cooling
Airline shall construct, install and maintain any and all
heating, cooling, and ventilation facilities necessary for
operation of the Continental Special Premises, provided that City
shall provide Airline with any chilled water needed for operation
of such heating, cooling and ventilation facilities as further
specified in Exhibit F hereto.
6.04 Lighting and Public Areas
City shall provide electricity for illumination and
shall replace lamps where appropriate in the Non-Exclusive
Continental Special Premises as further specified on Exhibit F
hereto.
6.05 Water and Sanitary Sewer
Airline shall construct and install any and all water and
sanitary sewer facilities required for operation of the Continental
Special Premises, provided that City shall be responsible for
maintaining such facilities upon their completion and as further
specified in Exhibit F hereto.
6.06 Limitation on Obligation
City shall not be obligated to perform or furnish
any other utility services whatsoever at or to the Continental
Special Premises, nor shall it be obligated to provide any utility
services hereunder if it is prevented from doing so by acts or
events beyond its control or if Airline is in default of any
payment for such services.
(End of Article VI)
<PAGE>
ARTICLE VII - BASIC RENT, CHARGES AND FEES; BOND RENT
7.01 Payment of Rentals, Charges and Fees
Airline agrees to pay City, without notice or demand and
without deduction or setoff, for the use of the Continental Special
Facilities, for the rights, licenses and privileges granted
hereunder, and for the undertakings of City hereunder, the Basic
Rent, the Bond Rent, and all additional rentals, charges, and fees
payable hereunder during the term of this Agreement. On or before
December 15 of each year, City shall transmit to Airline a
statement of the Basic Rent payable for each month during the next
year and on or before the 10th day of each month a statement of all
additional rentals (other than Bond Rent), charges and fees then
payable. Airline shall pay the Basic Rent on or before the first
day of each month and shall pay the additional rentals within
fifteen days of receipt of such statement by check made payable to
City at the place and in the manner specified by the Director of
Port Control in such statement. Any payment not received by such
dates, as applicable, shall thereafter bear interest at the rate of
1% per month until paid in full. The Bond Rent shall be payable at
the times and in the manner set forth in Section 7.05 hereof.
7.02 Basic Rent
From and after Airline's Commencement of Occupancy of the
Continental Special Facilities, as to each of the following
categories of space in the Continental Special Premises, and
subject to annual adjustment pursuant to Section 7.03 hereof,
Airline shall pay to City as Basic Rent for each such category of
space the following sums as to the space so occupied:
(a) For 31,500 square feet of holdroom, passenger and
related space, a monthly sum computed at the rate of $2.49 per
square foot per year;
(b) For 20,000 square feet of concourse office and
operations space, a monthly sum computed at the rate of $1.87 per
square foot per year;
(c) For 24,000 square feet of bag make up, claim and
storage space, a monthly sum computed at the rate of $2.49 per
square foot per year.
(d) For 6,500 square feet of Airline Lounge, a monthly
sum computed at the rate of $1.87 per square foot per year.
All such space is more fully delineated on Exhibit A
hereto.
7.03 Annual Adjustment of Basic Rent
a. As long as the Original Lease remains in effect, the
Basic Rent payable by Airline pursuant to Section 7.02 hereof shall
be readjusted annually as though such Basic Rent were "Rentals" for
purposes of Article VIII of the Original Lease. For purposes of
making such adjustments, the parties hereto acknowledge and agree
that:
(i) The Exclusive Continental Special Premises shall
constitute part of a Concourse or the Terminal Building
and shall further constitute "Terminal Concourse space or
Terminal Building Space leased to a Scheduled Airline"
for the purpose only of allocating the rent due under the
Original Lease with respect to non-exclusive space and
not the costs allocable to such space.
(ii) As defined in Section 1.19 of the Original Lease,
"Concourse" shall not include the Continental Special
Premises for purposes of the Concourse Improvement Factor
referred to in Section 8.04(a)(iii) of the Original
Lease, in that the Continental Special Premises
constitute an "expansion of a Concourse built at the sole
cost and expense of a Scheduled Airline" and "Terminal
Building" shall not include the Continental Special
Premises for purposes of the Terminal Improvement Factor
referred to in Section 8.04(a)(iii) of the Original
Lease, in that the Continental Special Premises
constitute an "expansion of the Terminal Building built
at the sole cost and expense of a Scheduled Airline".
b. From and after the termination of the Original
Lease, the Basic Rent payable pursuant to Section 7.02 hereof, as
the same shall have been readjusted prior to such termination
pursuant to paragraph (a) of this Section 7.03, shall be subject to
readjustment as follows:
(i) If City then permits the Scheduled Airlines to
continue to use the Airport on the same terms as would
apply if the Original Lease and the other, substantially
similar agreements with the other Scheduled Airlines were
still in effect, then the Basic Rent shall continue to be
readjusted pursuant to paragraph (a) of this Section 7.03
on those terms.
(ii) If City shall have entered into substantially
similar agreements with each of the airlines then leasing
space in the Terminal Complex directly from City to
succeed or supersede the Original Lease and the other,
substantially similar agreements with the other Scheduled
Airlines, then Airline shall pay Basic Rent for the
Continental Special Premises on the same basis and terms
on which the airlines which are party to such agreements
pay for space of the same categories under such
agreements. For the purposes of this subparagraph (ii),
City shall be deemed to have entered into an agreement
with an airline notwithstanding the absence of any
written agreement between City and such airline if the
terms on which such airline is in fact leasing space in
the Terminal Complex directly from City are substantially
the same as those in the substantially similar agreements
then in effect between City and the other airlines then
leasing space in the Terminal Complex directly from City.
(iii) If City shall have entered into one or more agree-
ments with any of the airlines then leasing space in the
Terminal Complex directly from City, pursuant to which
such airlines pay rental for space of the same categories
as are included in the Continental Special Premises, then
Airline shall pay Basic Rent for the Continental Special
Premises at the most favorable (from the perspective of
the airlines) rates then payable for such space by any
such airline.
(iv) If none of the circumstances described in subpara-
graphs (i), (ii) or (iii) above applies, then Airline
shall continue to pay Basic Rent for the Continental
Special Premises on the same basis and terms on which it
paid Basic Rent during the last Additional Term prior to
the termination of the Original Lease.
7.04 Basic Rent Reserve
There is hereby created by and with City a trust fund
which shall be designated the "City of Cleveland, Ohio Continental
Airlines, Inc. Basic Rent Reserve Fund" (the "Basic Rent Reserve
Fund"). Simultaneously with the issuance of the Series 1990 Bonds,
and as a prepayment of the last year's Basic Rent due hereunder,
Airline shall cause to be deposited in the Basic Rent Reserve Fund
an amount equal to the Basic Rent Reserve. Within thirty (30) days
of the effective date of any adjustment in the Basic Rent pursuant
to Section 7.03 hereof, Airline shall deposit in the Basic Rent
Reserve Fund the additional amount, if any, then necessary to cause
the amount on deposit therein to equal the Basic Rent Reserve. In
the event of any failure by Airline to make any payment of Basic
Rent (or portion thereof) as and when due, City may withdraw from
the Basic Rent Reserve Fund an amount equal to the amount of Basic
Rent Airline has failed to pay. The disbursement of moneys to City
from the Basic Rent Reserve Fund shall not be deemed a payment of
the Basic Rent Airline had failed to pay, nor shall such
disbursement be deemed a cure of the default hereunder occasioned
by such failure to pay Basic Rent, unless and until Airline shall
have fully restored the balance in the Basic Rent Reserve Fund to
the Basic Rent Reserve. Airline may direct that any amount in the
Basic Rent Reserve Fund at any time in excess of the Basic Rent
Reserve (including any excess arising from earnings on amounts in
the Basic Rent Reserve Fund) be withdrawn from the Basic Rent
Reserve Fund and credited against the next payable payment for
Basic Rent. Moneys in the Basic Rent Reserve Fund shall be
invested with other funds of the Airport unless otherwise directed
by Airline in writing to the Director of Port Control and the
earnings on amounts in that Fund shall be credited to said Fund and
held therein pending their application in accordance with this
paragraph. Notwithstanding anything herein to the contrary,
Airline may direct that any moneys on deposit in the Basic Rent
Reserve Fund during the year preceding the Termination Date be
withdrawn therefrom for and applied to the payment of Basic Rent.
On the Defeasance Date any moneys remaining in the Basic Rent
Reserve Fund (including any earnings on amounts therein) shall be
released to Airline.
7.05 Bond Rent
All capitalized words and terms used in this Section 7.05
but not otherwise defined in this Agreement shall have the meanings
assigned to them in the Indenture.
a. Airline shall pay Bond Rent by making payments to
the Trustee for the account of City on the following dates and in
the following amounts:
(i) On or before each Interest Payment Date and each
other date on which Bonds are to be redeemed, Airline
shall pay an amount which, together with other amounts on
deposit in the Interest Account, will be sufficient to
pay the interest on Bonds due on that date.
(ii) On or before each date on which principal of Bonds
is due and payable, whether at the stated maturity,
mandatory redemption or acceleration of such Bonds by the
Trustee in accordance with the Indenture, Airline shall
pay an amount which, together with other amounts on
deposit in the Principal Account, will be sufficient to
pay the principal of Bonds due on that date.
(iii) On or before each optional redemption date, Airline
shall pay an amount which, together with other amounts on
deposit in the Redemption Account, will be sufficient to
pay the principal of and premium, if any, on Bonds to be
redeemed by optional redemption on that date.
(iv) Not later than the close of business on the fifth
Business Day following any date on which the Trustee
notifies Airline of a deficiency in the Reserve Account,
Airline shall pay an amount equal to the amount of that
deficiency; provided that if the deficiency arose as a
result of a withdrawal from the Reserve Account to cover
a shortfall in the Interest Account, the Principal
Account or the Redemption Account, not later than on the
last day of each of the twelve months following receipt
of the deficiency notice, Airline shall pay an amount
equal to one-twelfth of such deficiency.
b. In addition to the Bond Rent, and in the manner
hereinafter provided, Airline shall pay as "additional rent" (i) to
the Trustee for the account of City, such amounts as shall be
required to satisfy any requirement to pay the Rebate Amount to the
United States as provided in Section 4.03 of the Indenture,
(ii) all amounts due under the Indenture to the Trustee, Paying
Agent, and Authenticating Agent (each as defined in the Indenture)
and (iii) all other amounts payable by the City under the terms of
the Indenture (other than Bond Service Charges, as defined
therein).
c. All Bond Rent and all additional rent payable
pursuant to subsection (b) of this Section 7.05 shall be paid by
Airline in lawful money of the United States of America in
immediately available funds, provided that Airline may offset,
against amounts payable as Bond Rent under subdivision (a)(ii) of
this Section 7.05 for the retirement or the redemption pursuant to
mandatory sinking fund redemption of Bonds of a given maturity, the
principal amount of any Bonds of that maturity delivered in lieu of
such Bond Rent by Airline to the Trustee. Bonds delivered in lieu
of Bond Rent due on or before a redemption date for the redemption
of Bonds must be delivered to the Trustee before the Trustee
selects the Bonds to be redeemed on that date. All such rental
payments and delivery of Bonds in lieu thereof shall be made to the
Trustee, at its principal corporate trust office, and the Trustee
shall hold and apply the same in accordance with the provisions of
the Indenture.
d. Airline shall have the right to prepay all or any
part of the Bond Rent in order to cause Bonds to be redeemed or to
be deemed paid and discharged in accordance with the terms and
provisions of the Indenture. City agrees that it will give notice
to the Trustee to redeem Bonds as provided in Section 3.02 of the
Indenture in such principal amounts and at such times as Airline
shall request in writing.
e. Airline's obligation to pay Bond Rent and additional
rent payments at the times and in the amounts specified in this
Section 7.05 shall be absolute and unconditional and shall continue
in any event, including without limitation, whether or not
(1) Airline shall remain in possession of the Continental Special
Facilities or be able to use the same, or (2) the Original Lease
shall have terminated or been cancelled, or (3) the Continental
Special Facilities or any interest therein are taken for any period
by condemnation or other means by any governmental authority, or
(4) the Continental Special Facilities deteriorate or become
obsolete or are damaged or destroyed for any cause whatsoever, or
become unusable by Airline, or (5) City fails to perform and
observe any agreement, express or implied, or any duty, liability
or obligation arising out of or connected with this Agreement. All
rental payments payable pursuant to this Section 7.05 shall be made
absolutely net, free from all claims, demands, defenses or offsets
against City of any kind or nature whatsoever other than payment.
Nothing contained in this subsection shall be construed to release
City from the performance of any of the agreements on its part
herein contained, and in the event City shall fail to perform any
such agreement on its part, Airline may institute such action
against City as Airline may deem necessary to compel performance,
provided that no such action shall (a) violate the agreements on
the part of Airline contained in the first two sentences of this
paragraph or (b) diminish the payments and other amounts required
to be paid by the Airline pursuant to this Section 7.05. Airline
may, however, at its own cost and expense and in its own name or in
the name of City (provided City is a necessary party) prosecute or
defend any action or proceeding or take any other action involving
third persons which Airline deems reasonably necessary in order to
secure or protect its rights hereunder, and in such event City
hereby agrees to cooperate fully with Airline and to take all
action necessary to effect the substitution of Airline for City in
any such action or proceeding if Airline shall so request.
f. In the event the Airline shall fail to make any of
the Bond Rent or additional rent payments required in this
Section 7.05, each payment so in default shall continue as an
obligation of Airline until the amount in default shall have been
fully paid, and Airline will pay interest on each overdue Bond Rent
payment at the rates borne by the Bonds on the date each such
payment became due.
7.06 Utilities
Airline shall pay for its usage of all utilities to be
furnished to or for the Continental Special Premises. Airline
shall pay City for all electricity used at or on the Continental
Special Premises at the metered rates which would be charged by the
public utility electric company serving the area to like users in
the vicinity of the Airport. Charges shall be paid by Airline when
billed, and the quantity consumed shall be measured by a meter or
meters installed by City for such purpose; provided, however, that
if for any reason any such meter or meters shall become inoperative
for any period of time, the consumption during the period such
meter or meters are out of service will be considered to be the
same as the consumption for a like period either immediately before
or after the period during which said meter or meters are
inoperative, as elected by City.
7.07 Concession for Sale of Alcoholic Beverages
Airline shall make concession payments to City in an
amount equal to the percentage, established by City ordinance, of
gross sales of alcoholic beverages in the Airline Lounge, unless
Airline furnishes such beverages through City's primary
concessionaire, in which case such gross sales shall be included in
the amount on which that concessionaire makes concession payments
to City, and in which case Airline shall not be required to make
any payment to City in respect thereto.
7.08 Additional Payments by City
City may, but is not obligated to, cure any default on
Airline's part in fulfilling Airline's covenants and obligations
under this Agreement. Any amounts paid by City to cure any such
default are hereby agreed and declared to be additional rent.
Unless otherwise provided herein, all additional rent shall be due
and payable with the next installment of Basic Rent due thereafter
under this Agreement.
(End of Article VII)
<PAGE>
ARTICLE VIII - [LEFT BLANK INTENTIONALLY]
ARTICLE IX - RULES AND REGULATIONS;
COMPLIANCE WITH LAWS; ADDITIONAL COVENANTS
9.01 Rules and Regulations
Airline covenants and agrees to observe and obey all
reasonable and lawful rules and regulations (not in conflict with
this Agreement and the rules, regulations, and orders of the
Federal Aviation Administration) which are now in effect or as may
from time to time during the term hereof be promulgated by City,
the Director of Port Control or the Commissioner of Cleveland
Hopkins International Airport regarding the operation of the
Airport, including such rules as apply to Airline's use of the
Continental Special Facilities.
9.02 Compliance with Laws
In connection with its operations in and on the
Continental Special Facilities, Airline:
(a) Shall comply with and conform to all present and
future laws and ordinances of City, federal, state and
other governmental bodies of competent jurisdiction and
the rules and regulations promulgated thereunder,
applicable to or affecting, directly or indirectly, the
Airline, the Continental Special Facilities, or Airline's
operations and activities under this Agreement.
(b) Shall, at its expense, make all non-structural
improvements, repairs, and alterations to the Continental
Special Facilities and its equipment and personal
property required to comply with or conform to any of
such laws, ordinances, rules and regulations referred to
in subsection (a) above, to which this Agreement is
expressly subject.
(c) Shall at all times during the term of this Agreement
comply with the Workers' Compensation Laws of the State
of Ohio and pay such premiums, if any, as may be required
thereunder and save City harmless from any and all
liability arising from or under said laws. Airline shall
also furnish, upon commencing operations under this
Agreement and at such other times as may be requested, a
copy of the official certificate or receipt showing the
payments hereinbefore referred to or a copy of an
official certificate from the State of Ohio evidencing
permission for Airline to self-insure Workers'
Compensation liability.
(d) Shall be and remain an independent contractor with
respect to all installations, construction and services
performed hereunder and agrees to and does hereby accept
full and exclusive liability for the payment of any and
all contributions or taxes for social security, unemploy-
ment insurance, or old age retirement benefits, pensions,
or annuities now or hereafter imposed under any state or
federal law which are measured by the wages, salaries, or
other remuneration paid to persons employed by Airline on
work performed under the terms of this Agreement and
further agrees to obey all rules and regulations which
are now or hereafter may be issued or promulgated under
said respective laws by any duly authorized state or
federal officials; and Airline shall indemnify and save
harmless City from any such contributions or taxes or
liability therefor.
9.03 Ramp Usage and Servicing
a. Use of the Ramp Area adjacent to the Continental
Special Premises by aircraft and passengers other than those of
Airline may be requested at times by the Director of Port Control
or the Commissioner of Cleveland Hopkins International Airport, and
such use may necessitate access to Airline-rented holdrooms
adjacent to such Ramp Area and the use of the airplane loading
devises. Airline agrees to make such areas, facilities and
equipment available to accommodate such aircraft at the request of
the Director of Port Control or the Commissioner of Cleveland
Hopkins International Airport, provided that the use thereof will
not unreasonably interfere with Airline's operations hereunder and
that Airline is reasonably compensated for the use thereof by such
user. Airline is authorized to obtain from such user an agreement
regarding such use.
b. Airline may perform, while its aircraft are parked
upon the Ramp Area, customary fueling and servicing of aircraft
preparatory to loading and takeoff or immediately following landing
and unloading. Airline shall not do or perform any major repair or
maintenance work upon aircraft while parked upon the apron or at
the gate position nor shall there be any storage of aircraft upon
the Ramp Area in a manner to restrict the loading or unloading of
passengers at such gate positions. As used here, "major" is
defined to be work that normally requires more than one hour to
complete.
c. Airline agrees to reimburse the FAA (or City, if
City shall have reimbursed the FAA) for any FAA funding of Airport
improvements which were eliminated as a result of construction of
the Improvements, but only if the FAA requires reimbursement
thereof.
9.04 Noise Abatement
a. Airline shall certify in writing to the
Director of Port Control on or before January 15 of each year the
total number of aircraft in its operational fleet as of the
preceding December 31 and the number and percentage thereof that
were Stage Three aircraft as of that date. During each year,
Airline will make a reasonable effort in the scheduling of its
fleet operations at the Airport so that the percentage of Airline's
operations at the Airport using Stage Three aircraft shall be
reasonable in relation to Airline's then current level of Stage
Three operations at the Airport.
b. In its operations at the Airport, Airline shall,
subject to established FAA air traffic control and flight
procedures, apply its best effort to operate consistent with the
noise abatement procedures set forth in Exhibit G hereto.
c. The requirements of this Section 9.04 shall apply
only to the extent they do not violate or conflict with the
provisions of any applicable laws and regulations or any existing
agreements of the City with Airline or the Scheduled Airlines (as
defined in the Original Lease).
(End of Article IX)
<PAGE>
ARTICLE X - INDEMNIFICATION; DAMAGE
OR DESTRUCTION; INSURANCE
10.01 Indemnification
City, its officers and employees, shall not be liable to
Airline, or to any other parties, for claims arising out of any
injury, including death, to any persons, or for loss of or damage
to any property, regardless of how such injury or damage may be
caused, sustained or alleged to have been caused or sustained, as
a result of any condition (including existing or future defects) or
act or omission whatsoever in, on or about the Continental Special
Facilities unless such claim shall arise from the sole negligence
of City, its officers and employees. In addition, City, its
officers and employees, shall not be liable to Airline or to any
other parties for claims or liability arising out of injury to
persons or loss of or damage to property caused or sustained as a
result of any fault, negligence, act or omission of Airline, or any
of its officers, employees, agents, or contractors, and Airline
shall indemnify and save harmless City with respect to and shall
assume the defense of any and all liabilities, obligations,
damages, penalties, fines, assessments, claims, costs, charges and
expenses, including reasonable attorneys' fees which may be imposed
upon or incurred by City by reason of any such occurrences.
10.02 Liability Insurance
In addition to any liability insurance required to be
maintained by Airline pursuant to the Original Lease, Airline, at
its sole cost and expense, for the mutual benefit of Airline and
City, shall purchase and maintain, from an insurance company
acceptable to City, public liability insurance for claims arising
out of bodily injury or property damage occurring in, on or about
the Continental Special Facilities, claims made in connection with
operations of Airline in or about the Continental Special
Facilities, and claims arising out of, and during the period of,
the construction of the Improvements, in an amount of at least
$5,000,000 single limit (or equivalent split limits). City shall
be named as an additional insured with respect to Airline's
operation, maintenance and use of the Continental Special
Facilities, subject to the limitations set forth in Section 13.01
hereof. Airline shall provide City with a certificate of
insurance, which indicates that the insurance company will provide
City and the Trustee with at least thirty days' advance notice of
cancellation or material restriction in coverage thereof. Airline
shall purchase and maintain additional limits of liability
insurance in such amounts as are considered customary in connection
with the operation of the business of Airline but in no event less
than $50,000,000 single limit (or equivalent split limit). Each
policy of insurance whether or not specifically referred to herein
shall not, as a condition of coverage, prohibit any insured from
waiving his right of recovery against any party. The failure of
City, at any time, to enforce the provisions of this paragraph
concerning insurance coverage shall not constitute a waiver of
those provisions nor in any respect reduce the obligation of
Airline to defend and hold and save City harmless with respect to
any injury or damage covered by this Article X. Upon the execution
of this Agreement, Airline shall provide the Director of Law of
City with a valid certificate or certificates evidencing the
insurance policy or policies required hereunder. Such certificate
or certificates shall as to form, coverage and carrier be subject
to approval by the Director of Law of City. If at any time during
the term of this Agreement the form, coverage or carrier on any
policy shall become unsatisfactory to the Director of Law of City,
Airline shall, forthwith, provide a new policy meeting the
requirements of the Director of Law of City provided that such
requirements are in conformance to the conditions hereof, and are
in keeping with policy conditions usual and customary to such types
of policies. At least thirty days prior to the expiration or
termination of any policy provided hereunder, Airline shall deliver
to the Director of Law of City and the Trustee verified
certificates evidencing the renewal or replacement policies.
City, for the mutual benefit of City and Airline, shall
purchase and maintain public liability insurance for claims arising
out of bodily injury or property damage occurring in, on or about
the Airport System in an amount agreed upon from time to time by
both City and Airline which shall not be less than $75,000,000.
Any such insurance maintained by City may be counted toward the
fulfillment of the requirements of this Section 10.02 as well as
any requirements of the Original Lease that City maintain such
insurance in any amount specified therein.
10.03 Damage or Destruction
If, prior to the Defeasance Date, the Continental Special
Facilities shall be damaged or partially or totally destroyed by
fire, flood, windstorm, or other casualty, there shall be no
abatement or reduction in the Basic Rent or Bond Rent payable by
Airline. Continental assigns to City all its rights to the
proceeds of any property insurance for the damage or destruction of
the Continental Special Premises, and City agrees to apply such
proceeds and any other moneys Airline or any other party may
provide for that purpose (i) to the repair or reconstruction of the
Continental Special Premises to the fullest extent that such
proceeds and other moneys suffice for that purpose and such repair
or reconstruction is feasible, but without assuming any obligation
to use or apply any other moneys or revenues for that purpose and
(ii) to the payment of Bond Service Charges on the Bonds by
depositing said proceeds with the Trustee for deposit in the Bond
Fund to be applied in accordance with the Indenture, if and to the
extent that such repair or reconstruction is not feasible. City
shall give prompt written notice to the Trustee of any damage or
destruction of the Continental Special Premises. In the event that
any insurance proceeds are net of a deductible, Airline shall pay
to City the amount of such deductible. City shall also be required
to so apply the proceeds of any insurance policies of City received
by City as a result of such damage or destruction.
In the event of damage, destruction or loss of any
portion of the Continental Special Premises by an insured risk
after the Defeasance Date, which damage, destruction or loss is not
capable of being repaired within ninety (90) days, Airline shall
have the option, exercisable by written notice given to City within
sixty (60) days after the occurrence of such event, to terminate
this Agreement forthwith. If this Agreement is so terminated, City
shall receive from the insurance proceeds an amount equal to the
full insurable value minus the net book value, with Airline
receiving the balance. If this Agreement is not terminated as
aforesaid, or if such damage, destruction or loss is capable of
being repaired within said ninety (90) day period, the provisions
of the immediately preceding paragraph shall apply; provided,
however, that if such damage, destruction or loss occurs within six
(6) months of the expiration of this Agreement, than Airline shall
have the option either to effect such repair, replacement,
restoration or rebuilding or in lieu thereof, to terminate
forthwith the Agreement and make payment of the insurance proceeds
received by reason of such damage, destruction or loss to City in
accordance with the provisions of the immediately preceding
paragraph.
10.04 Waiver of Subrogation; Property Insurance
Airline and City, each for its own account, agree to
purchase property insurance, subject to such deductibles as are
reasonable, at replacement cost on buildings, contents, equipment
(mobile and fixed) and improvements and betterments owned or for
which each may be responsible, to cover damage caused by fire and
perils normally covered by extended coverage insurance, and, at the
option of either party, such other perils as are customarily
included in the term "all risk", available in Cleveland, Ohio.
Airline shall provide City, and the Trustee with a certificate of
insurance which indicates the insurance company will provide City,
and the Trustee with at least thirty (30) days advance notice of
cancellation or material restriction in coverage thereunder. Each
insurance policy, whether or not specifically referred to herein,
shall not, as a condition of coverage, prohibit any insured from
waiving his right of recovery against any party for loss or damage
to the insured property. Subject to the foregoing, City and
Airline each hereby waive all claims and right of recovery against
the other for damage to personal property to the extent that
recovery is obtained or could be obtained from the insurance
company. Extent of recovery shall include that amount actually
paid by an insurance company less any deductibles or coinsurance
penalties applicable.
(End of Article X)
<PAGE>
ARTICLE XI - EMINENT DOMAIN
If, prior to the Defeasance Date, title to or the
temporary use of the Continental Special Facilities, or any part
thereof, or improvement thereon, shall be taken under the exercise
of the power of eminent domain by any governmental body or by any
person, firm or corporation acting under governmental authority,
there shall be no abatement or reduction in the Basic Rent or Bond
Rent payable by Airline. Continental assigns to City all its
rights to the proceeds of any award received by Airline upon any
such taking, and City agrees to apply such proceeds any other
moneys Airline or any other party may provide for that purpose
(i) to the extent feasible, to the replacement of the Continental
Special Facilities to the fullest extent that such proceeds and
other moneys suffice for that purpose, but without assuming any
obligation to use or apply any other moneys or revenues for that
purpose and (ii) if, and to the extent such replacement is not
feasible, to the payment of Bond Service Charges by depositing such
proceeds with the Trustee for deposit in the Bond Fund and
application in accordance with the Indenture.
If, following the Defeasance Date, title to or temporary
use of the Continental Special Facilities, or any part thereof, or
improvement thereon shall be taken under the exercise of the power
of eminent domain by any governmental body or by any person, firm
or corporation acting under governmental authority, Airline shall
have the option, exercisable by written notice from Airline to City
within 60 days after the occurrence of such event, to terminate
this Agreement. If this Agreement is so terminated, City shall
receive from the proceeds of any award received by Airline an
amount equal to the full insurable value minus the net book value,
with Airline receiving the balance. If this Agreement is not
terminated as aforesaid, the provisions of the immediately
preceding paragraph shall apply; provided, however, that if such
event occurs within six (6) months of the expiration of this
Agreement, then Airline shall have the option either to effect such
replacement or, in lieu thereof, to terminate forthwith the
Agreement and make payment of the award proceeds received by reason
of the taking in accordance with the provisions of the immediately
preceding paragraph.
(End of Article XI)
<PAGE>
ARTICLE XII - DEFAULTS
12.01 Events of Default
Time is of the essence in this Agreement. Airline agrees
that each of the following circumstances or conditions shall
constitute an "Event of Default" hereunder: (a) if (i) Airline
shall be in default in the payment of Bond Rent, or (ii) Airline
shall be in default in the payment of Basic Rent, additional rent
pursuant to Section 7.05(b) or any other rentals or other payments
to be made by it to City pursuant to this Agreement for ten days
after written demand shall have been made therefor by City; or (b)
if Airline shall neglect, violate, be in default under, or fail to
perform or observe any of the other covenants, agreements, terms or
conditions contained in this Agreement on its part to be performed
(except Section 17.02 hereof, which shall be governed by Section
7(e)(i) of the Bond Legislation) and shall not have remedied, or
commenced action which will promptly remedy same which action is
thereafter diligently pursued, within ten days after written notice
thereof given by City; or (c) if any execution or attachment shall
be issued against Airline in connection with its operation at the
Continental Special Facilities and such execution or attachment
shall not be discharged within ninety days after levy or seizure
thereunder, or the Continental Special Facilities shall be occupied
by someone other than Airline and other than as permitted under
Article XIII hereof; or (d) if the Continental Special Facilities
shall be deserted or vacated, of which fact City shall be the sole
judge; or (e) if Airline shall violate any provision of any of the
insurance policies referred to herein so that such policy shall be
void or unenforceable in whole or in part and Airline shall not,
within ten days after being required in writing by City so to do,
either cure such violation and cause such policy to be reinstated
or procure other insurance of the same amount, which shall conform
to the provisions for insurance referred to herein, and shall be
enforceable; or (f) if Airline shall in any way fail to perform and
satisfy the requirements of any insurance policy referred to
herein, and shall continue in such failure for ten days after being
required in writing by City to conform to such requirements; or
(g) if any of the following events shall have occurred:
(i) The filing by Airline of a voluntary petition in bank-
ruptcy or for an arrangement or any assignment for
benefit of creditors of all or any part of Airline's
assets;
(ii) The adjudication of Airline as a bankrupt pursuant to any
involuntary bankruptcy proceedings;
(iii) The taking of jurisdiction by a court of competent
jurisdiction of Airline or its assets pursuant to pro-
ceedings brought under the provisions of any federal
reorganization act; or
(iv) The appointment of a receiver or trustee of Airline's
assets by a court of competent jurisdiction or a volun-
tary agreement with Airline's creditors.
12.02 Remedies
Whenever an Event of Default shall have occurred and be
continuing, City may take any one or more of the following remedial
steps:
a. City shall have the right, with or without
terminating this Agreement, to re-enter the Continental Special
Premises and take possession of the same by summary proceedings,
re-entry or otherwise, and remove all persons and/or property from
the Continental Special Premises (which property may be removed and
stored in a public warehouse or elsewhere at the cost and for the
account of Airline), without being liable to indictment,
prosecution or damages therefor, and without prejudice to any other
rights which City may have by reason of such Event of Default.
b. City shall have the right to relet the Continental
Special Facilities, subject to the limitations on its doing so set
forth in the Indenture.
c. City shall have the right to terminate this
Agreement and all rights of Airline hereunder by giving 60 days'
written notice of such termination to Airline and the Trustee,
subject to the limitations on its doing so set forth in the
Indenture.
12.03 Effect of Termination
In case of termination of this Agreement pursuant to Sec-
tion 12.02 hereof, (a) all payments to be made by Airline to City
pursuant to this Agreement shall be prorated for the portion of the
current calendar year prior to the time of such termination and
shall become due and payable forthwith, and (b) Airline shall also
pay to City, as liquidated damages for the failure of Airline to
observe and perform Airline's covenants to pay Basic Rent herein
contained, any deficiencies between (i) the rentals, charges and
fees which would have been payable by Airline to City through the
Termination Date other than Bond Rent, and (ii) the rentals,
charges and fees other than Bond Rent collected from any subsequent
users of the Continental Special Facilities. Any such liquidated
damages shall be paid in monthly installments by Airline as
determined upon statements rendered by City to Airline, and any
suit brought to collect the amount of deficiency for any month
shall not prejudice in any way the rights of City to collect the
deficiency for any subsequent month by a similar proceeding.
Airline shall also remain liable for any loss, cost, damage or
expense, including reasonable attorneys' fees, which City may
sustain by reason of the happening of any such event.
12.04 Additional Rights of City
In the event of an Event of Default or threatened breach
or default by Airline of any of the covenants or provisions hereof,
City shall have the right to injunction and the right to invoke any
remedy allowed at law or in equity as if re-entry, summary
proceedings and other remedies were not herein provided for.
Mention in this Agreement of any particular remedy shall not
preclude City from any other remedy, in law or in equity.
(End of Article XII)
<PAGE>
ARTICLE XIII - ASSIGNMENT AND SUBLETTING
13.01 Assignment or Sublease
Airline covenants that it will not assign, transfer,
convey, sublet, sell, mortgage, pledge or encumber this Agreement,
the Continental Special Facilities or any part thereof, or any
rights of Airline hereunder or allow the use of the Continental
Special Facilities hereunder by any other person, except to the
Trustee in accordance with the Indenture or as otherwise provided
in this Agreement, without in each instance having first obtained
written approval from the Board of Control of City; provided,
however, that without such consent Airline may assign its rights
under this Agreement to any corporation with which Airline may
merge or consolidate or which may succeed to the business of Air-
line. Consent by the Board of Control to any type of transfer
described in this paragraph or elsewhere in this Agreement shall
not in any way be construed to relieve Airline from obtaining
authorization from the Board of Control for any subsequent transfer
of any nature whatsoever.
In the event of any assignment or sublease pursuant
hereto of all or any portion of the Continental Special Facilities
under which the rental reserved in the assignment or sublease
exceeds the rental or pro rata portion of the rental, as the case
may be, for such space reserved in this Lease, Airline shall pay
the City monthly, as additional rent, with the monthly installments
of Basic Rent due hereunder, the excess of the rental reserved in
the assignment or sublease over the rental reserved in this Lease
applicable to the assigned or subleased space.
13.02 Requests For Assignment or Sublease
Any and all requests by Airline for authorization to make
any transfer described in Section 13.01 shall be made in writing by
certified mail to the Director of Port Control and shall include
copies of the proposed documents of transfer.
13.03 Filing of Assignment or Sublease
If and when the Board of Control of City authorizes any
transfer as described in Section 13.01, the instrument or document
of authorization together with the instrument or document of
transfer shall be filed with the Director of Port Control and
attached to this Agreement. The instruments and documents shall
not be effective without the prior approval of the Director of Law
of City endorsed thereon. Airline shall remain primarily liable
for the payment of rentals hereunder and the performance of all
terms, conditions, covenants and conditions hereof, notwithstanding
the authorization of any transfer, assignment, conveyance,
subletting, sale, mortgage, pledge or encumbrance hereunder by the
Board of Control of City.
13.04 Application of Rent
If this Agreement be assigned or if the Continental
Special Facilities be sublet or occupied by any party other than by
Airline, or should any other transfer of interest or rights of any
nature prohibited by Section 13.01 occur other than to the Trustee
in accordance with the Indenture without authorization of the Board
of Control of City, City may collect rent from any assignee,
sublessee or transferee and in such event shall apply the net
amount collected to the rents payable by Airline hereunder, but
such action by City shall not constitute a waiver of the covenant
contained in Section 13.01, or acceptance of such assignee,
sublessee, or transferee by City, or a release of Airline from this
Agreement or any of its obligations hereunder.
(End of Article XIII)
<PAGE>
ARTICLE XIV - AIRLINE'S RIGHT TO TERMINATE
a. Airline may terminate this Agreement only at the
time, under the conditions and in the manner permitted in Section
3.01 hereof.
b. Subject to the restrictions in Section 3.01 and this
Section 14.01 on Airline's termination of this Agreement and Air-
line's obligations to pay rentals, fees and charges under this
Agreement, Airline shall be entitled to make use of any remedy that
might be available to it in the event City shall fail to perform,
keep and observe any of the terms, covenants or conditions herein
contained on the part of City to be performed, kept or observed,
provided that such terms, covenants or conditions are within the
power and ability of City to perform, keep or observe.
(End of Article XIV)
<PAGE>
ARTICLE XV - DELIVERY OF POSSESSION
Airline agrees to yield and deliver to City possession of
the Continental Special Facilities at the termination of this
Agreement, by expiration or otherwise, or of any renewal or
extension hereof, in good condition in accordance with its express
obligations hereunder, except for damage or loss due to reasonable
wear and tear or fire or other casualty.
(End of Article XV)
<PAGE>
ARTICLE XVI - HOLDING OVER
If Airline shall, with the consent of City, hold over
after the expiration or earlier termination of the term of this
Agreement, the resulting tenancy shall, unless otherwise mutually
agreed, be for an indefinite period of time on a month-to-month
basis. During such month-to-month tenancy, Airline shall pay to
City the same rate of Basic Rent as in effect at the expiration of
the final Additional Term and thereafter subsequently adjusted as
herein provided, unless a different rate shall be agreed upon, and
shall be bound by all of the additional provisions of this Agree-
ment insofar as they may be pertinent.
(End of Article XVI)
<PAGE>
ARTICLE XVII - MISCELLANEOUS PROVISIONS
17.01 No Personal Liability
No elected official, director, officer, agent or employee
of either party shall be charged personally or held contractually
liable by or to the other party under any term or provision of this
Agreement or because of any breach thereof or because of its or
their execution or attempted execution.
17.02 Tax-Exempt Status of Bonds
Airline will not take, or cause to be taken, any action
which would result in the loss of the exclusion from gross income
for federal income tax purposes of interest on the Bonds to owners
of Bonds other than any owner who is a "substantial user" of the
Continental Special Facilities or a "related person" within the
meaning of Section 147(a) of the Code.
17.03 Taxes
Airline shall pay, but such payment shall not be
considered part of Basic Rent, Bond Rent or any other rent payable
hereunder, all taxes, assessments and charges of a like nature, if
any, imposed upon or with respect to the Continental Special
Facilities which at any time during the term of this Agreement may
be levied or become a lien by virtue of any levy, assessment or
charge by the Federal Government, the State of Ohio, any municipal
corporation, any governmental successor in authority to the
foregoing, or any other tax or assessment levying bodies, in whole
or in part, upon or in respect to the Continental Special
Facilities or in respect to or upon any personal property belonging
to Airline situated on the Continental Special Facilities. Payment
of such taxes, assessments and charges, when and if levied or
assessed, shall be made by Airline directly to the taxing or
assessing authority charged with collection thereof in accordance
with applicable law, and Airline shall be responsible for obtaining
bills for all of said taxes, assessments and charges and promptly
providing City with evidence of payment therefor. If any tax,
assessment or like levy in the nature of a real estate tax
chargeable to the Continental Special Facilities is not separately
stated and billed by the taxing authority, but is included in a
larger area billing or assessment, upon receipt of such billing or
assessment by City, City shall bill Airline for and Airline shall
pay to City its share of said larger area tax billing. Airline's
share shall be determined by multiplying the amount of such larger
area tax billing by a fraction the numerator of which is the Basic
Rent realized from the Continental Special Facilities, and the
denominator of which is the income realized from all property
comprising the tax billing, such determination to be made by City
after consultation with the parties involved in such billing.
Airline may, at its expense, contest the amount or
validity of any tax or assessment against the Airport System, or
the inclusion of the Continental Special Facilities as taxable or
assessable property, directly against the taxing or assessing
authority, after providing such security to City as the Director of
Law of City deems adequate to cover any delinquency, penalty and
interest charges that may arise from such contest. Airline shall
indemnify City from all taxes, penalties, cost, expense and
attorneys' fees incurred by City resulting directly or indirectly
from all such tax contests.
Upon any termination of this Agreement, all taxes then
levied or a lien upon any of such property or taxable interest
therein for which Airline is responsible pursuant to this Section
17.03 shall be paid in full without proration by Airline forthwith,
or as soon as a statement thereof has been issued by the tax
collector if termination occurs during the interval between the
attachment of the lien and issuance of the statement.
17.04 Interpretation of Agreement
This Agreement shall be deemed to have been made in, and
be construed in accordance with the laws of, the State of Ohio.
17.05 Notices
Except as herein otherwise expressly provided, all
notices required to be given to City hereunder shall be in writing
and shall be sent by United States Certified Mail, return receipt
requested, addressed to:
Director of Port Control
Second Floor, Terminal Building
Cleveland Hopkins International Airport
5300 Riverside Drive
Cleveland, Ohio 44135-3193
and
Director of Law
City of Cleveland
601 Lakeside Avenue
Cleveland, Ohio 44114;
all notices by City to Airline shall be in writing and shall be
sent by United States Certified Mail, return receipt requested,
addressed to:
Continental Airlines, Inc.
2929 Allen Parkway
Houston, Texas 77019
Attention: Chief Financial Officer
with a copy to:
General Counsel and Corporate Secretary
and all notices to the Trustee shall be in writing and shall be
sent by United States Certified Mail, return receipt requested
addressed to:
The Huntington National Bank
Corporate Trust Department
Huntington National Bank Building
917 Euclid Avenue
Cleveland, Ohio 44115
The parties, or either of them, may designate in writing
from time to time any changes in addresses or any addresses of
substitute or supplementary persons in connection with said
notices. The effective date of service of any such notice shall be
the date such notice is received by Airline or by City. Any
provision herein that one party shall notify the other of some
matter is to be construed as a requirement that notice is to be
given in accordance with the provisions of this Section 17.05.
17.06 Entire Agreement; Amendment
This Agreement constitutes the entire agreement between
the parties hereto with respect to the Continental Special
Facilities and supersedes all other representations or statements
heretofore made, oral or written, except as otherwise herein
provided. This Agreement may be amended only in writing, and
executed by duly authorized representatives of the parties hereto
in accordance with the terms of the Indenture, provided that the
description of the Improvements set forth herein may be revised
from time to time on the written request of Airline approved in
writing by the Director of Port Control on behalf of City, provided
that no such revision materially alters the Continental Special
Facilities as initially contemplated hereunder.
17.07 Waiver
No waiver of default by either party of any of the terms,
covenants and conditions hereof to be performed, kept and observed
by the other party shall be construed as, or operate as, a waiver
of any subsequent default of any of the terms, covenants or
conditions herein contained, to be performed, kept and observed by
the other party.
17.08 Non-Discrimination
Airline for itself, its heirs, personal
representatives, successors in interest, and assigns, as a part of
the consideration hereof, does hereby covenant and agree "as a
covenant running with the land" that in the event facilities are
constructed, maintained, or otherwise operated on the said property
described in this Agreement for a purpose for which a U. S. Depart-
ment of Transportation program or activity is extended or for
another purpose involving the provision of similar services or
benefits, Airline shall maintain and operate such facilities and
services in compliance with all other requirements imposed pursuant
to Title 49, Code of Federal Regulations, Department of
Transportation, Subtitle A, Office of the Secretary, Part 21, Non-
discrimination in Federally-assisted programs of the Department of
Transportation-Effectuation of Title VI of the Civil Rights Act of
1964, and as said Regulations may be amended.
Airline for itself, its personal representatives,
successors in interest, and assigns, as a part of the consideration
hereof, does hereby covenant and agree "as a covenant running with
the land" (1) that no person on the grounds of race, color, or
national origin shall be excluded from participation in, denied the
benefits of, or be otherwise subjected to discrimination in the use
of said facilities, (2) that no person on the grounds of race,
color, or national origin shall be excluded from participation in,
denied the benefits of, or otherwise be subjected to
discrimination, in the construction of any improvements on, over,
or under such land and the furnishing of services thereon, and (3)
that Airline shall use the premises in compliance with all other
requirements imposed by or pursuant to Title 49, Code of Federal
Regulations, Department of Transportation, Subtitle A, Office of
the Secretary, Part 21, Non-discrimination in Federally-assisted
programs of the Department of Transportation-Effectuation of Title
VI of the Civil Rights Act of 1964, and as said Regulations may be
amended.
In the event of breach of any of the above non-discrimi
nation covenants, City shall have the right to terminate this
Agreement and to re-enter and repossess said land and the
facilities thereon, and hold the same as if said Agreement had
never been made or issued.
17.09 Force Majeure
Neither City nor Airline shall be deemed in violation of
this Agreement if it is prevented from performing any of the
obligations hereunder by reason of strikes, boycotts, labor
disputes, embargoes, shortage of material, acts of God, acts of the
public enemy, acts of superior governmental authority, weather
conditions, riots, rebellion, sabotage, or any other circumstances
for which it is not responsible or which is not within its
reasonable control; provided, however, that these provisions shall
not excuse Airline from its obligation to pay the rentals specified
in Sections 7.02, 7.03 and 7.05. City agrees to use its best
efforts to restore any interrupted utilities or services which it
is obligated to furnish or provide under this Agreement but Airline
shall not be entitled to any abatement of rental payments or
discharge of rental obligations in the event of any interruption or
cessation of any utilities or services.
17.10 Severability
In the event any covenant, condition or provision herein
contained is held to be invalid by a court of competent
jurisdiction, the invalidity of any such covenant, condition or
provision shall in no way affect any other covenant, condition or
provision herein contained, provided the invalidity of any such
covenant, condition or provision does not materially prejudice
either City, Trustee, Bondholders, or Airline in their respective
rights and obligations contained in the valid covenants, conditions
and provisions of this Agreement.
17.11 Headings
The headings of the several Articles and Sections of this
Agreement are inserted only as a matter of convenience and for re
ference, in no way define, limit or describe the scope or intent of
any provisions of this Agreement and shall not be construed to
affect in any manner the terms and provisions hereof or the
interpretation or construction thereof.
17.12 Non-Exclusivity
Nothing herein contained shall be deemed to grant to
Airline any exclusive right or privilege within the meaning of
Section 30 of the Federal Aviation Act for the conduct of any
activity on the Airport, except that, subject to the terms and
provisions hereof, Airline shall have the right to exclusive
possession of the Exclusive Continental Special Premises.
17.13 Approvals
Whenever the approval of City or of Airline is required
herein, no such approval shall be unreasonably requested, withheld
or delayed. Unless otherwise specified herein all approval shall
be in writing.
17.14 Binding Nature
All of the terms, provisions, covenants, stipulations,
conditions and considerations in this Agreement shall extend to and
bind the legal representatives, successors, sublessees and assigns
of the respective parties hereto.
17.15 Inspection
City reserves the right to inspect the Continental
Special Facilities at any and all reasonable times throughout the
term of this Agreement provided that it shall not interfere unduly
with Airline's operations and that it gives Airline reasonable
advance notice. The right of inspection reserved to City hereunder
shall impose no obligation on City to make inspections to ascertain
the condition of the premises and shall impose no liability upon
City for failure to make such inspections.
17.16 Incorporation of Exhibits
All exhibits referred to herein and any appendices,
exhibits or schedules which may, from time to time, be referred to
in any duly executed amendment hereto are (and with respect to
future amendments, shall be) by such reference incorporated herein
and shall be deemed a part of this Agreement as fully as if set
forth herein.
17.17 Public Contract
This Agreement is a "public contract" within the meaning
of the provisions of Sections 665.01 through 665.08 inclusive of
the Codified Ordinances of Cleveland, Ohio 1976, and Airline is a
"public contractor" as such term is defined therein. Pursuant to
the requirements of aforementioned Sections of the Codified
Ordinances of City, the following Equal Employment Opportunity
Clause is included in this Agreement and made part hereof. At all
times during the term of this Agreement, Airline (referred to in
the following provisions as the "contractor") shall abide by and
comply with each and every term, condition and requirement set
forth in the following Equal Employment Opportunity Clause.
a. The contractor shall not discriminate against any
employee or applicant for employment because of race, religion,
color, sex, national origin, age or handicap. The contractor shall
take affirmative action to insure that applicants are employed and
that employees are treated during employment, without regard to
their race, religion, color, sex, national origin, age or handicap.
As used herein, "treated" means and includes, without limitation,
the following: recruited, whether by advertising or other means;
compensated, whether in the form of rates of pay or other forms of
compensation; selected for training, including apprenticeship;
promoted; upgraded; demoted; downgraded; transferred; laid off; and
terminated. The contractor agrees to and shall post in conspicuous
places, available to employees and applicants for employment,
notices to be provided by the contracting officers setting forth
the provisions of this non-discrimination clause.
b. The contractor shall in all solicitations or
advertisements for employees placed by or on behalf of the
contractor, state that all qualified applicants will receive
consideration for employment without regard to race, religion,
color, sex, national origin, age or handicap.
c. The contractor shall send to each labor union or
representative of workers with which he has a collective bargaining
agreement or other contract or understanding, a notice advising the
labor union or worker's representative of the contractor's
commitments under the Equal Employment Opportunity Clause of City
and shall post copies of the notice in conspicuous places available
to employees and applicants for employment.
d. The contractor shall furnish all information and
reports required by the Contract Compliance Officer of City
pursuant to Sections 665.01 to 665.08, inclusive, and shall permit
access to his books, records and accounts by the contracting agency
and by the Contract Compliance Office for purposes of investigation
to ascertain compliance with the program.
e. The contractor shall take such action with respect
to any subcontractor as City may direct as a means of enforcing the
provisions of paragraphs a. through h. herein, including penalties
and sanctions for noncompliance, provided however, that in the
event the contractor becomes involved in or is threatened with
litigation as the result of such direction by City, City will enter
into such litigation as is necessary to protect the interests of
City and to effectuate City's Equal Employment Opportunity program
and in the case of contracts receiving federal assistance, the
contractor or City may request the United States to enter into such
litigation to protect the interest of the United States.
f. The contractor shall file and shall cause his
subcontractors, if any, to file compliance reports with City in the
form and to the extent prescribed by the Contract Compliance
Officer of City. Compliance reports filed at such times as
directed shall contain information as to the employment practices,
policies, programs and statistics of the contractor and his
subcontractors.
g. The contractor shall include the provisions of
paragraphs (a) through (h) of this Equal Employment Opportunity
Clause in every subcontract or purchase order so that such
provisions will be binding upon each subcontractor or vendor.
h. Refusal by the contractor or subcontractor to comply
with any portion of this program as herein stated and described
will subject the offending party to any or all of the following
penalties:
(1) Withholding of all future payments under the in-
volved public contract to the contractor in violation
until it is determined that the contractor or subcon-
tractor is in compliance with the provisions of the con
tract;
(2) Refusal of all future bids for any public contract
with City or any of its departments or divisions until
such time as the contractor or subcontractor demonstrates
that he has established and shall carry out the policies
of the program as herein outlined;
(3) Cancellation of the public contract and declaration
of forfeiture of the performance bond;
(4) In cases in which there is substantial or material
violation or the threat of substantial or material
violation of the compliance procedure or as may be
provided for by contract, appropriate proceedings may be
brought to enforce those provisions, including the
enjoining, within applicable laws, of contractors,
subcontractors, or other organizations, individuals or
groups who prevent directly, indirectly, or seek to
prevent directly or indirectly, compliance with the
policy, as herein outlined.
17.18 Memorandum of Lease
In the event that City so requests, Airline shall
execute, attest, acknowledge and deliver for recording with the
Recorder of Cuyahoga County a short form Memorandum of Lease of
this Agreement and Lease, to be executed pursuant hereto in the
form and content prescribed by Section 5301.251 of the Ohio Revised
Code.
17.19 Continuation of Warranties
All warranties, express or implied, by contractors,
materialmen and suppliers given to Airline in connection with the
Continental Special Facilities shall run in favor of City as well
as Airline, and Airline will take all steps reasonably necessary to
enforce full and faithful performance of such warranties. Airline
agrees that it will not compromise or settle any resulting claim or
litigation without the concurrence of City.
17.20 No Agency
Notwithstanding any provisions hereof, this Agreement
does not constitute an appointment of Airline as an agent or
representative of City for any purpose whatsoever, and neither a
partnership nor a joint venture is created hereby.
(End of Article XVII)
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused these
presents to be duly executed as of the day and year first above
written.
ATTEST as to those signing on THE CITY OF CLEVELAND
behalf of City of Cleveland:
_______________________________ By:__________________________
Director of Finance
________________________________ By: _________________________
Director of Port Control
ATTEST as to those signing on CONTINENTAL AIRLINES, INC.
behalf of Continental Airlines,
Inc.
________________________________ By: ________________________
Title: ______________________
The within instrument is hereby
approved as to legal form and
correctness ____________, 19____
________________________________
Director of Law
By _____________________________
Assistant Director of Law
<PAGE>
STATE OF OHIO ) SS:
)
COUNTY OF CUYAHOGA )
Before me ________________________________, a Notary
public in and for said County, personally appeared Edward H.
Richard, known to me to be the person who, as Director of Port
Control of the City of Cleveland, executed the above and foregoing
Agreement and acknowledged that, being duly authorized by Ordinance
of the Council of City of Cleveland, he signed said Agreement for
and on behalf of the said City as its free and voluntary act, and
as his own free and voluntary act.
IN WITNESS WHEREOF, I have hereunto set my hand and
notarial seal this _____ day of ____________________, 19___.
_____________________________
Notary Public
My commission expires:
<PAGE>
STATE OF OHIO ) SS:
)
COUNTY OF CUYAHOGA )
Before me ________________________________, a Notary
public in and for said County, personally appeared Charles E.
Brown, known to me to be the persons who, as Director of Finance of
the City of Cleveland, executed the above and foregoing Agreement
and acknowledged that, being duly authorized by Ordinance of the
Council of City of Cleveland, he signed said Agreement for and on
behalf of the said City as its free and voluntary act, and as his
own free and voluntary act.
IN WITNESS WHEREOF, I have hereunto set my hand and
notarial seal this _____ day of ____________________, 19___.
_____________________________
Notary Public
My commission expires:
<PAGE>
STATE OF ) SS:
)
COUNTY OF )
Before me __________________________________, a Notary
Public in and for said County, personally appeared ____________
___________________________ known to me to be the person who as
_________________________________ of Continental Airlines, Inc.
executed the above and foregoing Agreement and Lease and
acknowledged that, being duly authorized by Resolution of the Board
of Directors of said Corporation, he/she signed said Agreement for
and on behalf of the said Corporation as its free and voluntary act
and as his/her own free and voluntary act.
IN WITNESS WHEREOF, I have hereunto set my hand and
notarial seal this _____ day of _____________________, 19___.
______________________________
Notary Public
My commission expires:
<PAGE>
EXHIBIT A
[Original Lease to be inserted]
<PAGE>
EXHIBIT B
CONTINENTAL SPECIAL PREMISES
<PAGE>
EXHIBIT C
ON-SITE IMPROVEMENTS
Remodel the ticket counter to accommodate new electronic
state-of-the-art customer ticketing and processing equipment.
Construct approximately 24,000 square feet of new baggage
claim and baggage make-up area adjacent to the Terminal Building,
including baggage conveying and delivery equipment and construct a
passenger walkway connecting this new area to the existing
concourse.
Construct approximately 38,000 square feet of addition to
the South Concourse to create new passenger departure lounges,
operations offices and related space, Airline Lounge, concession
and public circulation areas.
Remodel existing departure lounges and operational
offices to conform to new space including carpeting, millwork,
public seating and furnishing and painting and finishing.
Provide new moving walkways, passenger loading bridges,
ground power and preconditioned air for aircraft and modifications
to underground fueling system.
<PAGE>
EXHIBIT D
HANGAR SITE IMPROVEMENTS
Remodel the hangar to include new roofing, expansion of
electrical systems and additional lighting, plumbing for pneumatic
air system, reconfigure hangar doors, new heating system, fire
protection systems and interior and exterior painting.
<PAGE>
EXHIBIT E
OFF-SITE IMPROVEMENTS
OTHER THAN HANGAR SITE IMPROVEMENTS
Remodel existing administration building to provide
warehousing for aircraft parts and equipment and general
administrative office functions.
Repair and expand concrete aprons and taxiways to
accommodate aircraft access to the hangar and provide additional
aircraft parking space.
Construct and equip a 40,000 square foot kitchen and meal
preparation facility for inflight service of airline passengers.
Reconfigure existing parking lot and establish new entrances and
access automotive access and circulation.
<PAGE>
EXHIBIT G
NOISE ABATEMENT PROCEDURES
[To be added]
EXHIBIT 10.1(a)
EXECUTION COPY
CLEVELAND HOPKINS INTERNATIONAL AIRPORT
FIRST SUPPLEMENTAL
SPECIAL FACILITIES LEASE AGREEMENT
WITH
CONTINENTAL AIRLINES, INC.
______________________________________________________________
Dated as of
March 1, 1998
______________________________________________________________
<PAGE>
TABLE OF CONTENTS
Page
Section 1. Use of Defined Terms. . . . . . . . . . . . . 2
Section 2. Leased Premises; Existing Lease . . . . . . . 2
Section 3. No Personal Liability . . . . . . . . . . . . 2
Section 4. Interpretation of Agreement . . . . . . . . . 2
Section 5. Entire Agreement; Amendment . . . . . . . . . 2
Section 6. Severability. . . . . . . . . . . . . . . . . 3
Section 7. Memorandum of Lease . . . . . . . . . . . . . 3
Signatures. . . . . . . . . . . . . . . . . . 4
Exhibit A - Continental Special Premises . . . . . . . . . A-1
Exhibit B - On-Site Improvements . . . . . . . . . . . . . B-1
Exhibit C - Off-Site Improvements. . . . . . . . . . . . . C-1
<PAGE>
THIS FIRST SUPPLEMENTAL SPECIAL FACILITIES LEASE AGREEMENT
("Supplemental Agreement") is made and entered into as of this 1st
day of March, 1998 upon the terms and conditions set forth herein,
by and between the CITY OF CLEVELAND, a municipal corporation and
political subdivision of the State of Ohio ("City"), and
CONTINENTAL AIRLINES, INC., a corporation organized and existing
under the laws of the State of Delaware and authorized to do
business in the State of Ohio ("Airline"), to supplement the 1989
Special Facilities Lease described below, under the following
circumstances (capitalized words and terms in these preambles,
unless stated otherwise or unless the context dictates otherwise,
shall have the meanings given to them in Article I hereof):
WITNESSETH:
WHEREAS, City owns and operates Cleveland Hopkins
International Airport ("Airport"); and
WHEREAS, the Council of City, pursuant to Ordinance No.
1585-A-76, passed on August 16, 1976, authorized City to enter into
agreements and leases substantially in the form attached to that
Ordinance as Exhibit A setting forth the terms on which certain
airlines would lease portions of the Airport from City and be
permitted to use the Airport's facilities; and
WHEREAS, the Council of City, pursuant to Ordinance No.
2551-A-82, passed on June 15, 1983, authorized City to enter into
additional such agreements and leases with additional Scheduled
Airlines (as defined therein); and
WHEREAS, pursuant to Ordinance No. 2551-A-82, City entered
into an Agreement and Lease with Airline, dated as of May 15, 1987
(the "Original Lease"); and
WHEREAS, Section 20.20 of the Original Lease and Section 3(e)
of Ordinance No. 1773-A-76, passed by the Council of City on August
16, 1976 permit City to issue Special Revenue Bonds to finance and
refinance the construction of any Special Facilities (both as
defined in the Original Lease); and
WHEREAS, pursuant to Ordinance No. 2729-89, passed by the
Council of City on December 11, 1989, the Council of City
authorized City, among other things, to issue and deliver its
$76,320,000 Airport Special Revenue Bonds, Series 1990 (Continental
Airlines, Inc. Project) (the "Series 1990 Bonds") and to execute
and deliver a Special Facilities Lease (the "1989 Lease") to secure
repayment of bond service charges on the Series 1990 Bonds by
Airline; and
WHEREAS, pursuant to Ordinance No. 3005-90, passed by the
Council of City on February, 1991, the Council of City authorized
an amendment to the 1989 Special Facilities Lease by modifying the
scope of the improvements made pursuant to the 1989 Special
Facilities Lease from the proceeds of the Series 1990 Bonds and by
amending Exhibits B, C, D and E thereto; and
WHEREAS, pursuant to Ordinance No. 2044-97, passed by the
Council of City on January 26, 1998, the Council of City authorized
City, among other things, to (i) issue its $75,120,000 Airport
Special Revenue Bonds, Series 1998 (Continental Airlines, Inc.
Project) (the "Series 1998 Bonds") for the purpose of constructing
certain improvements at the Airport as part of an Expansion Program
(as defined in Ordinance No. 2044-97) and (ii) enter into this
Supplemental Special Agreement; and
WHEREAS, the expansion program has resulted in the need to
modify further the scope of the Continental Special Facilities
which are to be governed by the terms of the 1989 Special
Facilities Lease, as heretofore and hereafter supplemented and
amended;
NOW, THEREFORE, for and in consideration of the premises and
the mutual covenants, agreements and conditions contained herein,
the parties hereto agree as follows:
Section 1. Use of Defined Terms. Unless otherwise defined
herein and except as otherwise stated herein, all capitalized words
and terms defined in the Original Lease or the 1989 Lease and used
herein are used herein with the definition assigned to them in the
Original Lease or the 1989 Lease, respectively, and upon the
execution and delivery of this Supplemental Agreement, the term
"Agreement" shall include and incorporate this Supplemental
Agreement together with the 1989 Lease, as heretofore amended and
supplemented. The following words and terms are used herein with
the following definitions, which definitions supplement and amend
the definitions set forth in Article I of the 1989 Lease:
"Continental Special Premises" means the real property
described in Exhibit A hereto and the On-Site Improvements,
exclusive of any concession space, the construction cost of which
was paid to Airline by City pursuant to Section 2.05 hereof.
"Hangar Site Improvements" means the Improvements to the
Hangar Site described in Exhibit C hereto.
"Off-Site Improvements" means the Hangar Site Improvements and
the other improvements described in Exhibit C hereto.
"On-Site Improvements" means the improvements described in
Exhibit B hereto, made at the Continental Special Premises.
Section 2. Leased Premises; Existing Lease. City, in
consideration of the payment of Basic Rent and Bond Rent and the
covenants and agreements stated in the 1989 Lease, as heretofore
supplemented and amended and as further supplemented and amended by
this Supplemental Agreement, agrees to lease the Continental
Special Facilities to Airline, and does hereby confirm the lease
made to Airline pursuant to the 1989 Lease, as hereby amended and
supplemented, and Airline acknowledges such lease of the
Continental Special Facilities. The 1989 Lease, as heretofore
amended and supplemented, shall remain in full force and effect as
originally written, except as hereby supplemented and amended.
Section 3. No Personal Liability. No elected official,
director, officer, agent or employee of either party shall be
charged personally or held contractually liable by or to the other
party under any term or provision of this Supplemental Agreement or
because of any breach thereof or because of its or their execution
or attempted execution.
Section 4. Interpretation of Agreement. This Supplemental
Agreement shall be deemed to have been made in, and be construed in
accordance with the laws of, the State of Ohio.
Section 5. Entire Agreement; Amendment. The Agreement, as
supplemented by this Supplemental Agreement, constitutes the entire
agreement between the parties hereto with respect to the
Continental Special Facilities and supersedes all other
representations or statements heretofore made, oral or written,
except as otherwise herein provided. This Supplemental Agreement
may be amended only in writing, and executed by duly authorized
representatives of the parties hereto in accordance with the terms
applicable to amendments to the Agreement as set forth in the
Indenture, provided that the description of the Improvements set
forth in the 1989 Lease as heretofore and herein revised may be
revised from time to time on the written request of Airline
approved in writing by the Director of Port Control on behalf of
City, provided that no such revision materially alters the
Continental Special Facilities as initially contemplated hereunder.
Section 6. Severability. In the event any covenant,
condition or provision herein contained is held to be invalid by a
court of competent jurisdiction, the invalidity of any such
covenant, condition or provision shall in no way affect any other
covenant, condition or provision herein contained, provided the
invalidity of any such covenant, condition or provision does not
materially prejudice either City, Trustee, Bondholders, or Airline
in their respective rights and obligations contained in the valid
covenants, conditions and provisions of this Agreement.
Section 7. Recording; Memorandum of Lease. This Supplemental
Agreement shall be recorded with the Recorder of Cuyahoga County
or, in the alternative, in the event that either party so requests,
the parties hereto shall execute, attest, acknowledge and deliver
for recording with the Recorder of Cuyahoga County a short form
Memorandum of Lease of this Supplemental Agreement, to be executed
pursuant hereto in the form and content prescribed by Section
5301.251 of the Ohio Revised Code.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused these
presents to be duly executed as of the day and year first above
written.
ATTEST as to those signing on CITY OF CLEVELAND
behalf of the City of Cleveland:
________________________________ By: _________________________
________________________________ Mayor
Printed Name
________________________________ By: _________________________
________________________________ Director of Finance
Printed Name
By:
Acting Director of
Port Control
The within instrument is hereby
approved as to form and correctness
_____________, 1998
Director of Law
By _____________________________
Assistant Director of Law
ATTEST as to those signing on CONTINENTAL AIRLINES, INC.
behalf of Continental Airlines, Inc.:
________________________________ By: ________________________
________________________________ Title: _____________________
Printed Name
________________________________
________________________________
Printed Name
<PAGE>
STATE OF OHIO )
) SS:
COUNTY OF CUYAHOGA )
Before me, a Notary Public in and for said County, personally
appeared Michael R. White, known to me to be the person who, as
Mayor of the City of Cleveland, executed the above and foregoing
Agreement and acknowledged that, being duly authorized by Ordinance
of the Council of the City of Cleveland, he signed said Agreement
for and on behalf of the said City as its free and voluntary act,
and as his own free and voluntary act.
IN WITNESS WHEREOF, I have hereunto set my hand and notarial
seal this _______ day of __________________, 1998.
__________________________________
Notary Public
My commission expires:
<PAGE>
STATE OF OHIO )
) SS:
COUNTY OF CUYAHOGA )
Before me, a Notary Public in and for said County, personally
appeared Martin Carmody, known to me to be the person who, as
Director of Finance of the City of Cleveland, executed the above
and foregoing Agreement and acknowledged that, being duly
authorized by Ordinance of the Council of the City of Cleveland, he
signed said Agreement for and on behalf of the said City as its
free and voluntary act, and as his own free and voluntary act.
IN WITNESS WHEREOF, I have hereunto set my hand and notarial
seal this _______ day of __________________, 1998.
_________________________________
Notary Public
My commission expires:
<PAGE>
STATE OF OHIO )
) SS:
COUNTY OF CUYAHOGA )
Before me, a Notary Public in and for said County, personally
appeared LaVonne Sheffield-McLain, known to me to be the person
who, as Acting Director of Port Control of the City of Cleveland,
executed the above and foregoing Agreement and acknowledged that,
being duly authorized by Ordinance of the Council of the City of
Cleveland, she signed said Agreement for and on behalf of the said
City as its free and voluntary act, and as her own free and
voluntary act.
IN WITNESS WHEREOF, I have hereunto set my hand and notarial
seal this _______ day of __________________, 1998.
__________________________________
Notary Public
My commission expires:
<PAGE>
STATE OF ________ )
) SS:
COUNTY OF _________ )
Before me, a Notary Public in and for said County, personally
appeared Holden Shannon, known to me to be the person who, as Vice
President, Corporate Real Estate, of Continental Airlines, Inc.,
executed the above and foregoing Agreement and Lease and
acknowledged that, being duly authorized by Resolution of the Board
of Directors of said Corporation, he signed said Agreement for and
on behalf of the said Corporation as its free and voluntary act and
as his own free and voluntary act.
IN WITNESS WHEREOF, I have hereunto set my hand and notarial
seal this ______ day of ________________________, 1998.
__________________________________
Notary Public
My commission expires:
<PAGE>
EXHIBIT A
<PAGE>
EXHIBIT B
ON-SITE IMPROVEMENTS
Remodel the ticket counter to accommodate new electronic
state-of-the-art customer ticketing and processing equipment.
Construct approximately 77,300 square feet of addition to the
South Concourse (also known as Concourse C) to create new passenger
departure lounges, operations offices and related space, concession
and public circulation areas.
Remodel existing departure lounges and operational offices to
conform to new space including carpeting, public seating and
furnishing and painting and finishing.
Provide new passenger loading bridges, ground power for
aircraft and modifications to underground fueling system.
<PAGE>
EXHIBIT C
HANGAR SITE IMPROVEMENTS
Remodel the hangar to include new roofing, expansion of
electrical systems and additional lighting, new heating system and
interior and exterior painting.
OTHER OFF-SITE IMPROVEMENTS
Construct and equip a mobile ground service equipment (GSE)
building with maintenance work bays, paint booths, wash racks, a
waste oil collection system, central compressed air system and
related office space.
Repair and expand concrete aprons and taxiways to accommodate
aircraft access to the hangar and provide additional aircraft
parking space.
Construct and equip a 40,000 square foot kitchen and meal
preparation facility for inflight service of airline passengers.
Reconfigure existing parking lot and establish new entrances and
access automotive access and circulation.
Exhibit 10.1(b)
EXECUTION COPY
CLEVELAND HOPKINS INTERNATIONAL AIRPORT
SECOND SUPPLEMENTAL
SPECIAL FACILITIES LEASE AGREEMENT
WITH
CONTINENTAL AIRLINES, INC.
____________________________________________________________
$71,440,000 City of Cleveland, Ohio
Airport Special Revenue Refunding Bonds
Series 1999
(Continental Airlines, Inc. Project)
____________________________________________________________
Dated as of
March 1, 1998
But effective as set forth herein
____________________________________________________________
Squire, Sanders & Dempsey L.L.P.
Bond Counsel
<PAGE>
TABLE OF CONTENTS
Page
Section 1. Use of Defined Terms. . . . . . . . . . . . . 2
Section 2. Leased Premises; Existing Lease . . . . . . . 3
Section 3. Issuance of Series 1999 Bonds . . . . . . . . 3
Section 4. Bond Rent . . . . . . . . . . . . . . . . . . 3
Section 5. Remedies. . . . . . . . . . . . . . . . . . . 5
Section 6. Effect of Termination . . . . . . . . . . . . 6
Section 7. Airline's Right to Terminate. . . . . . . . . 6
Section 8. Notices . . . . . . . . . . . . . . . . . . . 6
Section 9. Tax Matters with respect to the
Series 1999 Bonds . . . . . . . . . . . . . . 6
Section 10. Indemnification-Bond Matters. . . . . . . . . 8
Section 11. Continuing Disclosure . . . . . . . . . . . . 8
Section 12. Effective Date. . . . . . . . . . . . . . . . 8
Section 13. No Personal Liability . . . . . . . . . . . . 8
Section 14. Approval of Indenture . . . . . . . . . . . . 9
Section 15. Interpretation of Agreement . . . . . . . . . 9
Section 16. Entire Agreement; Amendment . . . . . . . . . 9
Section 17. Severability. . . . . . . . . . . . . . . . . 9
Section 18. Memorandum of Lease . . . . . . . . . . . . . 9
<PAGE>
THIS SECOND SUPPLEMENTAL SPECIAL FACILITIES LEASE
AGREEMENT ("Supplemental Agreement") is made and entered into as of
this 1st day of March, 1998 but effective as of the date of
delivery of the Series 1999 Bonds (defined herein) and defeasance
of the Series 1990 Bonds (defined herein) upon the terms and
conditions set forth herein, by and between the CITY OF CLEVELAND,
a municipal corporation and political subdivision of the State of
Ohio ("City"), and CONTINENTAL AIRLINES, INC., a corporation
organized and existing under the laws of the State of Delaware and
authorized to do business in the State of Ohio ("Airline"), to
supplement the 1989 Special Facilities Lease described below, under
the following circumstances (capitalized words and terms in these
preambles, unless stated otherwise or unless the context dictates
otherwise, shall have the meanings given to them in Article I
hereof):
WITNESSETH:
WHEREAS, City owns and operates Cleveland Hopkins
International Airport ("Airport"); and
WHEREAS, the Council of City, pursuant to Ordinance
No. 1585-A-76, passed on August 16, 1976, authorized City to enter
into agreements and leases substantially in the form attached to
that Ordinance as Exhibit A setting forth the terms on which
certain airlines would lease portions of the Airport from City and
be permitted to use the Airport's facilities; and
WHEREAS, the Council of City, pursuant to Ordinance
No. 2551-A-82, passed on June 15, 1983, authorized City to enter
into additional such agreements and leases with additional
Scheduled Airlines (as defined therein); and
WHEREAS, pursuant to Ordinance No. 2551-A-82, City
entered into an Agreement and Lease with Airline, dated as of May
15, 1987 (the "Original Lease"); and
WHEREAS, Section 20.20 of the Original Lease and
Section 3(e) of Ordinance No. 1773-A-76, passed by the Council of
City on August 16, 1976 permit City to issue Special Revenue Bonds
to finance and refinance the construction of any Special Facilities
(both as defined in the Original Lease); and
WHEREAS, pursuant to Ordinance No. 2729-89, passed by
the Council of City on December 11, 1989, the Council of City
authorized City, among other things, to issue and deliver its
$76,320,000 Airport Special Revenue Bonds, Series 1990 (Continental
Airlines, Inc. Project) (the "Series 1990 Bonds") and to execute
and deliver a Special Facilities Lease (the "1989 Special
Facilities Lease") to secure repayment of bond service charges on
the Series 1990 Bonds by Airline; and
WHEREAS, pursuant to Ordinance No. 3005-90, passed by
the Council of City on February 11, 1991, the Council of City
authorized an amendment to the 1989 Special Facilities Lease by
modifying the scope of the improvements made to the 1989 Special
Facilities Lease and amending Exhibits B, C, D and E thereto; and
WHEREAS, pursuant to Ordinance No. 2044-97, passed by
the Council of City on January 26, 1998, the Council of City
authorized City, among other things, to (i) issue its $71,440,000
Airport Special Revenue Refunding Bonds, Series 1999 (Continental
Airlines, Inc. Project) (the "Series 1999 Bonds") for the purpose
of refunding the Series 1990 Bonds on December 1, 1999, (ii) enter
into the First Supplemental Special Facilities Lease and
(iii) enter into this Supplemental Agreement;
NOW, THEREFORE, for and in consideration of the
premises and the mutual covenants, agreements and conditions
contained herein, the parties hereto agree as follows:
Section 1. Use of Defined Terms. Unless otherwise
defined herein and except as otherwise stated herein, all
capitalized words and terms defined in the Original Lease or the
1989 Special Facilities Lease and used herein are used herein with
the definition assigned to them in the Original Lease or the 1989
Special Facilities Lease, respectively, and upon the effectiveness
of this Supplemental Agreement, the term "Agreement" shall include
and incorporate this Supplemental Agreement together with the 1989
Special Facilities Lease. Reference to the term "this Lease" in
the 1989 Special Facilities Lease shall then mean the Agreement, as
heretofore and hereby amended and supplemented. Capitalized terms
used herein without definition herein or in the Original Lease or
the 1989 Special Facilities Lease shall have the meanings set forth
in the Indenture (defined herein). The following words and terms
are used herein with the following definitions, which definitions
supplement and amend the definitions set forth in Article I of the
1989 Special Facilities Lease as of the effective date of this
Supplemental Agreement:
"Agreement" means, collectively, the 1989 Special
Facilities Lease as supplemented and amended pursuant to Ordinance
No. 3005-90 and by the First Supplemental Lease and this
Supplemental Agreement, as it may be further amended or
supplemented from time to time.
"Best Efforts", when describing an obligation of City,
shall not include the obligation to invoke City's police powers or
any other power or authority derived solely from City's status as
a municipal corporation or public utility that is different from
the power or authority of a private commercial landlord.
"Bonds" means the Series 1999 Bonds and any Additional
Bonds (as defined in the Indenture) issued pursuant to the
Indenture.
"First Supplemental Lease" means the First
Supplemental Special Facilities Lease between City and Airline
dated as of March 1, 1998, authorized pursuant to Ordinance No.
2044-97, passed by the Council on January 26, 1998.
"Indenture" means the Trust Indenture dated as of
March 1, 1998 between City and the Trustee pursuant to which the
Series 1999 Bonds are being issued, as it may be amended or
supplemented from time to time.
"Series 1990 Indenture" means the Trust Indenture
dated as of December 1, 1989 between City and The Huntington
National Bank, as Trustee for the Series 1990 Bonds, pursuant to
which the Series 1990 Bonds were issued.
"Trustee" means Chase Manhattan Trust Company,
National Association.
Section 2. Leased Premises; Existing Lease. City, in
consideration of the payment of Basic Rent and Bond Rent and the
covenants and agreements stated in the 1989 Special Facilities
Lease, as heretofore supplemented and amended and as further
supplemented and amended by this Supplemental Agreement, agrees to
lease the Continental Special Facilities to Airline, and does
hereby confirm the lease made to Airline pursuant to the 1989
Special Facilities Lease, as hereby amended and supplemented, and
Airline acknowledges such lease of the Continental Special
Facilities. The 1989 Special Facilities Lease, as heretofore
amended and supplemented, shall remain in full force and effect as
originally written, except as hereby supplemented and amended.
Section 3. Issuance of Series 1999 Bonds. In order
to provide funds for the refunding of the Series 1990 Bonds and to
pay certain costs of issuance of the Series 1999 Bonds, City agrees
to authorize, issue, sell and deliver the Series 1999 Bonds in the
principal amount, payable and redeemable, all as set forth in the
Indenture and City agrees to deposit the proceeds of the Series
1999 Bonds as provided in the Indenture.
Section 4. Bond Rent. Section 7.05 of the 1989
Special Facilities Lease is hereby amended and supplemented as of
the effective date of this Supplemental Agreement to read in its
entirety as follows:
"All capitalized words and terms used in this Section
7.05 but not otherwise defined in this Agreement shall have the
meanings assigned to them in the Indenture.
a. Airline shall pay Bond Rent by making payments to
the Trustee for the account of City on the following dates and in
the following amounts:
(i) On or before each Interest Payment Date
and each other date on which interest on Bonds is
payable (whether at stated maturity, upon mandatory
redemption or upon acceleration of Bonds by the
Trustee in accordance with the Indenture), Airline
shall pay an amount which, together with other amounts
on deposit in the Interest Account created under the
Indenture, will be sufficient to pay the interest on
Bonds payable on that date; provided, however, that no
Event of Default shall occur hereunder if any such
payment is made within two business days of such
Interest Payment Date.
(ii) On or before each date on which principal
of Bonds is payable (whether at stated maturity, upon
mandatory redemption or upon acceleration of Bonds by
the Trustee in accordance with the Indenture), Airline
shall pay an amount which, together with other amounts
on deposit in the Principal Account created under the
Indenture, will be sufficient to pay the principal of
Bonds payable on that date; provided, however, that no
Event of Default shall occur hereunder if any such
payment is made within two business days of such
Interest Payment Date.
(iii) On or before each optional redemption
date, Airline shall pay an amount which, together with
other amounts on deposit in the Redemption Account
created under the Indenture, will be sufficient to pay
the principal of and premium, if any, on Bonds to be
redeemed by optional redemption on that date.
b. In addition to the Bond Rent, and in the manner
hereinafter provided, Airline shall pay as "additional rent" (i) to
the Trustee for the account of City, such amounts as shall be
required to satisfy any requirement to pay the Rebate Amount to the
United States as provided in the Indenture, (ii) all amounts due
under the Indenture to the Trustee, Paying Agent, and
Authenticating Agent (each as defined in the Indenture) and (iii)
all other amounts payable by the City under the terms of the
Indenture (other than Bond Service Charges).
c. All Bond Rent and all additional rent payable
pursuant to subsection (b) of this Section 7.05 shall be paid by
Airline in lawful money of the United States of America in
immediately available funds, provided that Airline may offset,
against amounts payable as Bond Rent under subdivision (a)(ii) of
this Section 7.05 for the retirement or the redemption pursuant to
mandatory sinking fund redemption of Bonds of a given series and
maturity, the principal amount of any Bonds of that series and
maturity delivered in lieu of such Bond Rent by Airline to the
Trustee. Bonds delivered in lieu of Bond Rent due on or before a
redemption date for the redemption of Bonds must be delivered to
the Trustee before the Trustee selects the Bonds to be redeemed on
that date. All such rental payments and delivery of Bonds in lieu
thereof shall be made to the Trustee, at its designated corporate
trust office, and the Trustee shall hold and apply the same in
accordance with the provisions of the Indenture.
d. Airline shall have the right to prepay all or any
part of the Bond Rent in order to cause Bonds to be redeemed or to
be deemed paid and discharged in accordance with the terms and
provisions of the Indenture. City agrees that it will give notice
to the Trustee to redeem Bonds as provided in the Indenture in such
principal amounts and at such times as Airline shall request in
writing.
e. Airline's obligation to pay Bond Rent and
additional rent payments at the times and in the amounts specified
in this Section 7.05 shall be absolute and unconditional and shall
continue in any event, including without limitation, whether or not
(1) Airline shall remain in possession of the Continental Special
Facilities or be able to use the same, or (2) the Original Lease,
the 1989 Special Facilities Lease or this Supplemental Agreement
shall have terminated or been cancelled, or (3) the Continental
Special Facilities or any interest therein are taken for any period
by condemnation or other means by any governmental authority, or
(4) the Continental Special Facilities deteriorate or become
obsolete or are damaged or destroyed for any cause whatsoever, or
become unusable by Airline, or (5) City fails to perform and
observe any agreement, express or implied, or any duty, liability
or obligation arising out of or connected with this Agreement. All
rental payments payable pursuant to this Section 7.05 shall be made
absolutely net, free from all claims, demands, defenses or offsets
against City of any kind or nature whatsoever other than payment.
Nothing contained in this subsection shall be construed to release
City from the performance of any of the agreements on its part
herein contained, and in the event City shall fail to perform any
such agreement on its part, Airline may institute such action
against City as Airline may deem necessary to compel performance,
provided that no such action shall (a) violate the agreements on
the part of Airline contained in the first two sentences of this
paragraph or (b) diminish the payments and other amounts required
to be paid by the Airline pursuant to this Section 7.05. Airline
may, however, at its own cost and expense and in its own name
prosecute or defend any action or proceeding or take any other
action involving third persons which Airline deems reasonably
necessary in order to secure or protect its rights hereunder, and
in such event City hereby agrees to cooperate fully with Airline
and to take all action necessary to effect the substitution of
Airline for City in any such action or proceeding if Airline shall
so request.
f. In the event the Airline shall fail to make any
of the Bond Rent or additional rent payments required in this
Section 7.05, each payment so in default shall continue as an
obligation of Airline until the amount in default shall have been
fully paid, and Airline will pay interest on each overdue Bond Rent
payment at the rates specified in the Indenture or, if not so
specified, the average rate borne by the Bonds on the date each
such payment became due."
Section 5. Remedies. Section 12.02 of the 1989
Special Facilities Lease is hereby amended and supplemented to read
in its entirety as follows:
"Whenever an Event of Default shall have occurred and
be continuing, City may take any one or more of the following
remedial steps:
a. City shall have the right, with or without
terminating this Agreement, to re-enter the Continental Special
Premises and take possession of the same by summary proceedings,
re-entry or otherwise, and remove all persons and/or property from
the Continental Special Premises (which property may be removed and
stored in a public warehouse or elsewhere at the cost and for the
account of Airline), without being liable to indictment,
prosecution or damages therefor, and without prejudice to any other
rights which City may have by reason of such Event of Default.
b. City shall have the right to terminate this
Agreement and/or the Hangar Lease and all rights of Airline
hereunder or thereunder by giving 60 days' written notice of such
termination to Airline and the Trustee.
Upon exercise of any one or more of such remedial steps, City shall
exercise Best Efforts to relet the Continental Special Facilities
(and, if City terminates the Hangar Lease, the Hangar Site
Improvements) and to maximize rentals, charges and fees collected
from any such reletting; provided, however, that if the Continental
Special Facilities cannot be relet at a rental rate sufficient to
fully cover the incremental operation and maintenance costs in
excess of minimum operation and maintenance costs upon such
reletting of the Continental Special Facilities, City shall not
undertake such reletting. Amounts paid to City under leases or
other agreements regarding the reletting or use of the Continental
Special Facilities and the Hangar Site Improvements will be paid,
first, to the Basic Rent Reserve Fund to cover any deficiency
therein; second, to the payment of Basic Rent that would have been
payable under this Agreement by Airline; third, to the payment of
any additional rent required to be paid pursuant to Section 7.05(b)
of this Agreement; and fourth, so long as the Bonds are outstanding
under the Indenture, to the payment of Bond Rent. If City
terminates the Hangar Lease, the rentals, charges and fees
collected from such reletting shall also include an amount equal to
the rent that would have been payable by Airline to City under the
Hangar Lease."
Section 6. Effect of Termination. Section 12.03 of
the 1989 Special Facilities Lease is hereby amended and
supplemented by adding the parenthetical phrase "(other than Bond
Rent)" to the existing third line, after the word "Agreement."
Section 7. Airline's Right to Terminate. Paragraph
b. of Article XIV of the 1989 Special Facilities Lease is hereby
amended and supplemented by adding ", Section 7.05" after the
reference to Section 3.01 in the first sentence thereof.
Section 8. Notices. Section 17.05 of the 1989
Special Facilities Lease is hereby amended and supplemented by
adding the following notice address for the Trustee:
Chase Manhattan Trust Company, National Association
c/o Skylight Office Tower - Suite 920
1660 West Second Street
Cleveland, Ohio 44113
Section 9. Tax Matters with respect to the Series
1999 Bonds. In connection with the issuance and delivery of the
Series 1999 Bonds, Airline covenants as follows:
a. Airline has taken and caused to be taken and
shall take and cause to be taken all actions that may be required
of it alone or in conjunction with City for the interest on the
Series 1999 Bonds to be and to remain excluded from gross income of
the owners of Series 1999 Bonds for federal income tax purposes
(other than a "substantial user" of the Continental Special
Facilities or a "related person"), and that it has not taken or
permitted to be taken on its behalf, any action that, if taken,
would adversely affect such exclusion under the provisions of the
Code. Airline's failure to comply with such covenant shall not
give rise to or constitute an Event of Default hereunder to the
extent that any affected Series 1999 Bonds are redeemed in
accordance with the Indenture.
b. At least 95% of the net proceeds of the Series
1999 Bonds (as defined in Section 150 of the Code) will be used to
provide an airport within the meaning of Section 142(a)(1) of the
Code. As used herein and Section 142(a)(1) of the Code, the term
airport means (1) items of property which are directly related and
essential to servicing aircraft, enabling aircraft to take off and
land, or transferring passengers or cargo to or from aircraft, and
(2) property located at or adjacent to an airport that is
functionally related and subordinate to such facilities specified
in b.(1) above and which is of a character and size commensurate
with the character and size of the airport and in either case is a
capital expenditure that constitutes land or is of a character
subject to the allowance for depreciation under Sections 167 and
168. All of such property will be available to and will serve the
general public on a regular basis, including serving private
companies operating as common carriers that serve the general
public on a regular basis. All of such property is, or upon
completion of acquisition or construction will be, situated at or
immediately contiguous and adjacent to an airport and must be so
located in order to perform their functions. The term airport does
not include the costs of any office building or office space within
a building or a computer facility, either of which serves a
system-wide or regional function of Airline. All of such property
financed by the net proceeds of the Series 1999 Bonds is, or upon
completion will be, owned by City or another governmental unit
within the meaning of Section 142(b)(1) of the Code. Airline will
not request or authorize any disbursement that, if paid, would
result in less than 95% of the net proceeds of the Series 1999
Bonds being so used. The costs of issuance financed by the Series
1999 Bonds will not exceed 2% of the proceeds of the Series 1999
Bonds (within the meaning of Section 147(g) of the Code), and
Airline will not request or authorize any disbursement pursuant to
Section 5.04 hereof or otherwise, that, if paid, would result in
more than 2% of the proceeds of the Series 1999 Bonds being so
used. None of the proceeds of the Series 1999 Bonds will be used
to pay for working capital expenditures (within the meaning of
Treasury Regulations Paragraph 1.150-1(b)).
c. In accordance with Section 147(b) of the Code,
the weighted average maturity of the Series 1999 Bonds does not
exceed 120% of the weighted average reasonably expected economic
life of the property financed or refinanced by the Series 1999
Bonds.
d. None of the proceeds of the Series 1999 Bonds
will be used to provide any airplane, skybox or other private
luxury box, or health club facility; any facility primarily used
for gambling; any store the principal business of which is the sale
of alcoholic beverages for consumption off premises; any hotels or
other lodging facilities; any retail facilities (including food and
beverage facilities) in excess of the size necessary to serve
passengers (and persons who meet or accompany them) and employees
at the Airport; any retail facility including, but not limited to,
rental car lots (other than parking for the general public that is
no more than a size necessary to serve passengers and employees at
the Airport) for passengers or the general public located outside
the Airport terminals; office buildings for individuals who are not
employees of a governmental unit or of City; industrial parks or
manufacturing facilities or; any office space that is not located
on the premises of the Airport, or in which more than a de minimis
amount of the functions to be performed will not be directly
related to the day-to-day operations at the Airport.
e. Except for land acquired by City in connection
with an airport for noise abatement or wetland preservation or for
future use as an airport and as to which there is not other
significant use of such land, less than 25% of the net proceeds of
the Series 1999 Bonds will be used directly or indirectly to
acquire land or any interest therein, and none of such land is
being or will be used for farming purposes; no portion of the net
proceeds of the Series 1999 Bonds will be used to acquire existing
property or any interest therein unless the first use of such
property or interest therein is pursuant to such acquisition or the
rehabilitation requirements of Section 147(d)(3) of the Code are
satisfied with respect to such property.
f. The Series 1999 Bonds are not "federally
guaranteed" within the meaning of Section 149(b) of the Code.
g. At no time will any funds constituting gross
proceeds (within the meaning of Section 148 of the Code) of the
Series 1999 Bonds be used in a manner as would constitute failure
of compliance with Section 148 of the Code. Airline shall restrict
the use of Bond proceeds in such manner and to such extent
necessary to assure that the Series 1999 Bonds will not constitute
arbitrage bonds under Section 148 of the Code.
h. The Series 1999 Bonds are not "pooled financing
bonds" or "hedge bonds" within the meaning of Section 149(f) and
(g) of the Code, respectively.
i. Airline will comply fully with its
representations, warranties and covenants set forth in this
Supplemental Agreement.
Section 10. Indemnification - Bond Matters. (a)
Airline agrees to indemnify and hold harmless City, its officers
and employees and the members of the Council of City from any
claims, liabilities, costs and expenses incurred on account of (i)
the authorization, issuance, sale, redemption or servicing of the
Bonds or the provision by Airline of any information or
certification furnished in connection therewith (including, without
limitation, any information furnished by Airline for and included
in, or used as a basis for preparation of, any certifications,
information statements or reports made or furnished by City or
Airline to assure the exclusion of the interest on the Bonds from
gross income for federal income tax purposes), or (ii) Airline's
failure to comply with any requirement of this Agreement or the
Code pertaining to the exclusion of the interest on the Bonds from
gross income for federal income tax purposes. Nothing set forth in
the preceding sentence shall be construed to affect the rights
and/or obligations of Airline or City under the Agreement.
(b) Airline agrees to indemnify the Trustee under the
Indenture with respect to the Bonds for, and to hold it harmless
against, all liabilities, claims, costs and expenses (including
reasonable attorney's fees and expenses) incurred without
negligence or willful misconduct on the part of the Trustee on
account of any action taken or omitted to be taken by the Trustee
in accordance with the terms of the Agreement, the Bonds or the
Indenture, or any action taken at the request of or with the
consent of Airline, including the costs and expenses of the Trustee
in defending itself against any such claim, action or proceeding
brought in connection with the exercise or performance of any of
its powers or duties under the Agreement, the Bonds or the
Indenture.
Section 11. Continuing Disclosure. Airline has
entered into a continuing disclosure agreement with the Trustee
with respect to the Series 1999 Bonds with respect to the
continuing disclosure required by Rule 15c2-12 promulgated by the
SEC under the Securities and Exchange Act of 1934, as amended, 14
C.F.R. Paragraph 240.15c2-12. Airline shall comply with and carry
out all of its continuing disclosure obligations under such
agreement. However, any failure by Airline to comply with any
requirements under such agreement shall not give rise to or
constitute an Event of Default hereunder.
Section 12. Effective Date. This Supplemental
Agreement shall become effective upon the issuance and delivery of
the Series 1999 Bonds in accordance with the Indenture and the
defeasance of the Series 1990 Bonds in accordance with the Series
1990 Indenture. If the Series 1999 Bonds are not so delivered or
the Series 1990 Bonds are not so defeased, this Supplemental
Agreement shall be null and void and of no force or effect.
Section 13. No Personal Liability. No elected
official, director, officer, agent or employee of either party
shall be charged personally or held contractually liable by or to
the other party under any term or provision of this Supplemental
Agreement or because of any breach thereof or because of its or
their execution or attempted execution.
Section 14. Approval of Indenture. The Indenture has
been submitted to Airline for examination, and Airline
acknowledges, by execution of this Supplemental Agreement, that it
has approved the Indenture and the execution and delivery thereof.
Section 15. Interpretation of Agreement. This
Supplemental Agreement shall be deemed to have been made in, and be
construed in accordance with the laws of, the State of Ohio.
Section 16. Entire Agreement; Amendment. The
Agreement, as supplemented by this Supplemental Agreement,
constitutes the entire agreement between the parties hereto with
respect to the Continental Special Facilities and supersedes all
other representations or statements heretofore made, oral or
written, except as otherwise herein provided. This Supplemental
Agreement may be amended only in writing, and executed by duly
authorized representatives of the parties hereto in accordance with
the terms of the Indenture, provided that the description of the
Improvements set forth in the 1989 Special Facilities Lease may be
revised from time to time on the written request of Airline
approved in writing by the Director of Port Control on behalf of
City, provided that no such revision materially alters the
Continental Special Facilities as initially contemplated hereunder.
Section 17. Severability. In the event any covenant,
condition or provision herein contained is held to be invalid by a
court of competent jurisdiction, the invalidity of any such
covenant, condition or provision shall in no way affect any other
covenant, condition or provision herein contained, provided the
invalidity of any such covenant, condition or provision does not
materially prejudice either City, Trustee, Bondholders, or Airline
in their respective rights and obligations contained in the valid
covenants, conditions and provisions of this Agreement.
Section 18. Recording; Memorandum of Lease. Upon the
effective date of this Supplemental Agreement, this Supplemental
Agreement shall be recorded with the Recorder of Cuyahoga County
or, in the alternative, in the event that either party so requests,
the parties hereto shall execute, attest, acknowledge and deliver
for recording with the Recorder of Cuyahoga County a short form
Memorandum of Lease of this Supplemental Agreement, to be executed
pursuant hereto in the form and content prescribed by Section
5301.251 of the Ohio Revised Code.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused
these presents to be duly executed as of the day and year first
above written.
ATTEST as to those signing on CITY OF CLEVELAND
behalf of the City of Cleveland:
________________________________ By: ________________________
________________________________ Mayor
Printed Name
________________________________ By: ________________________
________________________________ Director of Finance
Printed Name
By: ________________________
Acting Director of
Port Control
The within instrument is hereby
approved as to form and correctness
_____________, 1998
Director of Law
By _____________________________
Assistant Director of Law
ATTEST as to those signing on CONTINENTAL AIRLINES, INC.
behalf of Continental Airlines, Inc.:
________________________________ By:____________________________
________________________________ Title: ________________________
Printed Name
________________________________
________________________________
Printed Name
<PAGE>
STATE OF OHIO )
) SS:
COUNTY OF CUYAHOGA )
Before me, a Notary Public in and for said County,
personally appeared Michael R. White, known to me to be the person
who, as Mayor of the City of Cleveland, executed the above and
foregoing Agreement and acknowledged that, being duly authorized by
Ordinance of the Council of the City of Cleveland, he signed said
Agreement for and on behalf of the said City as its free and
voluntary act, and as his own free and voluntary act.
IN WITNESS WHEREOF, I have hereunto set my hand and notarial
seal this _______ day of __________________, 1998.
___________________________________
Notary Public
My commission expires:
<PAGE>
STATE OF OHIO )
) SS:
COUNTY OF CUYAHOGA )
Before me, a Notary Public in and for said County,
personally appeared Martin Carmody, known to me to be the person
who, as Director of Finance of the City of Cleveland, executed the
above and foregoing Agreement and acknowledged that, being duly
authorized by Ordinance of the Council of the City of Cleveland, he
signed said Agreement for and on behalf of the said City as its
free and voluntary act, and as his own free and voluntary act.
IN WITNESS WHEREOF, I have hereunto set my hand and notarial
seal this _______ day of __________________, 1998.
______________________________________
Notary Public
My commission expires:
<PAGE>
STATE OF OHIO )
) SS:
COUNTY OF CUYAHOGA )
Before me, a Notary Public in and for said County,
personally appeared LaVonne Sheffield-McLain, known to me to be the
person who, as the Acting Director of Port Control of the City of
Cleveland, executed the above and foregoing Agreement and
acknowledged that, being duly authorized by Ordinance of the
Council of the City of Cleveland, she signed said Agreement for and
on behalf of the said City as its free and voluntary act, and as
her own free and voluntary act.
IN WITNESS WHEREOF, I have hereunto set my hand and notarial
seal this _______ day of __________________, 1998.
_____________________________________
Notary Public
My commission expires:
<PAGE>
STATE OF _________ )
) SS:
COUNTY OF ________ )
Before me, a Notary Public in and for said County,
personally appeared Holden Shannon, known to me to be the person
who, as Vice President, Corporate Real Estate, of Continental
Airlines, Inc., executed the above and foregoing Agreement and
Lease and acknowledged that, being duly authorized by Resolution of
the Board of Directors of said Corporation, he signed said
Agreement for and on behalf of the said Corporation as its free and
voluntary act and as his own free and voluntary act.
IN WITNESS WHEREOF, I have hereunto set my hand and notarial
seal this ______ day of ________________________, 1998.
_____________________________________
Notary Public
My commission expires:
EXHIBIT 10.2
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (this "Amendment") is
made by and between Continental Airlines, Inc., a Delaware
corporation ("Company"), and Gordon M. Bethune ("Executive").
Recitals:
WHEREAS, Company and Executive are parties to that certain
Amended and Restated Employment Agreement dated as of November 20,
1998, as amended by Amendment to Employment Agreement dated as of
May 19, 1999 (as so amended, the "Existing Agreement"); and
WHEREAS, the Human Resources Committee of the Board of
Directors, at its September 16, 1999 meeting, authorized the
amendment of the employment agreements of certain officers of the
Company, including Executive, as set forth herein; and
WHEREAS, Company and Executive desire to amend the Existing
Agreement as hereinafter set forth;
NOW THEREFORE, in consideration of the premises, the mutual
agreements herein contained and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Paragraph 3.5 of the Existing Agreement ("Supplemental
Executive Retirement Plan") is hereby amended to read in its
entirety as follows:
"3.5 Supplemental Executive Retirement Plan.
(i) Base Benefit. Company agrees to pay Executive
the deferred compensation benefits set forth in this paragraph
3.5 as a supplemental retirement plan (the "Plan"). The base
retirement benefit under the Plan (the "Base Benefit") shall
be in the form of an annual straight life annuity in an amount
equal to the product of (a) 2.5% times (b) the number of
Executive's credited years of service (as defined below) under
the Plan (but not in excess of 30 years) times (c) the
Executive's final average compensation (as defined below).
For purposes hereof, Executive's credited years of service
under the Plan shall be equal to the sum of (1) the number of
Executive's years of benefit service with Company, calculated
as set forth in the Continental Retirement Plan (the "CARP")
beginning at January 1, 1995 ("Actual Years of Service"), (2)
an additional four years of service for each one year of
service credited to Executive pursuant to clause (1) of this
sentence for the period beginning on January 1, 2000 and
ending on December 31, 2004, and (3) three additional years of
service if Executive is paid the Termination Payment under
this Agreement. For purposes hereof, Executive's final
average compensation shall be equal to the greater of (A)
$850,000.00 or (B) the average of the five highest annual cash
compensation amounts (or, if Executive has been employed less
than five years by Company, the average over the full years
employed by Company) paid to Executive by Company during the
consecutive ten calendar years immediately preceding
Executive's termination of employment at retirement or
otherwise. For purposes hereof, cash compensation shall
include base salary plus cash bonuses (including any amounts
deferred (other than Stay Bonus amounts described below)
pursuant to any deferred compensation plan of the Company),
but shall exclude (i) any cash bonus paid on or prior to March
31, 1995, (ii) any Stay Bonus paid to Executive pursuant to
that certain Stay Bonus Agreement between Company and
Executive dated as of April 14, 1998, and (iii) any cash bonus
paid under a long term incentive plan or program adopted by
Company. Executive shall be vested immediately with respect
to benefits due under the Plan.
(ii) Offset for CARP Benefit. Any provisions of the
Plan to the contrary notwithstanding, the Base Benefit shall
be reduced by the actuarial equivalent (as defined below) of
the pension benefit, if any, paid or payable to Executive from
the CARP. In making such reduction, the Base Benefit and the
benefit paid or payable under the CARP shall be determined
under the provisions of each plan as if payable in the form of
an annual straight life annuity beginning on the Retirement
Date (as defined below). The net benefit payable under this
Plan shall then be actuarially adjusted based on the actuarial
assumptions set forth in paragraph 3.5(vii) for the actual
time and form of payments.
(iii) Normal and Early Retirement Benefits.
Executive's benefit under the Plan shall be payable in equal
monthly installments beginning on the first day of the month
following the Retirement Date (the "Normal Retirement
Benefit"). For purposes hereof, "Retirement Date" is defined
as the later of (a) the date on which Executive attains (or in
the event of Executive's earlier death, would have attained)
age 60 or (b) the date of Executive's retirement from
employment with Company. Notwithstanding the foregoing, if
Executive's employment with Company is terminated, for a
reason other than death, on or after the date Executive
attains age 55 or is credited with 10 Actual Years of Service
and prior to the Retirement Date, then Executive shall be
entitled to elect to commence to receive Executive's benefit
under the Plan as of the first day of any month coinciding
with or next following Executive's termination of employment,
or as the first day of any subsequent month preceding the
Retirement Date (an "Early Retirement Benefit"); provided,
however, that (1) written notice of such election must be
received by Company not less than 15 days prior to the
proposed date of commencement of the benefit, (2) each payment
under an Early Retirement Benefit shall be reduced to the
extent necessary to cause the value of such Early Retirement
Benefit (determined without regard to clause (3) of this
proviso) to be the actuarial equivalent of the value of the
Normal Retirement Benefit (in each case based on the actuarial
assumptions set forth in paragraph 3.5(vii) and adjusted for
the actual time and form of payments), and (3) each payment
under an Early Retirement Benefit that is made prior to the
Retirement Date shall be reduced by an additional 10% of the
amount of such payment as initially determined pursuant to
clause (2) of this proviso. The HR Committee may, in its sole
and absolute discretion, waive all or any part of the
reductions contemplated in clauses (2) and/or (3) of the
proviso of the preceding sentence.
(iv) Form of Retirement Benefit. If Executive is
not married on the date Executive's benefit under paragraph
3.5(iii) commences, then benefits under the Plan will be paid
to Executive in the form of a single life annuity for the life
of Executive. If Executive is married on the date Executive's
benefit under paragraph 3.5(iii) commences, then benefits
under the Plan will be paid in the form of a joint and
survivor annuity that is actuarially equivalent to the benefit
that would have been payable under the Plan to Executive if
Executive was not married on such date, with Executive's
spouse as of the date benefit payments commence being entitled
during such spouse's lifetime after Executive's death to a
benefit equal to 50% of the benefit payable to Executive
during their joint lifetimes.
(v) Death Benefit. Except as provided in this
paragraph 3.5(v), no benefits shall be paid under the Plan if
Executive dies prior to the date Executive's benefit commences
pursuant to paragraph 3.5(iii). In the event of Executive's
death prior to the commencement of Executive's benefit
pursuant to paragraph 3.5(iii), Executive's surviving spouse,
if Executive is married on the date of Executive's death, will
receive a single life annuity consisting of monthly payments
for the life of such surviving spouse determined as follows:
(a) if Executive dies on or before reaching the Retirement
Date, the death benefit such spouse would have received had
Executive terminated employment on the earlier of Executive's
actual date of termination of employment or Executive's date
of death, survived until the Retirement Date, began to receive
Executive's Plan benefit beginning immediately at the
Retirement Date, and died on the day after the Retirement
Date; or (b) if Executive dies after reaching the Retirement
Date, the death benefit such spouse would have received had
Executive begun to receive Executive's Plan benefit beginning
on the day prior to Executive's death. Payment of such
survivor annuity shall begin on the first day of the month
following the later of (1) Executive's date of death or (2)
the Retirement Date; provided, however, that if Executive was
eligible to elect an Early Retirement Benefit as of the date
of Executive's death, then Executive's surviving spouse shall
be entitled to elect to commence to receive such survivor
annuity as of the first day of the month next following the
date of Executive's death, or as the first day of any
subsequent month preceding the Retirement Date. Notice of
such election must be received by Company not less than 15
days prior to the proposed date of commencement of the
benefit, and each payment of such survivor annuity shall be
reduced based on the principles used for the reductions
described in clauses (2) and (3) of the proviso to the third
sentence of paragraph 3.5(iii).
(vi) Unfunded Benefit. The Plan is intended to
constitute an unfunded, unsecured plan of deferred
compensation. Further, it is the intention of Company that
the Plan be unfunded for purposes of the Internal Revenue Code
of 1986, as amended, and Title I of the Employee Retirement
Income Security Act of 1974, as amended. The Plan constitutes
a mere promise by Company to make benefit payments in the
future. Plan benefits hereunder provided are to be paid out
of Company's general assets, and Executive shall have the
status of, and shall have no better status than, a general
unsecured creditor of Company. Executive understands that he
must rely upon the general credit of Company for payment of
benefits under the Plan. Company shall establish a "rabbi"
trust to assist Company in meeting its obligations under the
Plan. The trustee of such trust shall be a nationally-
recognized and solvent bank or trust company that is not
affiliated with Company. Company shall transfer to the
trustee money and/or other property determined in the sole
discretion of the HR Committee based on the advice of the
Actuary (as defined below) on an as-needed basis in order to
assure that the benefit payable under the Plan is at all times
fully funded. The trustee shall pay Plan benefits to
Executive and/or Executive's spouse out of the trust assets if
such benefits are not paid by Company. Company shall remain
the owner of all assets in the trust, and the assets shall be
subject to the claims of Company creditors in the event (and
only in the event) Company ever becomes insolvent. Neither
Executive nor any beneficiary of Executive shall have any
preferred claim to, any security interest in, or any
beneficial ownership interest in any assets of the trust.
Company has not and will not in the future set aside assets
for security or enter into any other arrangement which will
cause the obligation created to be other than a general
corporate obligation of Company or will cause Executive to be
more than a general creditor of Company.
(vii) Actuarial Equivalent. For purposes of the
Plan, the terms "actuarial equivalent", or "actuarially
equivalent" when used with respect to a specified benefit
shall mean the amount of benefit of the referenced different
type or payable at the referenced different age that can be
provided at the same cost as such specified benefit, as
computed by the Actuary and certified to Executive (or, in the
case of Executive's death, to his spouse) by the Actuary. The
actuarial assumptions used under the Plan to determine
equivalencies between different forms and times of payment
shall be the same as the actuarial assumptions then used in
determining benefits payable under the CARP. The term
"Actuary" shall mean the individual actuary or actuarial firm
selected by Company to service its pension plans generally or
if no such individual or firm has been selected, an individual
actuary or actuarial firm appointed by Company and reasonably
satisfactory to Executive and/or Executive's spouse.
(viii) Medicare Payroll Taxes. Company shall
indemnify Executive on a fully grossed-up, after-tax basis for
any Medicare payroll taxes (plus any income taxes on such
indemnity payments) incurred by Executive in connection with
the accrual and/or payment of benefits under the Plan."
2. The Existing Agreement, as amended by this Amendment, is
hereby ratified and confirmed and shall continue in full force
and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the 16th day of September, 1999.
CONTINENTAL AIRLINES, INC.
By: ____________________________
Name:
Title:
EXECUTIVE
_________________________________
Gordon M. Bethune
EXHIBIT 10.3
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (this "Amendment") is
made by and between Continental Airlines, Inc., a Delaware
corporation ("Company"), and Gregory D. Brenneman ("Executive").
Recitals:
WHEREAS, Company and Executive are parties to that certain
Amended and Restated Employment Agreement dated as of November 20,
1998, as amended by Amendment to Employment Agreement dated as of
May 19, 1999 (as so amended, the "Existing Agreement"); and
WHEREAS, the Human Resources Committee of the Board of
Directors, at its September 16, 1999 meeting, authorized the
amendment of the employment agreements of certain officers of the
Company, including Executive, as set forth herein; and
WHEREAS, Company and Executive desire to amend the Existing
Agreement as hereinafter set forth;
NOW THEREFORE, in consideration of the premises, the mutual
agreements herein contained and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Paragraph 3.5 of the Existing Agreement ("Supplemental
Executive Retirement Plan") is hereby amended to read in its
entirety as follows:
"3.5 Supplemental Executive Retirement Plan.
(i) Base Benefit. Company agrees to pay Executive
the deferred compensation benefits set forth in this paragraph
3.5 as a supplemental retirement plan (the "Plan"). The base
retirement benefit under the Plan (the "Base Benefit") shall
be in the form of an annual straight life annuity in an amount
equal to the product of (a) 2.5% times (b) the number of
Executive's credited years of service (as defined below) under
the Plan (but not in excess of 30 years) times (c) the
Executive's final average compensation (as defined below).
For purposes hereof, Executive's credited years of service
under the Plan shall be equal to the sum of (1) the number of
Executive's years of benefit service with Company, calculated
as set forth in the Continental Retirement Plan (the "CARP")
beginning at January 1, 1995 ("Actual Years of Service"), (2)
an additional three years of service for each one year of
service credited to Executive pursuant to clause (1) of this
sentence for the period beginning on January 1, 2000 and
ending on December 31, 2004, and (3) three additional years of
service if Executive is paid the Termination Payment under
this Agreement. For purposes hereof, Executive's final
average compensation shall be equal to the greater of (A)
$650,000.00 or (B) the average of the five highest annual cash
compensation amounts (or, if Executive has been employed less
than five years by Company, the average over the full years
employed by Company) paid to Executive by Company during the
consecutive ten calendar years immediately preceding
Executive's termination of employment at retirement or
otherwise. For purposes hereof, cash compensation shall
include base salary plus cash bonuses (including any amounts
deferred (other than Stay Bonus amounts described below)
pursuant to any deferred compensation plan of the Company),
but shall exclude (i) any cash bonus paid on or prior to March
31, 1995, (ii) any Stay Bonus paid to Executive pursuant to
that certain Stay Bonus Agreement between Company and
Executive dated as of April 14, 1998, and (iii) any cash bonus
paid under a long term incentive plan or program adopted by
Company. Executive shall be vested immediately with respect
to benefits due under the Plan.
(ii) Offset for CARP Benefit. Any provisions of the
Plan to the contrary notwithstanding, the Base Benefit shall
be reduced by the actuarial equivalent (as defined below) of
the pension benefit, if any, paid or payable to Executive from
the CARP. In making such reduction, the Base Benefit and the
benefit paid or payable under the CARP shall be determined
under the provisions of each plan as if payable in the form of
an annual straight life annuity beginning on the Retirement
Date (as defined below). The net benefit payable under this
Plan shall then be actuarially adjusted based on the actuarial
assumptions set forth in paragraph 3.5(vii) for the actual
time and form of payments.
(iii) Normal and Early Retirement Benefits.
Executive's benefit under the Plan shall be payable in equal
monthly installments beginning on the first day of the month
following the Retirement Date (the "Normal Retirement
Benefit"). For purposes hereof, "Retirement Date" is defined
as the later of (a) the date on which Executive attains (or in
the event of Executive's earlier death, would have attained)
age 60 or (b) the date of Executive's retirement from
employment with Company. Notwithstanding the foregoing, if
Executive's employment with Company is terminated, for a
reason other than death, on or after the date Executive
attains age 55 or is credited with 10 Actual Years of Service
and prior to the Retirement Date, then Executive shall be
entitled to elect to commence to receive Executive's benefit
under the Plan as of the first day of any month coinciding
with or next following Executive's termination of employment,
or as the first day of any subsequent month preceding the
Retirement Date (an "Early Retirement Benefit"); provided,
however, that (1) written notice of such election must be
received by Company not less than 15 days prior to the
proposed date of commencement of the benefit, (2) each payment
under an Early Retirement Benefit shall be reduced to the
extent necessary to cause the value of such Early Retirement
Benefit (determined without regard to clause (3) of this
proviso) to be the actuarial equivalent of the value of the
Normal Retirement Benefit (in each case based on the actuarial
assumptions set forth in paragraph 3.5(vii) and adjusted for
the actual time and form of payments), and (3) each payment
under an Early Retirement Benefit that is made prior to the
Retirement Date shall be reduced by an additional 10% of the
amount of such payment as initially determined pursuant to
clause (2) of this proviso. The HR Committee may, in its sole
and absolute discretion, waive all or any part of the
reductions contemplated in clauses (2) and/or (3) of the
proviso of the preceding sentence.
(iv) Form of Retirement Benefit. If Executive is
not married on the date Executive's benefit under paragraph
3.5(iii) commences, then benefits under the Plan will be paid
to Executive in the form of a single life annuity for the life
of Executive. If Executive is married on the date Executive's
benefit under paragraph 3.5(iii) commences, then benefits
under the Plan will be paid in the form of a joint and
survivor annuity that is actuarially equivalent to the benefit
that would have been payable under the Plan to Executive if
Executive was not married on such date, with Executive's
spouse as of the date benefit payments commence being entitled
during such spouse's lifetime after Executive's death to a
benefit equal to 50% of the benefit payable to Executive
during their joint lifetimes.
(v) Death Benefit. Except as provided in this
paragraph 3.5(v), no benefits shall be paid under the Plan if
Executive dies prior to the date Executive's benefit commences
pursuant to paragraph 3.5(iii). In the event of Executive's
death prior to the commencement of Executive's benefit
pursuant to paragraph 3.5(iii), Executive's surviving spouse,
if Executive is married on the date of Executive's death, will
receive a single life annuity consisting of monthly payments
for the life of such surviving spouse determined as follows:
(a) if Executive dies on or before reaching the Retirement
Date, the death benefit such spouse would have received had
Executive terminated employment on the earlier of Executive's
actual date of termination of employment or Executive's date
of death, survived until the Retirement Date, began to receive
Executive's Plan benefit beginning immediately at the
Retirement Date, and died on the day after the Retirement
Date; or (b) if Executive dies after reaching the Retirement
Date, the death benefit such spouse would have received had
Executive begun to receive Executive's Plan benefit beginning
on the day prior to Executive's death. Payment of such
survivor annuity shall begin on the first day of the month
following the later of (1) Executive's date of death or (2)
the Retirement Date; provided, however, that if Executive was
eligible to elect an Early Retirement Benefit as of the date
of Executive's death, then Executive's surviving spouse shall
be entitled to elect to commence to receive such survivor
annuity as of the first day of the month next following the
date of Executive's death, or as the first day of any
subsequent month preceding the Retirement Date. Notice of
such election must be received by Company not less than 15
days prior to the proposed date of commencement of the
benefit, and each payment of such survivor annuity shall be
reduced based on the principles used for the reductions
described in clauses (2) and (3) of the proviso to the third
sentence of paragraph 3.5(iii).
(vi) Unfunded Benefit. The Plan is intended to
constitute an unfunded, unsecured plan of deferred
compensation. Further, it is the intention of Company that
the Plan be unfunded for purposes of the Internal Revenue Code
of 1986, as amended, and Title I of the Employee Retirement
Income Security Act of 1974, as amended. The Plan constitutes
a mere promise by Company to make benefit payments in the
future. Plan benefits hereunder provided are to be paid out
of Company's general assets, and Executive shall have the
status of, and shall have no better status than, a general
unsecured creditor of Company. Executive understands that he
must rely upon the general credit of Company for payment of
benefits under the Plan. Company shall establish a "rabbi"
trust to assist Company in meeting its obligations under the
Plan. The trustee of such trust shall be a nationally-
recognized and solvent bank or trust company that is not
affiliated with Company. Company shall transfer to the
trustee money and/or other property determined in the sole
discretion of the HR Committee based on the advice of the
Actuary (as defined below) on an as-needed basis in order to
assure that the benefit payable under the Plan is at all times
fully funded. The trustee shall pay Plan benefits to
Executive and/or Executive's spouse out of the trust assets if
such benefits are not paid by Company. Company shall remain
the owner of all assets in the trust, and the assets shall be
subject to the claims of Company creditors in the event (and
only in the event) Company ever becomes insolvent. Neither
Executive nor any beneficiary of Executive shall have any
preferred claim to, any security interest in, or any
beneficial ownership interest in any assets of the trust.
Company has not and will not in the future set aside assets
for security or enter into any other arrangement which will
cause the obligation created to be other than a general
corporate obligation of Company or will cause Executive to be
more than a general creditor of Company.
(vii) Actuarial Equivalent. For purposes of the
Plan, the terms "actuarial equivalent", or "actuarially
equivalent" when used with respect to a specified benefit
shall mean the amount of benefit of the referenced different
type or payable at the referenced different age that can be
provided at the same cost as such specified benefit, as
computed by the Actuary and certified to Executive (or, in the
case of Executive's death, to his spouse) by the Actuary. The
actuarial assumptions used under the Plan to determine
equivalencies between different forms and times of payment
shall be the same as the actuarial assumptions then used in
determining benefits payable under the CARP. The term
"Actuary" shall mean the individual actuary or actuarial firm
selected by Company to service its pension plans generally or
if no such individual or firm has been selected, an individual
actuary or actuarial firm appointed by Company and reasonably
satisfactory to Executive and/or Executive's spouse.
(viii) Medicare Payroll Taxes. Company shall
indemnify Executive on a fully grossed-up, after-tax basis for
any Medicare payroll taxes (plus any income taxes on such
indemnity payments) incurred by Executive in connection with
the accrual and/or payment of benefits under the Plan."
2. The Existing Agreement, as amended by this Amendment, is
hereby ratified and confirmed and shall continue in full force
and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the 16th day of September, 1999.
CONTINENTAL AIRLINES, INC.
By: ____________________________
Name:
Title:
EXECUTIVE
_________________________________
Gregory D. Brenneman
EXHIBIT 10.4
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT ("Agreement")
is made by and between CONTINENTAL AIRLINES, INC., a Delaware
corporation ("Company"), and Lawrence W. Kellner ("Executive").
W I T N E S S E T H:
WHEREAS, Company and Executive are parties to that certain
Amended and Restated Employment Agreement dated as of November 15,
1995, as amended by Amendment to Employment Agreement dated as of
April 19, 1996, Amendment to Employment Agreement dated as of
September 30, 1996, Amendment to Employment Agreement dated as of
November 20, 1998, and Amendment to Employment Agreement dated as
of May 19, 1999 (as so amended, the "Existing Agreement"); and
WHEREAS, the Human Resources Committee of the Board of
Directors, at its September 16, 1999 meeting, authorized the
amendment of the employment agreements of certain officers of the
Company, including Executive, with respect to certain matters,
including the amendment and restatement of Executive's Existing
Agreement; and
WHEREAS, in connection therewith, the parties desire to amend
the Existing Agreement and restate it, as so amended, in its
entirety as this Agreement;
NOW, THEREFORE, for and in consideration of the mutual
promises, covenants and obligations contained herein, Company and
Executive agree as follows:
ARTICLE 1: EMPLOYMENT AND DUTIES
1.1 Employment; Effective Date. Company agrees to employ
Executive and Executive agrees to be employed by Company, beginning
as of the Effective Date (as hereinafter defined) and continuing
for the period of time set forth in Article 2 of this Agreement,
subject to the terms and conditions of this Agreement. For
purposes of this Agreement, the "Effective Date" shall be September
16, 1999.
1.2 Position. Company shall employ Executive in the
position of Executive Vice President and Chief Financial Officer,
or in such other position or positions as the parties mutually may
agree.
1.3 Duties and Services. Executive agrees to serve in the
position referred to in paragraph 1.2 and to perform diligently and
to the best of his abilities the duties and services appertaining
to such office as set forth in the Bylaws of Company in effect on
the Effective Date, as well as such additional duties and services
appropriate to such office which the parties mutually may agree
upon from time to time.
ARTICLE 2: TERM AND TERMINATION OF EMPLOYMENT
2.1 Term. Unless sooner terminated pursuant to other
provisions hereof, Company agrees to employ Executive through the
date which is two years and a day after the date of closing of the
acquisition by an affiliate of Northwest Airlines Corporation of
beneficial ownership of the Class A common stock held by Air
Partners, L.P. (the "Acquisition") contemplated by the Investment
Agreement dated as of January 25, 1998, as amended, among Air
Partners, L.P., its partners and certain affiliates and Northwest
Airlines Corporation and its affiliate (the "Investment
Agreement").
2.2 Company's Right to Terminate. Notwithstanding the
provisions of paragraph 2.1, Company, acting pursuant to an express
resolution of the Board of Directors of Company (the "Board of
Directors") or the Human Resources Committee of the Board of
Directors (the "HR Committee"), shall have the right to terminate
Executive's employment under this Agreement at any time for any of
the following reasons:
(i) upon Executive's death;
(ii) upon Executive's becoming incapacitated for a
period of at least 180 days by accident, sickness or other
circumstance which renders him mentally or physically
incapable of performing the material duties and services
required of him hereunder on a full-time basis during such
period;
(iii) for cause, which for purposes of this Agreement
shall mean Executive's gross negligence or willful misconduct
in the performance of, or Executive's abuse of alcohol or
drugs rendering him unable to perform, the material duties
and services required of him pursuant to this Agreement;
(iv) for Executive's material breach of any
provision of this Agreement which, if correctable, remains
uncorrected for 30 days following written notice to Executive
by Company of such breach; or
(v) for any other reason whatsoever, in the sole
discretion of the Board of Directors or the Human Resources
Committee.
2.3 Executive's Right to Terminate. Notwithstanding the
provisions of paragraph 2.1, Executive shall have the right to
terminate his employment under this Agreement at any time for any
of the following reasons:
(i) the assignment to Executive by the Board of
Directors or HR Committee or other officers or representatives
of Company of duties materially inconsistent with the duties
associated with the position described in paragraph 1.2 as
such duties are constituted as of the Effective Date;
(ii) a material diminution in the nature or scope of
Executive's authority, responsibilities, or title from those
applicable to him as of the Effective Date;
(iii) the occurrence of material acts or conduct on
the part of Company or its officers or representatives which
prevent Executive from performing his duties and
responsibilities pursuant to this Agreement;
(iv) Company requiring Executive to be permanently
based anywhere outside a major urban center in Texas;
(v) the taking of any action by Company that would
materially adversely affect the corporate amenities enjoyed
by Executive on the Effective Date;
(vi) a material breach by Company of any provision
of this Agreement which, if correctable, remains uncorrected
for 30 days following written notice of such breach by
Executive to Company; or
(vii) for any other reason whatsoever, in the sole
discretion of Executive.
2.4 Notice of Termination. If Company or Executive desires
to terminate Executive's employment hereunder at any time prior to
expiration of the term of employment as provided in paragraph 2.1,
it or he shall do so by giving written notice to the other party
that it or he has elected to terminate Executive's employment
hereunder and stating the effective date and reason for such
termination, provided that no such action shall alter or amend any
other provisions hereof or rights arising hereunder.
ARTICLE 3: COMPENSATION AND BENEFITS
3.1 Base Salary. During the period of this Agreement,
Executive shall receive a minimum annual base salary equal to the
greater of (i) $470,000.00 or (ii) such amount as the parties
mutually may agree upon from time to time. Executive's annual base
salary shall be paid in equal installments in accordance with
Company's standard policy regarding payment of compensation to
executives but no less frequently than semimonthly.
3.2 Bonus Programs. Executive shall participate in each
cash bonus program maintained by Company on and after the Effective
Date at a level which is not less than the maximum participation
level made available to any other executive of Company at
substantially the same title or level of Executive (determined
without regard to period of service or other criteria that might
otherwise be necessary to entitle Executive to such level of
participation).
<PAGE>
3.3 Vacation and Sick Leave. During each year of his
employment, Executive shall be entitled to vacation and sick leave
benefits equal to the maximum available to any Company executive,
determined without regard to the period of service that might
otherwise be necessary to entitle Executive to such vacation or
sick leave under standard Company policy.
3.4 Other Perquisites. During his employment hereunder,
Executive shall be afforded the following benefits as incidences of
his employment:
(i) Business and Entertainment Expenses - Subject
to Company's standard policies and procedures with respect to
expense reimbursement as applied to its executive employees
generally, Company shall reimburse Executive for, or pay on
behalf of Executive, reasonable and appropriate expenses
incurred by Executive for business related purposes, including
dues and fees to industry and professional organizations,
costs of entertainment and business development, and costs
reasonably incurred as a result of Executive's spouse
accompanying Executive on business travel.
(ii) Parking - Company shall provide at no expense
to Executive a parking place convenient to Executive's office
and a parking place at Intercontinental Airport in Houston,
Texas.
(iii) Other Company Benefits - Executive and, to the
extent applicable, Executive's family, dependents and
beneficiaries, shall be allowed to participate in all
benefits, plans and programs, including improvements or
modifications of the same, which are now, or may hereafter be,
available to similarly-situated Company employees. Such
benefits, plans and programs may include, without limitation,
profit sharing plan, thrift plan, annual physical
examinations, health insurance or health care plan, life
insurance, disability insurance, pension plan, pass privileges
on Continental Airlines, Flight Benefits and the like.
Company shall not, however, by reason of this paragraph be
obligated to institute, maintain, or refrain from changing,
amending or discontinuing, any such benefit plan or program,
so long as such changes are similarly applicable to executive
employees generally.
3.5 Supplemental Executive Retirement Plan.
(i) Base Benefit. Company agrees to pay Executive
the deferred compensation benefits set forth in this paragraph
3.5 as a supplemental retirement plan (the "Plan"). The base
retirement benefit under the Plan (the "Base Benefit") shall
be in the form of an annual straight life annuity in an amount
equal to the product of (a) 2.5% times (b) the number of
Executive's credited years of service (as defined below) under
the Plan (but not in excess of 26 years) times (c) the
Executive's final average compensation (as defined below).
For purposes hereof, Executive's credited years of service
under the Plan shall be equal to the sum of (1) the number of
Executive's years of benefit service with Company, calculated
as set forth in the Continental Retirement Plan (the "CARP")
beginning at January 1, 1995 ("Actual Years of Service"), (2)
an additional two years of service for each one year of
service credited to Executive pursuant to clause (1) of this
sentence for the period beginning on January 1, 2000 and
ending on December 31, 2004, and (3) three additional years
of service if Executive is paid the Termination Payment under
this Agreement. For purposes hereof, Executive's final
average compensation shall be equal to the greater of (A)
$470,000.00 or (B) the average of the five highest annual cash
compensation amounts (or, if Executive has been employed less
than five years by Company, the average over the full years
employed by Company) paid to Executive by Company during the
consecutive ten calendar years immediately preceding
Executive's termination of employment at retirement or
otherwise. For purposes hereof, cash compensation shall
include base salary plus cash bonuses (including any amounts
deferred (other than Stay Bonus amounts described below)
pursuant to any deferred compensation plan of the Company),
but shall exclude (i) any cash bonus paid on or prior to March
31, 1995, (ii) any Stay Bonus paid to Executive pursuant to
that certain Stay Bonus Agreement between Company and
Executive dated as of April 14, 1998, and (iii) any cash bonus
paid under a long term incentive plan or program adopted by
Company. Executive shall be vested immediately with respect
to benefits due under the Plan.
(ii) Offset for CARP Benefit. Any provisions of the
Plan to the contrary notwithstanding, the Base Benefit shall
be reduced by the actuarial equivalent (as defined below) of
the pension benefit, if any, paid or payable to Executive from
the CARP. In making such reduction, the Base Benefit and the
benefit paid or payable under the CARP shall be determined
under the provisions of each plan as if payable in the form
of an annual straight life annuity beginning on the Retirement
Date (as defined below). The net benefit payable under this
Plan shall then be actuarially adjusted based on the actuarial
assumptions set forth in paragraph 3.5(vii) for the actual
time and form of payments.
(iii) Normal and Early Retirement Benefits.
Executive's benefit under the Plan shall be payable in equal
monthly installments beginning on the first day of the month
following the Retirement Date (the "Normal Retirement
Benefit"). For purposes hereof, "Retirement Date" is defined
as the later of (a) the date on which Executive attains (or
in the event of Executive's earlier death, would have
attained) age 60 or (b) the date of Executive's retirement
from employment with Company. Notwithstanding the foregoing,
if Executive's employment with Company is terminated, for a
reason other than death, on or after the date Executive
attains age 55 or is credited with 10 Actual Years of Service
and prior to the Retirement Date, then Executive shall be
entitled to elect to commence to receive Executive's benefit
under the Plan as of the first day of any month coinciding
with or next following Executive's termination of employment,
or as the first day of any subsequent month preceding the
Retirement Date (an "Early Retirement Benefit"); provided,
however, that (1) written notice of such election must be
received by Company not less than 15 days prior to the
proposed date of commencement of the benefit, (2) each payment
under an Early Retirement Benefit shall be reduced to the
extent necessary to cause the value of such Early Retirement
Benefit (determined without regard to clause (3) of this
proviso) to be the actuarial equivalent of the value of the
Normal Retirement Benefit (in each case based on the actuarial
assumptions set forth in paragraph 3.5(vii) and adjusted for
the actual time and form of payments), and (3) each payment
under an Early Retirement Benefit that is made prior to the
Retirement Date shall be reduced by an additional 10% of the
amount of such payment as initially determined pursuant to
clause (2) of this proviso. The HR Committee may, in its sole
and absolute discretion, waive all or any part of the
reductions contemplated in clauses (2) and/or (3) of the
proviso of the preceding sentence.
(iv) Form of Retirement Benefit. If Executive is
not married on the date Executive's benefit under paragraph
3.5(iii) commences, then benefits under the Plan will be paid
to Executive in the form of a single life annuity for the life
of Executive. If Executive is married on the date Executive's
benefit under paragraph 3.5(iii) commences, then benefits
under the Plan will be paid in the form of a joint and
survivor annuity that is actuarially equivalent to the benefit
that would have been payable under the Plan to Executive if
Executive was not married on such date, with Executive's
spouse as of the date benefit payments commence being entitled
during such spouse's lifetime after Executive's death to a
benefit equal to 50% of the benefit payable to Executive
during their joint lifetimes.
(v) Death Benefit. Except as provided in this
paragraph 3.5(v), no benefits shall be paid under the Plan if
Executive dies prior to the date Executive's benefit commences
pursuant to paragraph 3.5(iii). In the event of Executive's
death prior to the commencement of Executive's benefit
pursuant to paragraph 3.5(iii), Executive's surviving spouse,
if Executive is married on the date of Executive's death, will
receive a single life annuity consisting of monthly payments
for the life of such surviving spouse determined as follows:
(a) if Executive dies on or before reaching the Retirement
Date, the death benefit such spouse would have received had
Executive terminated employment on the earlier of Executive's
actual date of termination of employment or Executive's date
of death, survived until the Retirement Date, began to receive
Executive's Plan benefit beginning immediately at the
Retirement Date, and died on the day after the Retirement
Date; or (b) if Executive dies after reaching the Retirement
Date, the death benefit such spouse would have received had
Executive begun to receive Executive's Plan benefit beginning
on the day prior to Executive's death. Payment of such
survivor annuity shall begin on the first day of the month
following the later of (1) Executive's date of death or (2)
the Retirement Date; provided, however, that if Executive was
eligible to elect an Early Retirement Benefit as of the date
of Executive's death, then Executive's surviving spouse shall
be entitled to elect to commence to receive such survivor
annuity as of the first day of the month next following the
date of Executive's death, or as the first day of any
subsequent month preceding the Retirement Date. Notice of
such election must be received by Company not less than 15
days prior to the proposed date of commencement of the
benefit, and each payment of such survivor annuity shall be
reduced based on the principles used for the reductions
described in clauses (2) and (3) of the proviso to the third
sentence of paragraph 3.5(iii).
(vi) Unfunded Benefit. The Plan is intended to
constitute an unfunded, unsecured plan of deferred
compensation. Further, it is the intention of Company that
the Plan be unfunded for purposes of the Internal Revenue Code
of 1986, as amended, and Title I of the Employee Retirement
Income Security Act of 1974, as amended. The Plan constitutes
a mere promise by Company to make benefit payments in the
future. Plan benefits hereunder provided are to be paid out
of Company's general assets, and Executive shall have the
status of, and shall have no better status than, a general
unsecured creditor of Company. Executive understands that he
must rely upon the general credit of Company for payment of
benefits under the Plan. Company shall establish a "rabbi"
trust to assist Company in meeting its obligations under the
Plan. The trustee of such trust shall be a nationally-
recognized and solvent bank or trust company that is not
affiliated with Company. Company shall transfer to the
trustee money and/or other property determined in the sole
discretion of the HR Committee based on the advice of the
Actuary (as defined below) on an as-needed basis in order to
assure that the benefit payable under the Plan is at all times
fully funded. The trustee shall pay Plan benefits to
Executive and/or Executive's spouse out of the trust assets
if such benefits are not paid by Company. Company shall
remain the owner of all assets in the trust, and the assets
shall be subject to the claims of Company creditors in the
event (and only in the event) Company ever becomes insolvent.
Neither Executive nor any beneficiary of Executive shall have
any preferred claim to, any security interest in, or any
beneficial ownership interest in any assets of the trust.
Company has not and will not in the future set aside assets
for security or enter into any other arrangement which will
cause the obligation created to be other than a general
corporate obligation of Company or will cause Executive to be
more than a general creditor of Company.
(vii) Actuarial Equivalent. For purposes of the
Plan, the terms "actuarial equivalent", or "actuarially
equivalent" when used with respect to a specified benefit
shall mean the amount of benefit of the referenced different
type or payable at the referenced different age that can be
provided at the same cost as such specified benefit, as
computed by the Actuary and certified to Executive (or, in the
case of Executive's death, to his spouse) by the Actuary. The
actuarial assumptions used under the Plan to determine
equivalencies between different forms and times of payment
shall be the same as the actuarial assumptions then used in
determining benefits payable under the CARP. The term
"Actuary" shall mean the individual actuary or actuarial firm
selected by Company to service its pension plans generally or
if no such individual or firm has been selected, an individual
actuary or actuarial firm appointed by Company and reasonably
satisfactory to Executive and/or Executive's spouse.
(viii) Medicare Payroll Taxes. Company shall
indemnify Executive on a fully grossed-up, after-tax basis for
any Medicare payroll taxes (plus any income taxes on such
indemnity payments) incurred by Executive in connection with
the accrual and/or payment of benefits under the Plan.
ARTICLE 4: EFFECT OF TERMINATION ON COMPENSATION
4.1 By Expiration. If Executive's employment hereunder
shall terminate upon expiration of the term provided in paragraph
2.1 hereof, then all compensation and all benefits to Executive
hereunder shall terminate contemporaneously with termination of his
employment; provided, however, that Executive shall be provided
with Flight Benefits for the remainder of Executive's lifetime, the
benefits described in paragraph 3.5 shall continue to be payable,
the benefits described in clauses (2) through (4) of paragraph
4.7(vi) shall be provided for the time periods specified therein
and Company shall cause all options and shares of restricted stock
awarded to Executive, including, without limitation, any such
awards under Company's 1998 Stock Incentive Plan (the "1998 Plan"),
and other Awards (as defined in the 1998 Plan) made to Executive
under the 1998 Plan, to vest immediately upon such termination and,
with respect to options, be exercisable in full for 30 days after
such termination.
4.2 By Company. If Executive's employment hereunder shall
be terminated by Company prior to expiration of the term provided
in paragraph 2.1 hereof then, upon such termination, regardless of
the reason therefor, all compensation and all benefits to Executive
hereunder shall terminate contemporaneously with the termination of
such employment, except the benefits described in paragraph 3.5
shall continue to be payable, and if such termination shall be for
any reason other than those encompassed by paragraphs 2.2(i), (ii),
(iii) or (iv), then Company shall (a) pay Executive on or before
the effective date of such termination a lump-sum, cash payment in
an amount equal to the Termination Payment (as such term is defined
in paragraph 4.7) and cause all options and shares of restricted
stock awarded to Executive, including, without limitation, any such
awards under Company's 1998 Plan, and other Awards (as defined in
the 1998 Plan) made to Executive under the 1998 Plan, to vest
immediately upon such termination and, with respect to options, be
exercisable in full for 30 days after such termination, (b) provide
Executive with Flight Benefits (as such term is defined in para-
graph 4.7) for the remainder of Executive's lifetime, (c) provide
Executive with Outplacement Services (as such term is defined in
paragraph 4.7), and (d) provide Executive and his eligible
dependents with Continuation Coverage (as such term is defined in
paragraph 4.7) for the Severance Period.
4.3 By Executive. If Executive's employment hereunder shall
be terminated by Executive prior to expiration of the term provided
in paragraph 2.1 hereof then, upon such termination, regardless of
the reason therefor, all compensation and benefits to Executive
hereunder shall terminate contemporaneously with the termination of
employment, except Executive shall be provided Flight Benefits (as
such term is defined in paragraph 4.7) for the remainder of
Executive's lifetime, the benefits described in paragraph 3.5 shall
continue to be payable, and if such termination shall be pursuant
to paragraphs 2.3(i), (ii), (iii), (iv), (v), or (vi), then Company
shall provide Executive with the payments and benefits described in
clauses (a), (c) and (d) of paragraph 4.2.
4.4 Certain Additional Payments by Company. Notwith-
standing anything to the contrary in this Agreement, if any
payment, distribution or provision of a benefit by Company to or
for the benefit of Executive, whether paid or payable, distributed
or distributable or provided or to be provided pursuant to the
terms of this Agreement or otherwise (a "Payment"), would be
subject to an excise or other special additional tax that would not
have been imposed absent such Payment (including, without
limitation, any excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended), or any interest or penalties
with respect to such excise or other additional tax (such excise or
other additional tax, together with any such interest or penalties,
are hereinafter collectively referred to as the "Excise Tax"),
Company shall pay to Executive an additional payment (a "Gross-up
Payment") in an amount such that after payment by Executive of all
taxes (including any interest or penalties imposed with respect to
such taxes), including any income taxes and Excise Taxes imposed on
any Gross-up Payment, Executive retains an amount of the Gross-up
Payment (taking into account any similar gross-up payments to
Executive under the Incentive Plan (as such term is defined in
paragraph 4.7)) equal to the Excise Tax imposed upon the Payments.
Company and Executive shall make an initial determination as to
whether a Gross-up Payment is required and the amount of any such
Gross-up Payment. Executive shall notify Company in writing of any
claim by the Internal Revenue Service which, if successful, would
require Company to make a Gross-up Payment (or a Gross-up Payment
in excess of that, if any, initially determined by Company and
Executive) within ten business days after the receipt of such
claim. Company shall notify Executive in writing at least ten
business days prior to the due date of any response required with
respect to such claim if it plans to contest the claim. If Company
decides to contest such claim, Executive shall cooperate fully with
Company in such action; provided, however, Company shall bear and
pay directly or indirectly all costs and expenses (including
additional interest and penalties) incurred in connection with such
action and shall indemnify and hold Executive harmless, on an
after-tax basis, for any Excise Tax or income tax, including
interest and penalties with respect thereto, imposed as a result of
Company's action. If, as a result of Company's action with respect
to a claim, Executive receives a refund of any amount paid by
Company with respect to such claim, Executive shall promptly pay
such refund to Company. If Company fails to timely notify
Executive whether it will contest such claim or Company determines
not to contest such claim, then Company shall immediately pay to
Executive the portion of such claim, if any, which it has not
previously paid to Executive.
4.5 Payment Obligations Absolute. Company's obligation to
pay Executive the amounts and to make the arrangements provided in
this Article 4 shall be absolute and unconditional and shall not be
affected by any circumstances, including, without limitation, any
set-off, counterclaim, recoupment, defense or other right which
Company (including its subsidiaries and affiliates) may have
against him or anyone else. All amounts payable by Company shall
be paid without notice or demand. Executive shall not be obligated
to seek other employment in mitigation of the amounts payable or
arrangements made under any provision of this Article 4, and,
except as provided in paragraph 4.7 with respect to Continuation
Coverage, the obtaining of any such other employment (or the
engagement in any endeavor as an independent contractor, sole
proprietor, partner, or joint venturer) shall in no event effect
any reduction of Company's obligations to make (or cause to be
made) the payments and arrangements required to be made under this
Article 4.
4.6 Liquidated Damages. In light of the difficulties in
estimating the damages upon termination of this Agreement, Company
and Executive hereby agree that the payments and benefits, if any,
to be received by Executive pursuant to this Article 4 shall be
received by Executive as liquidated damages. Payment of the
Termination Payment pursuant to paragraphs 4.2 or 4.3 shall be in
lieu of any severance benefit Executive may be entitled to under
any severance plan or policy maintained by Company.
4.7 Certain Definitions and Additional Terms. As used
herein, the following capitalized terms shall have the meanings
assigned below:
(i) "Annualized Compensation" shall mean an amount
equal to the sum of (1) Executive's annual base salary
pursuant to paragraph 3.1 in effect immediately prior to
Executive's termination of employment hereunder and (2) a
deemed annual bonus which shall be equal to the Bonus
Percentage of the amount described in clause (1) of this
paragraph 4.7(i). The "Bonus Percentage" shall be a
percentage equal to the annual percentage of base salary
(i.e., 0% to 125%) paid or payable to a participant under the
Company's Executive Bonus Program (and its predecessor or any
successor plan or program) with respect to the most recent
fiscal year ended prior to Executive's termination of employment;
(ii) "Change in Control" shall have the meaning
assigned to such term in the 1998 Plan (as adopted by the
Board of Directors on April 14, 1998 and in effect on such
date, it being understood that such term shall be the new
Change in Control term contained in the 1998 Plan, and not the
alternate Change in Control term (identical to that contained
in the 1997 Stock Incentive Plan) also set forth in the 1998
Plan for the eventuality that the Acquisition does not close);
provided, however, that Company and Executive agree that the
Acquisition, upon the closing thereof, constituted a Change
in Control (as defined in the Existing Agreement prior to the
amendment to the Existing Agreement dated as of November 20,
1998) and will be considered to be, and to have the effect of,
a Change in Control under this Agreement;
(iii) "Continuation Coverage" shall mean the
continued coverage of Executive and his eligible dependents
under Company's welfare benefit plans available to executives
of Company who have not terminated employment (or the
provision of equivalent benefits), including, without
limitation, medical, health, dental, life insurance,
disability, vision care, accidental death and dismemberment,
and prescription drug, at no greater cost to Executive than
that applicable to a similarly situated Company executive who
has not terminated employment; provided, however, that (1)
subject to clause (2) below, the coverage under a particular
welfare benefit plan (or the receipt of equivalent benefits)
shall terminate upon Executive's receipt of comparable
benefits from a subsequent employer and (2) if Executive
(and/or his eligible dependents) would have been entitled to
retiree coverage under a particular welfare benefit plan had
he voluntarily retired on the date of his termination of
employment, then such coverage shall be continued as provided
in such plan upon the expiration of the period Continuation
Coverage is to be provided pursuant to this Article 4.
Notwithstanding any provision in this Article 4 to the
contrary, Executive's entitlement to any benefit continuation
pursuant to Section 601 et. seq. of the Employee Retirement
Income Security Act of 1974, as amended, shall commence at the
end of the period of, and shall not be reduced by the
provision of, any applicable Continuation Coverage;
(iv) "Flight Benefits" shall mean flight benefits on
each airline operated by the Company or any of its affiliates
or any successor or successors thereto (the "CO system"),
consisting of the highest priority space available flight
passes for Executive and Executive's eligible family members
(as such eligibility is in effect on May 18, 1999), a
Universal Air Travel Plan (UATP) card (or, in the event of
discontinuance of the UATP program, a similar charge card
permitting the purchase of air travel through direct billing
to the Company or any successor or successors thereto (a
"Similar Card")) in Executive's name for charging on an annual
basis up to the applicable Annual Travel Limit (as hereinafter
defined) with respect to such year in value (valued
identically to the calculation of imputed income resulting
from such flight benefits described below) of flights (in any
fare class) on the CO system for Executive, Executive's
spouse, Executive's family and significant others as
determined by Executive, a Platinum Elite OnePass Card (or
similar highest category successor frequent flyer card) in
Executive's name for use on the CO system, a membership for
Executive and Executive's spouse in the Company's President's
Club (or any successor program maintained in the CO system)
and payment by the Company to Executive of an annual amount
(not to exceed in any year the applicable Annual Gross Up
Limit (as hereinafter defined) with respect to such year)
sufficient to pay, on an after tax basis (i.e., after the
payment by Executive of all taxes on such amount), the U.S.
federal, state and local income taxes on imputed income
resulting from such flights (such imputed income to be
calculated during the term of such Flight Benefits at the
lowest published fare (i.e., 21 day advance purchase coach
fare, lowest negotiated consolidator net fare, or other lowest
available fare) for the applicable itinerary (or similar
flights on or around the date of such flight), regardless of
the actual fare class booked or flown, or as otherwise
required by law) or resulting from any other flight benefits
extended to Executive as a result of Executive's service as
an executive of the Company;
(v) "Incentive Plan" shall mean Company's 1994
Incentive Equity Plan, as amended;
(vi) "Outplacement Services" shall mean (1)
outplacement services, at Company's cost and for a period of
twelve months beginning on the date of Executive's termination
of employment, to be rendered by an agency selected by
Executive and approved by the Board of Directors or HR
Committee (with such approval not to be unreasonably
withheld), (2) appropriate and suitable office space at the
Company's headquarters (although not on its executive office
floor) or at a comparable location in downtown Houston for use
by Executive, together with appropriate and suitable
secretarial assistance, at Company's cost and for a period of
three years beginning on the date of Executive's termination
of employment, (3) a reserved parking place convenient to the
office so provided and a reserved parking place at George Bush
Intercontinental Airport in Houston, Texas consistent with
past practice, at Company's cost and for as long as Executive
retains a residence in Houston, Texas, and (4) other
incidental perquisites (such as free or discount air travel,
car rental, phone or similar service cards) currently enjoyed
by Executive as a result of his position, to the extent then
available for use by Executive, for a period of three years
beginning on the date of Executive's termination of employment
or a shorter period if such perquisites become unavailable to
the Company for use by Executive;
(vii) "Severance Period" shall mean:
(1) in the case of a termination of
Executive's employment with Company that occurs within two
years after the date upon which a Change in Control occurs,
a period commencing on the date of such termination and
continuing for thirty-six months; or
(2) in the case of a termination of
Executive's employment with Company that occurs prior to a
Change in Control or after the date which is two years after
a Change in Control occurs, a period commencing on the date
of such termination and continuing for twenty-four months; and
(viii) "Termination Payment" shall mean an amount
equal to Executive's Annualized Compensation multiplied by a
fraction, the numerator of which is the number of months in
the Severance Period and the denominator of which is twelve.
As used for purposes of Flight Benefits, with respect to any
year, the term "Annual Travel Limit" shall mean an amount
(initially $50,000), which amount shall be adjusted (i) annually
(beginning with the year 2000) by multiplying such amount by a
fraction, the numerator of which shall be the Company's average
fare per revenue passenger for its jet operations (excluding
regional jets) with respect to the applicable year as reported in
its Annual Report on Form 10-K (or, if not so reported, as
determined by the Company's independent auditors) (the "Average
Fare") for such year, and the denominator of which shall be the
Average Fare for the prior year, (ii) annually to add thereto any
portion of such amount unused since the year 1999, and (iii) after
adjustments described in clauses (i) and (ii) above, automatically
upon any change in the valuation methodology for imputed income
from flights (as compared with the valuation methodology for
imputed income from flights used by the Company as of May 18,
1999), so as to preserve the benefit of $50,000 annually (adjusted
in accordance with clauses (i) and (ii) above) of flights relative
to the valuations resulting from the valuation methodology used by
the Company as of May 18, 1999 (e.g., if a change in the valuation
methodology results, on average, in such flights being valued 15%
higher than the valuation that would result using the valuation
methodology used by the Company as of May 18, 1999, then the Annual
Travel Limit would be increased by 15% to $57,500, assuming no
other adjustments pursuant to clauses (i) and (ii) above). In
determining any adjustment pursuant to clause (iii) above, the
Company shall be entitled to rely on a good faith calculation
performed by its independent auditors based on a statistically
significant random sampling of flight valuations compared with the
applicable prior valuations of identical flights, which calculation
(and the basis for any adjustments pursuant to clauses (i) or (ii)
above) will be provided to Executive upon request. The Company
will promptly notify Executive in writing of any adjustments to the
Annual Travel Limit described in this paragraph.
As used for purposes of Flight Benefits, with respect to any
year, the term "Annual Gross Up Limit" shall mean an amount
(initially $10,000), which amount shall be adjusted (i) annually
(beginning with the year 2000) by multiplying such amount by a
fraction, the numerator of which shall be the Average Fare for such
year, and the denominator of which shall be the Average Fare for
the prior year, (ii) annually to add thereto any portion of such
amount unused since the year 1999, and (iii) after adjustments
described in clauses (i) and (ii) above, automatically upon any
change in the valuation methodology for imputed income from flights
(as compared with the valuation methodology for imputed income from
flights used by the Company as of May 18, 1999), so as to preserve
the benefit of $10,000 annually (adjusted in accordance with
clauses (i) and (ii) above) of tax gross up relative to the
valuations resulting from the valuation methodology used by the
Company as of May 18, 1999 (e.g., if a change in the valuation
methodology results, on average, in flights being valued 15% higher
than the valuation that would result using the valuation
methodology used by the Company as of May 18, 1999, then the Annual
Gross Up Limit would be increased by 15% to $11,500, assuming no
other adjustments pursuant to clauses (i) and (ii) above). In
determining any adjustment pursuant to clause (iii) above, the
Company shall be entitled to rely on a good faith calculation
performed by its independent auditors based on a statistically
significant random sampling of flight valuations compared with the
applicable prior valuations of identical flights, which calculation
(and the basis for any adjustments pursuant to clauses (i) or (ii)
above) will be provided to Executive upon request. The Company
will promptly notify Executive in writing of any adjustments to the
Annual Gross Up Limit described in this paragraph.
As used for purposes of Flight Benefits, a year may consist
of twelve consecutive months other than a calendar year, it being
the Company's practice as of May 18, 1999 for purposes of Flight
Benefits for a year to commence on December 1 and end on the
following November 30 (for example, the twelve-month period from
December 1, 1998 to November 30, 1999 is considered the year 1999
for purposes of Flight Benefits); provided that all calculations
for purposes of clause (i) in the prior two paragraphs shall be
with respect to fiscal years of the Company.
As used for purposes of Flight Benefits, the term "affiliates"
of the Company means any entity controlled by, controlling, or
under common control with the Company, it being understood that
control of an entity shall require the direct or indirect ownership
of a majority of the outstanding capital stock of such entity.
No tickets issued on the CO system in connection with the
Flight Benefits may be purchased other than directly from the
Company or its successor or successors (i.e., no travel agent or
other fee or commission based distributor may be used), nor may any
such tickets be sold or transferred by Executive or any other
person, nor may any such tickets be used by any person other than
the person in whose name the ticket is issued. Executive agrees
that, after receipt of an invoice or other accounting statement
therefor, he will promptly (and in any event within 45 days after
receipt of such invoice or other accounting statement) reimburse
the Company for all charges on his UATP card (or Similar Card)
which are not for flights on the CO system and which are not
otherwise reimbursable to Executive under the provisions of
paragraph 3.4(i) hereof, or which are for tickets in excess of the
applicable Annual Travel Limit. Executive agrees that the credit
availability under Executive's UATP card (or Similar Card) may be
suspended if Executive does not timely reimburse the Company as
described in the foregoing sentence or if Executive exceeds the
applicable Annual Travel Limit with respect to a year; provided,
that, immediately upon the Company's receipt of Executive's
reimbursement in full (or, in the case of exceeding the applicable
Annual Travel Limit, beginning the next following year and after
such reimbursement), the credit availability under Executive's UATP
card (or Similar Card) will be restored.
The sole cost to Executive of flights on the CO system
pursuant to use of Executive's Flight Benefits will be the imputed
income with respect to flights on the CO system charged on
Executive's UATP card (or Similar Card), calculated throughout the
term of Executive's Flight Benefits at the lowest published fare
(i.e., 21 day advance purchase coach fare, lowest negotiated
consolidator net fare or other lowest available fare) for the
applicable itinerary (or similar flights on or around the date of
such flight), regardless of the actual fare class booked or flown,
or as otherwise required by law, and reported to Executive as
required by applicable law. With respect to any period for which
the Company is obligated to provide the tax gross up described
above, Executive will provide to the Company, upon request, a
calculation or other evidence of Executive's marginal tax rate
sufficient to permit the Company to calculate accurately the amount
to be paid to Executive.
Executive will be issued a UATP card (or Similar Card), a
Platinum Elite OnePass Card (or similar highest category successor
frequent flyer card), a membership card in the Company's Presidents
Club (or any successor program maintained in the CO system) for
Executive and Executive's spouse, and an appropriate flight pass
identification card, each valid at all times during the term of
Executive's Flight Benefits.
ARTICLE 5: MISCELLANEOUS
5.1 Interest and Indemnification. If any payment to
Executive provided for in this Agreement is not made by Company
when due, Company shall pay to Executive interest on the amount
payable from the date that such payment should have been made until
such payment is made, which interest shall be calculated at 3% plus
the prime or base rate of interest announced by Texas Commerce Bank
National Association (or any successor thereto) at its principal
office in Houston, Texas (but not in excess of the highest lawful
rate), and such interest rate shall change when and as any such
change in such prime or base rate shall be announced by such bank.
If Executive shall obtain any money judgment or otherwise prevail
with respect to any litigation brought by Executive or Company to
enforce or interpret any provision contained herein, Company, to
the fullest extent permitted by applicable law, hereby indemnifies
Executive for his reasonable attorneys' fees and disbursements
incurred in such litigation and hereby agrees (i) to pay in full
all such fees and disbursements and (ii) to pay prejudgment
interest on any money judgment obtained by Executive from the
earliest date that payment to him should have been made under this
Agreement until such judgment shall have been paid in full, which
interest shall be calculated at the rate set forth in the preceding
sentence.
5.2 Notices. For purposes of this Agreement, notices and
all other communications provided for herein shall be in writing
and shall be deemed to have been duly given when personally
delivered or when mailed by United States registered or certified
mail, return receipt requested, postage prepaid, addressed as
follows:
If to Company to : Continental Airlines, Inc.
1600 Smith, Dept. HQSEO
Houston, Texas 77002
Attention: General Counsel
If to Executive to : Lawrence W. Kellner
10915 Pifer Way
Houston, Texas 77024
or to such other address as either party may furnish to the other
in writing in accordance herewith, except that notices of changes
of address shall be effective only upon receipt.
5.3 Applicable Law. This contract is entered into under,
and shall be governed for all purposes by, the laws of the State of
Texas.
5.4 No Waiver. No failure by either party hereto at any
time to give notice of any breach by the other party of, or to
require compliance with, any condition or provision of this
Agreement shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent
time.
5.5 Severability. If a court of competent jurisdiction
determines that any provision of this Agreement is invalid or
unenforceable, then the invalidity or unenforceability of that
provision shall not affect the validity or enforceability of any
other provision of this Agreement, and all other provisions shall
remain in full force and effect.
5.6 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original,
but all of which together will constitute one and the same
Agreement.
5.7 Withholding of Taxes and Other Employee Deductions.
Company may withhold from any benefits and payments made pursuant
to this Agreement all federal, state, city and other taxes as may
be required pursuant to any law or governmental regulation or
ruling and all other normal employee deductions made with respect
to Company's employees generally.
5.8 Headings. The paragraph headings have been inserted
for purposes of convenience and shall not be used for interpretive
purposes.
5.9 Gender and Plurals. Wherever the context so requires,
the masculine gender includes the feminine or neuter, and the
singular number includes the plural and conversely.
5.10 Successors. This Agreement shall be binding upon and
inure to the benefit of Company and any successor of the Company,
including without limitation any person, association, or entity
which may hereafter acquire or succeed to all or substantially all
of the business or assets of Company by any means whether direct or
indirect, by purchase, merger, consolidation, or otherwise. Except
as provided in the preceding sentence, this Agreement, and the
rights and obligations of the parties hereunder, are personal and
neither this Agreement, nor any right, benefit or obligation of
either party hereto, shall be subject to voluntary or involuntary
assignment, alienation or transfer, whether by operation of law or
otherwise, without the prior written consent of the other party.
5.11 Term. This Agreement has a term co-extensive with the
term of employment as set forth in paragraph 2.1. Termination
shall not affect any right or obligation of any party which is
accrued or vested prior to or upon such termination.
5.12 Entire Agreement. Except as provided in (i) the
benefits, plans, and programs referenced in paragraph 3.4(iii),
(ii) any signed written agreement heretofore executed by Company
and Executive with respect to awards under the Company's stock
option or other incentive plans, or (iii) any signed written
agreement hereafter executed by Company and Executive, this
Agreement constitutes the entire agreement of the parties with
regard to the subject matter hereof, and contains all the
covenants, promises, representations, warranties and agreements
between the parties with respect to employment of Executive by
Company. Without limiting the scope of the preceding sentence, all
prior understandings and agreements among the parties hereto
relating to the subject matter hereof are hereby null and void and
of no further force and effect (it being the specific intent of the
parties hereto that this Agreement shall amend and restate in its
entirety the Existing Agreement). Any modification of this
Agreement shall be effective only if it is in writing and signed by
the party to be charged.
5.13 Deemed Resignations. Any termination of Executive's
employment shall constitute an automatic resignation of Executive
as an officer of Company and each affiliate of Company, and an
automatic resignation of Executive from the Board of Directors (if
applicable) and from the board of directors of any affiliate of
Company.
*******
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the 16th day of September, 1999.
CONTINENTAL AIRLINES, INC.
By:________________________________
Name:
Title:
"EXECUTIVE"
______________________________
Lawrence W. Kellner
EXHIBIT 10.5
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT ("Agreement")
is made by and between CONTINENTAL AIRLINES, INC., a Delaware
corporation ("Company"), and C.D. McLean ("Executive").
W I T N E S S E T H:
WHEREAS, Company and Executive are parties to that certain
Amended and Restated Employment Agreement dated as of November 15,
1995, as amended by Amendment to Employment Agreement dated as of
April 19, 1996, Amendment to Employment Agreement dated as of
September 30, 1996, Amendment to Employment Agreement dated as of
November 20, 1998, and Amendment to Employment Agreement dated as
of May 19, 1999 (as so amended, the "Existing Agreement"); and
WHEREAS, the Human Resources Committee of the Board of
Directors, at its September 16, 1999 meeting, authorized the
amendment of the employment agreements of certain officers of the
Company, including Executive, with respect to certain matters,
including the amendment and restatement of Executive's Existing
Agreement; and
WHEREAS, in connection therewith, the parties desire to amend
the Existing Agreement and restate it, as so amended, in its
entirety as this Agreement;
NOW, THEREFORE, for and in consideration of the mutual
promises, covenants and obligations contained herein, Company and
Executive agree as follows:
ARTICLE 1: EMPLOYMENT AND DUTIES
1.1 Employment; Effective Date. Company agrees to employ
Executive and Executive agrees to be employed by Company, beginning
as of the Effective Date (as hereinafter defined) and continuing
for the period of time set forth in Article 2 of this Agreement,
subject to the terms and conditions of this Agreement. For
purposes of this Agreement, the "Effective Date" shall be September
16, 1999.
1.2 Position. Company shall employ Executive in the
position of Executive Vice President - Operations, or in such other
position or positions as the parties mutually may agree.
1.3 Duties and Services. Executive agrees to serve in the
position referred to in paragraph 1.2 and to perform diligently and
to the best of his abilities the duties and services appertaining
to such office as set forth in the Bylaws of Company in effect on
the Effective Date, as well as such additional duties and services
appropriate to such office which the parties mutually may agree
upon from time to time.
ARTICLE 2: TERM AND TERMINATION OF EMPLOYMENT
2.1 Term. Unless sooner terminated pursuant to other
provisions hereof, Company agrees to employ Executive through the
date which is two years and a day after the date of closing of the
acquisition by an affiliate of Northwest Airlines Corporation of
beneficial ownership of the Class A common stock held by Air
Partners, L.P. (the "Acquisition") contemplated by the Investment
Agreement dated as of January 25, 1998, as amended, among Air
Partners, L.P., its partners and certain affiliates and Northwest
Airlines Corporation and its affiliate (the "Investment
Agreement").
2.2 Company's Right to Terminate. Notwithstanding the
provisions of paragraph 2.1, Company, acting pursuant to an express
resolution of the Board of Directors of Company (the "Board of
Directors") or the Human Resources Committee of the Board of
Directors (the "HR Committee"), shall have the right to terminate
Executive's employment under this Agreement at any time for any of
the following reasons:
(i) upon Executive's death;
(ii) upon Executive's becoming incapacitated for a
period of at least 180 days by accident, sickness or other
circumstance which renders him mentally or physically
incapable of performing the material duties and services
required of him hereunder on a full-time basis during such
period;
(iii) for cause, which for purposes of this Agreement
shall mean Executive's gross negligence or willful misconduct
in the performance of, or Executive's abuse of alcohol or
drugs rendering him unable to perform, the material duties
and services required of him pursuant to this Agreement;
(iv) for Executive's material breach of any
provision of this Agreement which, if correctable, remains
uncorrected for 30 days following written notice to Executive
by Company of such breach; or
(v) for any other reason whatsoever, in the sole
discretion of the Board of Directors or the Human Resources
Committee.
2.3 Executive's Right to Terminate. Notwithstanding the
provisions of paragraph 2.1, Executive shall have the right to
terminate his employment under this Agreement at any time for any
of the following reasons:
(i) the assignment to Executive by the Board of
Directors or HR Committee or other officers or representatives
of Company of duties materially inconsistent with the duties
associated with the position described in paragraph 1.2 as
such duties are constituted as of the Effective Date;
(ii) a material diminution in the nature or scope of
Executive's authority, responsibilities, or title from those
applicable to him as of the Effective Date;
(iii) the occurrence of material acts or conduct on
the part of Company or its officers or representatives which
prevent Executive from performing his duties and
responsibilities pursuant to this Agreement;
(iv) Company requiring Executive to be permanently
based anywhere outside a major urban center in Texas;
(v) the taking of any action by Company that would
materially adversely affect the corporate amenities enjoyed by
Executive on the Effective Date;
(vi) a material breach by Company of any provision
of this Agreement which, if correctable, remains uncorrected
for 30 days following written notice of such breach by
Executive to Company; or
(vii) for any other reason whatsoever, in the sole
discretion of Executive.
2.4 Notice of Termination. If Company or Executive desires
to terminate Executive's employment hereunder at any time prior to
expiration of the term of employment as provided in paragraph 2.1,
it or he shall do so by giving written notice to the other party
that it or he has elected to terminate Executive's employment
hereunder and stating the effective date and reason for such
termination, provided that no such action shall alter or amend any
other provisions hereof or rights arising hereunder.
ARTICLE 3: COMPENSATION AND BENEFITS
3.1 Base Salary. During the period of this Agreement,
Executive shall receive a minimum annual base salary equal to the
greater of (i) $430,000.00 or (ii) such amount as the parties
mutually may agree upon from time to time. Executive's annual base
salary shall be paid in equal installments in accordance with
Company's standard policy regarding payment of compensation to
executives but no less frequently than semimonthly.
3.2 Bonus Programs. Executive shall participate in each
cash bonus program maintained by Company on and after the Effective
Date at a level which is not less than the maximum participation
level made available to any other executive of Company at
substantially the same title or level of Executive (determined
without regard to period of service or other criteria that might
otherwise be necessary to entitle Executive to such level of
participation).
3.3 Vacation and Sick Leave. During each year of his
employment, Executive shall be entitled to vacation and sick leave
benefits equal to the maximum available to any Company executive,
determined without regard to the period of service that might
otherwise be necessary to entitle Executive to such vacation or
sick leave under standard Company policy.
3.4 Other Perquisites. During his employment hereunder,
Executive shall be afforded the following benefits as incidences of
his employment:
(i) Business and Entertainment Expenses - Subject
to Company's standard policies and procedures with respect to
expense reimbursement as applied to its executive employees
generally, Company shall reimburse Executive for, or pay on
behalf of Executive, reasonable and appropriate expenses
incurred by Executive for business related purposes, including
dues and fees to industry and professional organizations,
costs of entertainment and business development, and costs
reasonably incurred as a result of Executive's spouse
accompanying Executive on business travel.
(ii) Parking - Company shall provide at no expense
to Executive a parking place convenient to Executive's office
and a parking place at Intercontinental Airport in Houston,
Texas.
(iii) Other Company Benefits - Executive and, to the
extent applicable, Executive's family, dependents and
beneficiaries, shall be allowed to participate in all
benefits, plans and programs, including improvements or
modifications of the same, which are now, or may hereafter be,
available to similarly-situated Company employees. Such
benefits, plans and programs may include, without limitation,
profit sharing plan, thrift plan, annual physical
examinations, health insurance or health care plan, life
insurance, disability insurance, pension plan, pass privileges
on Continental Airlines, Flight Benefits and the like.
Company shall not, however, by reason of this paragraph be
obligated to institute, maintain, or refrain from changing,
amending or discontinuing, any such benefit plan or program,
so long as such changes are similarly applicable to executive
employees generally.
3.5 Supplemental Executive Retirement Plan.
(i) Base Benefit. Company agrees to pay Executive
the deferred compensation benefits set forth in this paragraph
3.5 as a supplemental retirement plan (the "Plan"). The base
retirement benefit under the Plan (the "Base Benefit") shall
be in the form of an annual straight life annuity in an amount
equal to the product of (a) 2.5% times (b) the number of
Executive's credited years of service (as defined below) under
the Plan (but not in excess of 26 years) times (c) the
Executive's final average compensation (as defined below).
For purposes hereof, Executive's credited years of service
under the Plan shall be equal to the sum of (1) the number of
Executive's years of benefit service with Company, calculated
as set forth in the Continental Retirement Plan (the "CARP")
beginning at January 1, 1995 ("Actual Years of Service"), (2)
an additional two years of service for each one year of
service credited to Executive pursuant to clause (1) of this
sentence for the period beginning on January 1, 2000 and
ending on December 31, 2004, and (3) three additional years of
service if Executive is paid the Termination Payment under
this Agreement. For purposes hereof, Executive's final
average compensation shall be equal to the greater of (A)
$430,000.00 or (B) the average of the five highest annual cash
compensation amounts (or, if Executive has been employed less
than five years by Company, the average over the full years
employed by Company) paid to Executive by Company during the
consecutive ten calendar years immediately preceding
Executive's termination of employment at retirement or
otherwise. For purposes hereof, cash compensation shall
include base salary plus cash bonuses (including any amounts
deferred (other than Stay Bonus amounts described below)
pursuant to any deferred compensation plan of the Company),
but shall exclude (i) any cash bonus paid on or prior to March
31, 1995, (ii) any Stay Bonus paid to Executive pursuant to
that certain Stay Bonus Agreement between Company and
Executive dated as of April 14, 1998, and (iii) any cash bonus
paid under a long term incentive plan or program adopted by
Company. Executive shall be vested immediately with respect
to benefits due under the Plan.
(ii) Offset for CARP Benefit. Any provisions of the
Plan to the contrary notwithstanding, the Base Benefit shall
be reduced by the actuarial equivalent (as defined below) of
the pension benefit, if any, paid or payable to Executive from
the CARP. In making such reduction, the Base Benefit and the
benefit paid or payable under the CARP shall be determined
under the provisions of each plan as if payable in the form of
an annual straight life annuity beginning on the Retirement
Date (as defined below). The net benefit payable under this
Plan shall then be actuarially adjusted based on the actuarial
assumptions set forth in paragraph 3.5(vii) for the actual
time and form of payments.
(iii) Normal and Early Retirement Benefits.
Executive's benefit under the Plan shall be payable in equal
monthly installments beginning on the first day of the month
following the Retirement Date (the "Normal Retirement
Benefit"). For purposes hereof, "Retirement Date" is defined
as the later of (a) the date on which Executive attains (or in
the event of Executive's earlier death, would have attained)
age 60 or (b) the date of Executive's retirement from
employment with Company. Notwithstanding the foregoing, if
Executive's employment with Company is terminated, for a
reason other than death, on or after the date Executive
attains age 55 or is credited with 10 Actual Years of Service
and prior to the Retirement Date, then Executive shall be
entitled to elect to commence to receive Executive's benefit
under the Plan as of the first day of any month coinciding
with or next following Executive's termination of employment,
or as the first day of any subsequent month preceding the
Retirement Date (an "Early Retirement Benefit"); provided,
however, that (1) written notice of such election must be
received by Company not less than 15 days prior to the
proposed date of commencement of the benefit, (2) each payment
under an Early Retirement Benefit shall be reduced to the
extent necessary to cause the value of such Early Retirement
Benefit (determined without regard to clause (3) of this
proviso) to be the actuarial equivalent of the value of the
Normal Retirement Benefit (in each case based on the actuarial
assumptions set forth in paragraph 3.5(vii) and adjusted for
the actual time and form of payments), and (3) each payment
under an Early Retirement Benefit that is made prior to the
Retirement Date shall be reduced by an additional 10% of the
amount of such payment as initially determined pursuant to
clause (2) of this proviso. The HR Committee may, in its sole
and absolute discretion, waive all or any part of the
reductions contemplated in clauses (2) and/or (3) of the
proviso of the preceding sentence.
(iv) Form of Retirement Benefit. If Executive is
not married on the date Executive's benefit under paragraph
3.5(iii) commences, then benefits under the Plan will be paid
to Executive in the form of a single life annuity for the life
of Executive. If Executive is married on the date Executive's
benefit under paragraph 3.5(iii) commences, then benefits
under the Plan will be paid in the form of a joint and
survivor annuity that is actuarially equivalent to the benefit
that would have been payable under the Plan to Executive if
Executive was not married on such date, with Executive's
spouse as of the date benefit payments commence being entitled
during such spouse's lifetime after Executive's death to a
benefit equal to 50% of the benefit payable to Executive
during their joint lifetimes.
(v) Death Benefit. Except as provided in this
paragraph 3.5(v), no benefits shall be paid under the Plan if
Executive dies prior to the date Executive's benefit commences
pursuant to paragraph 3.5(iii). In the event of Executive's
death prior to the commencement of Executive's benefit
pursuant to paragraph 3.5(iii), Executive's surviving spouse,
if Executive is married on the date of Executive's death, will
receive a single life annuity consisting of monthly payments
for the life of such surviving spouse determined as follows:
(a) if Executive dies on or before reaching the Retirement
Date, the death benefit such spouse would have received had
Executive terminated employment on the earlier of Executive's
actual date of termination of employment or Executive's date
of death, survived until the Retirement Date, began to receive
Executive's Plan benefit beginning immediately at the
Retirement Date, and died on the day after the Retirement
Date; or (b) if Executive dies after reaching the Retirement
Date, the death benefit such spouse would have received had
Executive begun to receive Executive's Plan benefit beginning
on the day prior to Executive's death. Payment of such
survivor annuity shall begin on the first day of the month
following the later of (1) Executive's date of death or (2)
the Retirement Date; provided, however, that if Executive was
eligible to elect an Early Retirement Benefit as of the date
of Executive's death, then Executive's surviving spouse shall
be entitled to elect to commence to receive such survivor
annuity as of the first day of the month next following the
date of Executive's death, or as the first day of any
subsequent month preceding the Retirement Date. Notice of
such election must be received by Company not less than 15
days prior to the proposed date of commencement of the
benefit, and each payment of such survivor annuity shall be
reduced based on the principles used for the reductions
described in clauses (2) and (3) of the proviso to the third
sentence of paragraph 3.5(iii).
(vi) Unfunded Benefit. The Plan is intended to
constitute an unfunded, unsecured plan of deferred
compensation. Further, it is the intention of Company that
the Plan be unfunded for purposes of the Internal Revenue Code
of 1986, as amended, and Title I of the Employee Retirement
Income Security Act of 1974, as amended. The Plan constitutes
a mere promise by Company to make benefit payments in the
future. Plan benefits hereunder provided are to be paid out
of Company's general assets, and Executive shall have the
status of, and shall have no better status than, a general
unsecured creditor of Company. Executive understands that he
must rely upon the general credit of Company for payment of
benefits under the Plan. Company shall establish a "rabbi"
trust to assist Company in meeting its obligations under the
Plan. The trustee of such trust shall be a nationally-
recognized and solvent bank or trust company that is not
affiliated with Company. Company shall transfer to the
trustee money and/or other property determined in the sole
discretion of the HR Committee based on the advice of the
Actuary (as defined below) on an as-needed basis in order to
assure that the benefit payable under the Plan is at all times
fully funded. The trustee shall pay Plan benefits to
Executive and/or Executive's spouse out of the trust assets if
such benefits are not paid by Company. Company shall remain
the owner of all assets in the trust, and the assets shall be
subject to the claims of Company creditors in the event (and
only in the event) Company ever becomes insolvent. Neither
Executive nor any beneficiary of Executive shall have any
preferred claim to, any security interest in, or any
beneficial ownership interest in any assets of the trust.
Company has not and will not in the future set aside assets
for security or enter into any other arrangement which will
cause the obligation created to be other than a general
corporate obligation of Company or will cause Executive to be
more than a general creditor of Company.
(vii) Actuarial Equivalent. For purposes of the
Plan, the terms "actuarial equivalent", or "actuarially
equivalent" when used with respect to a specified benefit
shall mean the amount of benefit of the referenced different
type or payable at the referenced different age that can be
provided at the same cost as such specified benefit, as
computed by the Actuary and certified to Executive (or, in the
case of Executive's death, to his spouse) by the Actuary. The
actuarial assumptions used under the Plan to determine
equivalencies between different forms and times of payment
shall be the same as the actuarial assumptions then used in
determining benefits payable under the CARP. The term
"Actuary" shall mean the individual actuary or actuarial firm
selected by Company to service its pension plans generally or
if no such individual or firm has been selected, an individual
actuary or actuarial firm appointed by Company and reasonably
satisfactory to Executive and/or Executive's spouse.
(viii) Medicare Payroll Taxes. Company shall
indemnify Executive on a fully grossed-up, after-tax basis for
any Medicare payroll taxes (plus any income taxes on such
indemnity payments) incurred by Executive in connection with
the accrual and/or payment of benefits under the Plan.
ARTICLE 4: EFFECT OF TERMINATION ON COMPENSATION
4.1 By Expiration. If Executive's employment hereunder
shall terminate upon expiration of the term provided in paragraph
2.1 hereof, then all compensation and all benefits to Executive
hereunder shall terminate contemporaneously with termination of his
employment; provided, however, that Executive shall be provided
with Flight Benefits for the remainder of Executive's lifetime, the
benefits described in paragraph 3.5 shall continue to be payable,
the benefits described in clauses (2) through (4) of paragraph
4.7(vi) shall be provided for the time periods specified therein
and Company shall cause all options and shares of restricted stock
awarded to Executive, including, without limitation, any such
awards under Company's 1998 Stock Incentive Plan (the "1998 Plan"),
and other Awards (as defined in the 1998 Plan) made to Executive
under the 1998 Plan, to vest immediately upon such termination and,
with respect to options, be exercisable in full for 30 days after
such termination.
4.2 By Company. If Executive's employment hereunder shall
be terminated by Company prior to expiration of the term provided
in paragraph 2.1 hereof then, upon such termination, regardless of
the reason therefor, all compensation and all benefits to Executive
hereunder shall terminate contemporaneously with the termination of
such employment, except the benefits described in paragraph 3.5
shall continue to be payable, and if such termination shall be for
any reason other than those encompassed by paragraphs 2.2(i), (ii),
(iii) or (iv), then Company shall (a) pay Executive on or before
the effective date of such termination a lump-sum, cash payment in
an amount equal to the Termination Payment (as such term is defined
in paragraph 4.7) and cause all options and shares of restricted
stock awarded to Executive, including, without limitation, any such
awards under Company's 1998 Plan, and other Awards (as defined in
the 1998 Plan) made to Executive under the 1998 Plan, to vest
immediately upon such termination and, with respect to options, be
exercisable in full for 30 days after such termination, (b) provide
Executive with Flight Benefits (as such term is defined in para-
graph 4.7) for the remainder of Executive's lifetime, (c) provide
Executive with Outplacement Services (as such term is defined in
paragraph 4.7), and (d) provide Executive and his eligible
dependents with Continuation Coverage (as such term is defined in
paragraph 4.7) for the Severance Period.
4.3 By Executive. If Executive's employment hereunder shall
be terminated by Executive prior to expiration of the term provided
in paragraph 2.1 hereof then, upon such termination, regardless of
the reason therefor, all compensation and benefits to Executive
hereunder shall terminate contemporaneously with the termination of
employment, except Executive shall be provided Flight Benefits (as
such term is defined in paragraph 4.7) for the remainder of
Executive's lifetime, the benefits described in paragraph 3.5 shall
continue to be payable, and if such termination shall be pursuant
to paragraphs 2.3(i), (ii), (iii), (iv), (v), or (vi), then Company
shall provide Executive with the payments and benefits described in
clauses (a), (c) and (d) of paragraph 4.2.
4.4 Certain Additional Payments by Company.
Notwithstanding anything to the contrary in this Agreement, if any
payment, distribution or provision of a benefit by Company to or
for the benefit of Executive, whether paid or payable, distributed
or distributable or provided or to be provided pursuant to the
terms of this Agreement or otherwise (a "Payment"), would be
subject to an excise or other special additional tax that would not
have been imposed absent such Payment (including, without
limitation, any excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended), or any interest or penalties
with respect to such excise or other additional tax (such excise or
other additional tax, together with any such interest or penalties,
are hereinafter collectively referred to as the "Excise Tax"),
Company shall pay to Executive an additional payment (a "Gross-up
Payment") in an amount such that after payment by Executive of all
taxes (including any interest or penalties imposed with respect to
such taxes), including any income taxes and Excise Taxes imposed on
any Gross-up Payment, Executive retains an amount of the Gross-up
Payment (taking into account any similar gross-up payments to
Executive under the Incentive Plan (as such term is defined in
paragraph 4.7)) equal to the Excise Tax imposed upon the Payments.
Company and Executive shall make an initial determination as to
whether a Gross-up Payment is required and the amount of any such
Gross-up Payment. Executive shall notify Company in writing of any
claim by the Internal Revenue Service which, if successful, would
require Company to make a Gross-up Payment (or a Gross-up Payment
in excess of that, if any, initially determined by Company and
Executive) within ten business days after the receipt of such
claim. Company shall notify Executive in writing at least ten
business days prior to the due date of any response required with
respect to such claim if it plans to contest the claim. If Company
decides to contest such claim, Executive shall cooperate fully with
Company in such action; provided, however, Company shall bear and
pay directly or indirectly all costs and expenses (including
additional interest and penalties) incurred in connection with such
action and shall indemnify and hold Executive harmless, on an
after-tax basis, for any Excise Tax or income tax, including
interest and penalties with respect thereto, imposed as a result of
Company's action. If, as a result of Company's action with respect
to a claim, Executive receives a refund of any amount paid by
Company with respect to such claim, Executive shall promptly pay
such refund to Company. If Company fails to timely notify
Executive whether it will contest such claim or Company determines
not to contest such claim, then Company shall immediately pay to
Executive the portion of such claim, if any, which it has not
previously paid to Executive.
4.5 Payment Obligations Absolute. Company's obligation to
pay Executive the amounts and to make the arrangements provided in
this Article 4 shall be absolute and unconditional and shall not be
affected by any circumstances, including, without limitation, any
set-off, counterclaim, recoupment, defense or other right which
Company (including its subsidiaries and affiliates) may have
against him or anyone else. All amounts payable by Company shall
be paid without notice or demand. Executive shall not be obligated
to seek other employment in mitigation of the amounts payable or
arrangements made under any provision of this Article 4, and,
except as provided in paragraph 4.7 with respect to Continuation
Coverage, the obtaining of any such other employment (or the
engagement in any endeavor as an independent contractor, sole
proprietor, partner, or joint venturer) shall in no event effect
any reduction of Company's obligations to make (or cause to be
made) the payments and arrangements required to be made under this
Article 4.
4.6 Liquidated Damages. In light of the difficulties in
estimating the damages upon termination of this Agreement, Company
and Executive hereby agree that the payments and benefits, if any,
to be received by Executive pursuant to this Article 4 shall be
received by Executive as liquidated damages. Payment of the
Termination Payment pursuant to paragraphs 4.2 or 4.3 shall be in
lieu of any severance benefit Executive may be entitled to under
any severance plan or policy maintained by Company.
4.7 Certain Definitions and Additional Terms. As used
herein, the following capitalized terms shall have the meanings
assigned below:
(i) "Annualized Compensation" shall mean an amount
equal to the sum of (1) Executive's annual base salary
pursuant to paragraph 3.1 in effect immediately prior to
Executive's termination of employment hereunder and (2) a
deemed annual bonus which shall be equal to the Bonus
Percentage of the amount described in clause (1) of this
paragraph 4.7(i). The "Bonus Percentage" shall be a
percentage equal to the annual percentage of base salary
(i.e., 0% to 125%) paid or payable to a participant under the
Company's Executive Bonus Program (and its predecessor or any
successor plan or program) with respect to the most recent
fiscal year ended prior to Executive's termination of
employment;
(ii) "Change in Control" shall have the meaning
assigned to such term in the 1998 Plan (as adopted by the
Board of Directors on April 14, 1998 and in effect on such
date, it being understood that such term shall be the new
Change in Control term contained in the 1998 Plan, and not the
alternate Change in Control term (identical to that contained
in the 1997 Stock Incentive Plan) also set forth in the 1998
Plan for the eventuality that the Acquisition does not close);
provided, however, that Company and Executive agree that the
Acquisition, upon the closing thereof, constituted a Change in
Control (as defined in the Existing Agreement prior to the
amendment to the Existing Agreement dated as of November 20,
1998) and will be considered to be, and to have the effect of,
a Change in Control under this Agreement;
(iii) "Continuation Coverage" shall mean the
continued coverage of Executive and his eligible dependents
under Company's welfare benefit plans available to executives
of Company who have not terminated employment (or the
provision of equivalent benefits), including, without
limitation, medical, health, dental, life insurance,
disability, vision care, accidental death and dismemberment,
and prescription drug, at no greater cost to Executive than
that applicable to a similarly situated Company executive who
has not terminated employment; provided, however, that (1)
subject to clause (2) below, the coverage under a particular
welfare benefit plan (or the receipt of equivalent benefits)
shall terminate upon Executive's receipt of comparable
benefits from a subsequent employer and (2) if Executive
(and/or his eligible dependents) would have been entitled to
retiree coverage under a particular welfare benefit plan had
he voluntarily retired on the date of his termination of
employment, then such coverage shall be continued as provided
in such plan upon the expiration of the period Continuation
Coverage is to be provided pursuant to this Article 4.
Notwithstanding any provision in this Article 4 to the
contrary, Executive's entitlement to any benefit continuation
pursuant to Section 601 et. seq. of the Employee Retirement
Income Security Act of 1974, as amended, shall commence at the
end of the period of, and shall not be reduced by the
provision of, any applicable Continuation Coverage;
(iv) "Flight Benefits" shall mean flight benefits on
each airline operated by the Company or any of its affiliates
or any successor or successors thereto (the "CO system"),
consisting of the highest priority space available flight
passes for Executive and Executive's eligible family members
(as such eligibility is in effect on May 18, 1999), a
Universal Air Travel Plan (UATP) card (or, in the event of
discontinuance of the UATP program, a similar charge card
permitting the purchase of air travel through direct billing
to the Company or any successor or successors thereto (a
"Similar Card")) in Executive's name for charging on an annual
basis up to the applicable Annual Travel Limit (as hereinafter
defined) with respect to such year in value (valued
identically to the calculation of imputed income resulting
from such flight benefits described below) of flights (in any
fare class) on the CO system for Executive, Executive's
spouse, Executive's family and significant others as
determined by Executive, a Platinum Elite OnePass Card (or
similar highest category successor frequent flyer card) in
Executive's name for use on the CO system, a membership for
Executive and Executive's spouse in the Company's President's
Club (or any successor program maintained in the CO system)
and payment by the Company to Executive of an annual amount
(not to exceed in any year the applicable Annual Gross Up
Limit (as hereinafter defined) with respect to such year)
sufficient to pay, on an after tax basis (i.e., after the
payment by Executive of all taxes on such amount), the U.S.
federal, state and local income taxes on imputed income
resulting from such flights (such imputed income to be
calculated during the term of such Flight Benefits at the
lowest published fare (i.e., 21 day advance purchase coach
fare, lowest negotiated consolidator net fare, or other lowest
available fare) for the applicable itinerary (or similar
flights on or around the date of such flight), regardless of
the actual fare class booked or flown, or as otherwise
required by law) or resulting from any other flight benefits
extended to Executive as a result of Executive's service as an
executive of the Company;
(v) "Incentive Plan" shall mean Company's 1994
Incentive Equity Plan, as amended;
(vi) "Outplacement Services" shall mean (1)
outplacement services, at Company's cost and for a period of
twelve months beginning on the date of Executive's termination
of employment, to be rendered by an agency selected by
Executive and approved by the Board of Directors or HR
Committee (with such approval not to be unreasonably
withheld), (2) appropriate and suitable office space at the
Company's headquarters (although not on its executive office
floor) or at a comparable location in downtown Houston for use
by Executive, together with appropriate and suitable
secretarial assistance, at Company's cost and for a period of
three years beginning on the date of Executive's termination
of employment, (3) a reserved parking place convenient to the
office so provided and a reserved parking place at George Bush
Intercontinental Airport in Houston, Texas consistent with
past practice, at Company's cost and for as long as Executive
retains a residence in Houston, Texas, and (4) other
incidental perquisites (such as free or discount air travel,
car rental, phone or similar service cards) currently enjoyed
by Executive as a result of his position, to the extent then
available for use by Executive, for a period of three years
beginning on the date of Executive's termination of employment
or a shorter period if such perquisites become unavailable to
the Company for use by Executive;
(vii) "Severance Period" shall mean:
(1) in the case of a termination of
Executive's employment with Company that occurs within two
years after the date upon which a Change in Control occurs, a
period commencing on the date of such termination and
continuing for thirty-six months; or
(2) in the case of a termination of
Executive's employment with Company that occurs prior to a
Change in Control or after the date which is two years after
a Change in Control occurs, a period commencing on the date of
such termination and continuing for twenty-four months; and
(viii) "Termination Payment" shall mean an amount
equal to Executive's Annualized Compensation multiplied by a
fraction, the numerator of which is the number of months in
the Severance Period and the denominator of which is twelve.
As used for purposes of Flight Benefits, with respect to any
year, the term "Annual Travel Limit" shall mean an amount
(initially $50,000), which amount shall be adjusted (i) annually
(beginning with the year 2000) by multiplying such amount by a
fraction, the numerator of which shall be the Company's average
fare per revenue passenger for its jet operations (excluding
regional jets) with respect to the applicable year as reported in
its Annual Report on Form 10-K (or, if not so reported, as
determined by the Company's independent auditors) (the "Average
Fare") for such year, and the denominator of which shall be the
Average Fare for the prior year, (ii) annually to add thereto any
portion of such amount unused since the year 1999, and (iii) after
adjustments described in clauses (i) and (ii) above, automatically
upon any change in the valuation methodology for imputed income
from flights (as compared with the valuation methodology for
imputed income from flights used by the Company as of May 18,
1999), so as to preserve the benefit of $50,000 annually (adjusted
in accordance with clauses (i) and (ii) above) of flights relative
to the valuations resulting from the valuation methodology used by
the Company as of May 18, 1999 (e.g., if a change in the valuation
methodology results, on average, in such flights being valued 15%
higher than the valuation that would result using the valuation
methodology used by the Company as of May 18, 1999, then the Annual
Travel Limit would be increased by 15% to $57,500, assuming no
other adjustments pursuant to clauses (i) and (ii) above). In
determining any adjustment pursuant to clause (iii) above, the
Company shall be entitled to rely on a good faith calculation
performed by its independent auditors based on a statistically
significant random sampling of flight valuations compared with the
applicable prior valuations of identical flights, which calculation
(and the basis for any adjustments pursuant to clauses (i) or (ii)
above) will be provided to Executive upon request. The Company
will promptly notify Executive in writing of any adjustments to the
Annual Travel Limit described in this paragraph.
As used for purposes of Flight Benefits, with respect to any
year, the term "Annual Gross Up Limit" shall mean an amount
(initially $10,000), which amount shall be adjusted (i) annually
(beginning with the year 2000) by multiplying such amount by a
fraction, the numerator of which shall be the Average Fare for such
year, and the denominator of which shall be the Average Fare for
the prior year, (ii) annually to add thereto any portion of such
amount unused since the year 1999, and (iii) after adjustments
described in clauses (i) and (ii) above, automatically upon any
change in the valuation methodology for imputed income from flights
(as compared with the valuation methodology for imputed income from
flights used by the Company as of May 18, 1999), so as to preserve
the benefit of $10,000 annually (adjusted in accordance with
clauses (i) and (ii) above) of tax gross up relative to the
valuations resulting from the valuation methodology used by the
Company as of May 18, 1999 (e.g., if a change in the valuation
methodology results, on average, in flights being valued 15% higher
than the valuation that would result using the valuation
methodology used by the Company as of May 18, 1999, then the Annual
Gross Up Limit would be increased by 15% to $11,500, assuming no
other adjustments pursuant to clauses (i) and (ii) above). In
determining any adjustment pursuant to clause (iii) above, the
Company shall be entitled to rely on a good faith calculation
performed by its independent auditors based on a statistically
significant random sampling of flight valuations compared with the
applicable prior valuations of identical flights, which calculation
(and the basis for any adjustments pursuant to clauses (i) or (ii)
above) will be provided to Executive upon request. The Company
will promptly notify Executive in writing of any adjustments to the
Annual Gross Up Limit described in this paragraph.
As used for purposes of Flight Benefits, a year may consist of
twelve consecutive months other than a calendar year, it being the
Company's practice as of May 18, 1999 for purposes of Flight
Benefits for a year to commence on December 1 and end on the
following November 30 (for example, the twelve-month period from
December 1, 1998 to November 30, 1999 is considered the year 1999
for purposes of Flight Benefits); provided that all calculations
for purposes of clause (i) in the prior two paragraphs shall be
with respect to fiscal years of the Company.
As used for purposes of Flight Benefits, the term "affiliates"
of the Company means any entity controlled by, controlling, or
under common control with the Company, it being understood that
control of an entity shall require the direct or indirect ownership
of a majority of the outstanding capital stock of such entity.
No tickets issued on the CO system in connection with the
Flight Benefits may be purchased other than directly from the
Company or its successor or successors (i.e., no travel agent or
other fee or commission based distributor may be used), nor may any
such tickets be sold or transferred by Executive or any other
person, nor may any such tickets be used by any person other than
the person in whose name the ticket is issued. Executive agrees
that, after receipt of an invoice or other accounting statement
therefor, he will promptly (and in any event within 45 days after
receipt of such invoice or other accounting statement) reimburse
the Company for all charges on his UATP card (or Similar Card)
which are not for flights on the CO system and which are not
otherwise reimbursable to Executive under the provisions of
paragraph 3.4(i) hereof, or which are for tickets in excess of the
applicable Annual Travel Limit. Executive agrees that the credit
availability under Executive's UATP card (or Similar Card) may be
suspended if Executive does not timely reimburse the Company as
described in the foregoing sentence or if Executive exceeds the
applicable Annual Travel Limit with respect to a year; provided,
that, immediately upon the Company's receipt of Executive's
reimbursement in full (or, in the case of exceeding the applicable
Annual Travel Limit, beginning the next following year and after
such reimbursement), the credit availability under Executive's UATP
card (or Similar Card) will be restored.
The sole cost to Executive of flights on the CO system
pursuant to use of Executive's Flight Benefits will be the imputed
income with respect to flights on the CO system charged on
Executive's UATP card (or Similar Card), calculated throughout the
term of Executive's Flight Benefits at the lowest published fare
(i.e., 21 day advance purchase coach fare, lowest negotiated
consolidator net fare or other lowest available fare) for the
applicable itinerary (or similar flights on or around the date of
such flight), regardless of the actual fare class booked or flown,
or as otherwise required by law, and reported to Executive as
required by applicable law. With respect to any period for which
the Company is obligated to provide the tax gross up described
above, Executive will provide to the Company, upon request, a
calculation or other evidence of Executive's marginal tax rate
sufficient to permit the Company to calculate accurately the amount
to be paid to Executive.
Executive will be issued a UATP card (or Similar Card), a
Platinum Elite OnePass Card (or similar highest category successor
frequent flyer card), a membership card in the Company's Presidents
Club (or any successor program maintained in the CO system) for
Executive and Executive's spouse, and an appropriate flight pass
identification card, each valid at all times during the term of
Executive's Flight Benefits.
ARTICLE 5: MISCELLANEOUS
5.1 Interest and Indemnification. If any payment to
Executive provided for in this Agreement is not made by Company
when due, Company shall pay to Executive interest on the amount
payable from the date that such payment should have been made until
such payment is made, which interest shall be calculated at 3% plus
the prime or base rate of interest announced by Texas Commerce Bank
National Association (or any successor thereto) at its principal
office in Houston, Texas (but not in excess of the highest lawful
rate), and such interest rate shall change when and as any such
change in such prime or base rate shall be announced by such bank.
If Executive shall obtain any money judgment or otherwise prevail
with respect to any litigation brought by Executive or Company to
enforce or interpret any provision contained herein, Company, to
the fullest extent permitted by applicable law, hereby indemnifies
Executive for his reasonable attorneys' fees and disbursements
incurred in such litigation and hereby agrees (i) to pay in full
all such fees and disbursements and (ii) to pay prejudgment
interest on any money judgment obtained by Executive from the
earliest date that payment to him should have been made under this
Agreement until such judgment shall have been paid in full, which
interest shall be calculated at the rate set forth in the preceding
sentence.
5.2 Notices. For purposes of this Agreement, notices and
all other communications provided for herein shall be in writing
and shall be deemed to have been duly given when personally
delivered or when mailed by United States registered or certified
mail, return receipt requested, postage prepaid, addressed as
follows:
If to Company to: Continental Airlines, Inc.
1600 Smith, Dept. HQSEO
Houston, Texas 77002
Attention: General Counsel
If to Executive to : C.D. McLean
1111 Caroline, Apt. 2602
Houston, TX 77010
or to such other address as either party may furnish to the other
in writing in accordance herewith, except that notices of changes
of address shall be effective only upon receipt.
5.3 Applicable Law. This contract is entered into under,
and shall be governed for all purposes by, the laws of the State of
Texas.
5.4 No Waiver. No failure by either party hereto at any
time to give notice of any breach by the other party of, or to
require compliance with, any condition or provision of this
Agreement shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent
time.
5.5 Severability. If a court of competent jurisdiction
determines that any provision of this Agreement is invalid or
unenforceable, then the invalidity or unenforceability of that
provision shall not affect the validity or enforceability of any
other provision of this Agreement, and all other provisions shall
remain in full force and effect.
5.6 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original,
but all of which together will constitute one and the same
Agreement.
5.7 Withholding of Taxes and Other Employee Deductions.
Company may withhold from any benefits and payments made pursuant
to this Agreement all federal, state, city and other taxes as may
be required pursuant to any law or governmental regulation or
ruling and all other normal employee deductions made with respect
to Company's employees generally.
5.8 Headings. The paragraph headings have been inserted
for purposes of convenience and shall not be used for interpretive
purposes.
5.9 Gender and Plurals. Wherever the context so requires,
the masculine gender includes the feminine or neuter, and the
singular number includes the plural and conversely.
5.10 Successors. This Agreement shall be binding upon and
inure to the benefit of Company and any successor of the Company,
including without limitation any person, association, or entity
which may hereafter acquire or succeed to all or substantially all
of the business or assets of Company by any means whether direct or
indirect, by purchase, merger, consolidation, or otherwise. Except
as provided in the preceding sentence, this Agreement, and the
rights and obligations of the parties hereunder, are personal and
neither this Agreement, nor any right, benefit or obligation of
either party hereto, shall be subject to voluntary or involuntary
assignment, alienation or transfer, whether by operation of law or
otherwise, without the prior written consent of the other party.
5.11 Term. This Agreement has a term co-extensive with the
term of employment as set forth in paragraph 2.1. Termination
shall not affect any right or obligation of any party which is
accrued or vested prior to or upon such termination.
5.12 Entire Agreement. Except as provided in (i) the
benefits, plans, and programs referenced in paragraph 3.4(iii),
(ii) any signed written agreement heretofore executed by Company
and Executive with respect to awards under the Company's stock
option or other incentive plans, or (iii) any signed written
agreement hereafter executed by Company and Executive, this
Agreement constitutes the entire agreement of the parties with
regard to the subject matter hereof, and contains all the
covenants, promises, representations, warranties and agreements
between the parties with respect to employment of Executive by
Company. Without limiting the scope of the preceding sentence, all
prior understandings and agreements among the parties hereto
relating to the subject matter hereof are hereby null and void and
of no further force and effect (it being the specific intent of the
parties hereto that this Agreement shall amend and restate in its
entirety the Existing Agreement). Any modification of this
Agreement shall be effective only if it is in writing and signed by
the party to be charged.
5.13 Deemed Resignations. Any termination of Executive's
employment shall constitute an automatic resignation of Executive
as an officer of Company and each affiliate of Company, and an
automatic resignation of Executive from the Board of Directors (if
applicable) and from the board of directors of any affiliate of
Company.
*******
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the 16th day of September, 1999.
CONTINENTAL AIRLINES, INC.
By:________________________________
Name:
Title:
"EXECUTIVE"
______________________________
C.D. McLean
EXHIBIT 10.6
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT ("Agreement")
is made by and between CONTINENTAL AIRLINES, INC., a Delaware
corporation ("Company"), and Jeffery A. Smisek ("Executive").
W I T N E S S E T H:
WHEREAS, Company and Executive are parties to that certain
Amended and Restated Employment Agreement dated as of November 15,
1995, as amended by Amendment to Employment Agreement dated as of
April 19, 1996, Amendment to Employment Agreement dated as of
September 30, 1996, Amendment to Employment Agreement dated as of
November 20, 1998, and Amendment to Employment Agreement dated as
of May 19, 1999 (as so amended, the "Existing Agreement"); and
WHEREAS, the Human Resources Committee of the Board of
Directors, at its September 16, 1999 meeting, authorized the
amendment of the employment agreements of certain officers of the
Company, including Executive, with respect to certain matters,
including the amendment and restatement of Executive's Existing
Agreement; and
WHEREAS, in connection therewith, the parties desire to amend
the Existing Agreement and restate it, as so amended, in its
entirety as this Agreement;
NOW, THEREFORE, for and in consideration of the mutual
promises, covenants and obligations contained herein, Company and
Executive agree as follows:
ARTICLE 1: EMPLOYMENT AND DUTIES
1.1 Employment; Effective Date. Company agrees to employ
Executive and Executive agrees to be employed by Company, beginning
as of the Effective Date (as hereinafter defined) and continuing
for the period of time set forth in Article 2 of this Agreement,
subject to the terms and conditions of this Agreement. For
purposes of this Agreement, the "Effective Date" shall be September
16, 1999.
1.2 Position. Company shall employ Executive in the
position of Executive Vice President, General Counsel and
Secretary, or in such other position or positions as the parties
mutually may agree.
1.3 Duties and Services. Executive agrees to serve in the
position referred to in paragraph 1.2 and to perform diligently and
to the best of his abilities the duties and services appertaining
to such office as set forth in the Bylaws of Company in effect on
the Effective Date, as well as such additional duties and services
appropriate to such office which the parties mutually may agree
upon from time to time.
ARTICLE 2: TERM AND TERMINATION OF EMPLOYMENT
2.1 Term. Unless sooner terminated pursuant to other
provisions hereof, Company agrees to employ Executive through the
date which is two years and a day after the date of closing of the
acquisition by an affiliate of Northwest Airlines Corporation of
beneficial ownership of the Class A common stock held by Air
Partners, L.P. (the "Acquisition") contemplated by the Investment
Agreement dated as of January 25, 1998, as amended, among Air
Partners, L.P., its partners and certain affiliates and Northwest
Airlines Corporation and its affiliate (the "Investment
Agreement").
2.2 Company's Right to Terminate. Notwithstanding the
provisions of paragraph 2.1, Company, acting pursuant to an express
resolution of the Board of Directors of Company (the "Board of
Directors") or the Human Resources Committee of the Board of
Directors (the "HR Committee"), shall have the right to terminate
Executive's employment under this Agreement at any time for any of
the following reasons:
(i) upon Executive's death;
(ii) upon Executive's becoming incapacitated for a
period of at least 180 days by accident, sickness or other
circumstance which renders him mentally or physically
incapable of performing the material duties and services
required of him hereunder on a full-time basis during such
period;
(iii) for cause, which for purposes of this Agreement
shall mean Executive's gross negligence or willful misconduct
in the performance of, or Executive's abuse of alcohol or
drugs rendering him unable to perform, the material duties
and services required of him pursuant to this Agreement;
(iv) for Executive's material breach of any
provision of this Agreement which, if correctable, remains
uncorrected for 30 days following written notice to Executive
by Company of such breach; or
(v) for any other reason whatsoever, in the sole
discretion of the Board of Directors or the Human Resources
Committee.
2.3 Executive's Right to Terminate. Notwithstanding the
provisions of paragraph 2.1, Executive shall have the right to
terminate his employment under this Agreement at any time for any
of the following reasons:
(i) the assignment to Executive by the Board of
Directors or HR Committee or other officers or representatives
of Company of duties materially inconsistent with the duties
associated with the position described in paragraph 1.2 as
such duties are constituted as of the Effective Date;
(ii) a material diminution in the nature or scope of
Executive's authority, responsibilities, or title from those
applicable to him as of the Effective Date;
(iii) the occurrence of material acts or conduct on
the part of Company or its officers or representatives which
prevent Executive from performing his duties and
responsibilities pursuant to this Agreement;
(iv) Company requiring Executive to be permanently
based anywhere outside a major urban center in Texas;
(v) the taking of any action by Company that would
materially adversely affect the corporate amenities enjoyed by
Executive on the Effective Date;
(vi) a material breach by Company of any provision
of this Agreement which, if correctable, remains uncorrected
for 30 days following written notice of such breach by
Executive to Company; or
(vii) for any other reason whatsoever, in the sole
discretion of Executive.
2.4 Notice of Termination. If Company or Executive desires
to terminate Executive's employment hereunder at any time prior to
expiration of the term of employment as provided in paragraph 2.1,
it or he shall do so by giving written notice to the other party
that it or he has elected to terminate Executive's employment
hereunder and stating the effective date and reason for such
termination, provided that no such action shall alter or amend any
other provisions hereof or rights arising hereunder.
ARTICLE 3: COMPENSATION AND BENEFITS
3.1 Base Salary. During the period of this Agreement,
Executive shall receive a minimum annual base salary equal to the
greater of (i) $400,000.00 or (ii) such amount as the parties
mutually may agree upon from time to time. Executive's annual base
salary shall be paid in equal installments in accordance with
Company's standard policy regarding payment of compensation to
executives but no less frequently than semimonthly.
3.2 Bonus Programs. Executive shall participate in each
cash bonus program maintained by Company on and after the Effective
Date at a level which is not less than the maximum participation
level made available to any other executive of Company at
substantially the same title or level of Executive (determined
without regard to period of service or other criteria that might
otherwise be necessary to entitle Executive to such level of
participation).
<PAGE>
3.3 Vacation and Sick Leave. During each year of his
employment, Executive shall be entitled to vacation and sick leave
benefits equal to the maximum available to any Company executive,
determined without regard to the period of service that might
otherwise be necessary to entitle Executive to such vacation or
sick leave under standard Company policy.
3.4 Other Perquisites. During his employment hereunder,
Executive shall be afforded the following benefits as incidences of
his employment:
(i) Business and Entertainment Expenses - Subject
to Company's standard policies and procedures with respect to
expense reimbursement as applied to its executive employees
generally, Company shall reimburse Executive for, or pay on
behalf of Executive, reasonable and appropriate expenses
incurred by Executive for business related purposes, including
dues and fees to industry and professional organizations,
costs of entertainment and business development, and costs
reasonably incurred as a result of Executive's spouse
accompanying Executive on business travel.
(ii) Parking - Company shall provide at no expense
to Executive a parking place convenient to Executive's office
and a parking place at Intercontinental Airport in Houston,
Texas.
(iii) Other Company Benefits - Executive and, to the
extent applicable, Executive's family, dependents and
beneficiaries, shall be allowed to participate in all
benefits, plans and programs, including improvements or
modifications of the same, which are now, or may hereafter be,
available to similarly-situated Company employees. Such
benefits, plans and programs may include, without limitation,
profit sharing plan, thrift plan, annual physical
examinations, health insurance or health care plan, life
insurance, disability insurance, pension plan, pass privileges
on Continental Airlines, Flight Benefits and the like.
Company shall not, however, by reason of this paragraph be
obligated to institute, maintain, or refrain from changing,
amending or discontinuing, any such benefit plan or program,
so long as such changes are similarly applicable to executive
employees generally.
3.5 Supplemental Executive Retirement Plan.
(i) Base Benefit. Company agrees to pay Executive
the deferred compensation benefits set forth in this paragraph
3.5 as a supplemental retirement plan (the "Plan"). The base
retirement benefit under the Plan (the "Base Benefit") shall
be in the form of an annual straight life annuity in an amount
equal to the product of (a) 2.5% times (b) the number of
Executive's credited years of service (as defined below) under
the Plan (but not in excess of 26 years) times (c) the
Executive's final average compensation (as defined below).
For purposes hereof, Executive's credited years of service
under the Plan shall be equal to the sum of (1) the number of
Executive's years of benefit service with Company, calculated
as set forth in the Continental Retirement Plan (the "CARP")
beginning at January 1, 1995 ("Actual Years of Service"), (2)
an additional two years of service for each one year of
service credited to Executive pursuant to clause (1) of this
sentence for the period beginning on January 1, 2000 and
ending on December 31, 2004, and (3) three additional years of
service if Executive is paid the Termination Payment under
this Agreement. For purposes hereof, Executive's final
average compensation shall be equal to the greater of (A)
$400,000.00 or (B) the average of the five highest annual cash
compensation amounts (or, if Executive has been employed less
than five years by Company, the average over the full years
employed by Company) paid to Executive by Company during the
consecutive ten calendar years immediately preceding
Executive's termination of employment at retirement or
otherwise. For purposes hereof, cash compensation shall
include base salary plus cash bonuses (including any amounts
deferred (other than Stay Bonus amounts described below)
pursuant to any deferred compensation plan of the Company),
but shall exclude (i) any cash bonus paid on or prior to March
31, 1995, (ii) any Stay Bonus paid to Executive pursuant to
that certain Stay Bonus Agreement between Company and
Executive dated as of April 14, 1998, and (iii) any cash bonus
paid under a long term incentive plan or program adopted by
Company. Executive shall be vested immediately with respect
to benefits due under the Plan.
(ii) Offset for CARP Benefit. Any provisions of the
Plan to the contrary notwithstanding, the Base Benefit shall
be reduced by the actuarial equivalent (as defined below) of
the pension benefit, if any, paid or payable to Executive from
the CARP. In making such reduction, the Base Benefit and the
benefit paid or payable under the CARP shall be determined
under the provisions of each plan as if payable in the form of
an annual straight life annuity beginning on the Retirement
Date (as defined below). The net benefit payable under this
Plan shall then be actuarially adjusted based on the actuarial
assumptions set forth in paragraph 3.5(vii) for the actual
time and form of payments.
(iii) Normal and Early Retirement Benefits.
Executive's benefit under the Plan shall be payable in equal
monthly installments beginning on the first day of the month
following the Retirement Date (the "Normal Retirement
Benefit"). For purposes hereof, "Retirement Date" is defined
as the later of (a) the date on which Executive attains (or in
the event of Executive's earlier death, would have attained)
age 60 or (b) the date of Executive's retirement from
employment with Company. Notwithstanding the foregoing, if
Executive's employment with Company is terminated, for a
reason other than death, on or after the date Executive
attains age 55 or is credited with 10 Actual Years of Service
and prior to the Retirement Date, then Executive shall be
entitled to elect to commence to receive Executive's benefit
under the Plan as of the first day of any month coinciding
with or next following Executive's termination of employment,
or as the first day of any subsequent month preceding the
Retirement Date (an "Early Retirement Benefit"); provided,
however, that (1) written notice of such election must be
received by Company not less than 15 days prior to the
proposed date of commencement of the benefit, (2) each payment
under an Early Retirement Benefit shall be reduced to the
extent necessary to cause the value of such Early Retirement
Benefit (determined without regard to clause (3) of this
proviso) to be the actuarial equivalent of the value of the
Normal Retirement Benefit (in each case based on the actuarial
assumptions set forth in paragraph 3.5(vii) and adjusted for
the actual time and form of payments), and (3) each payment
under an Early Retirement Benefit that is made prior to the
Retirement Date shall be reduced by an additional 10% of the
amount of such payment as initially determined pursuant to
clause (2) of this proviso. The HR Committee may, in its sole
and absolute discretion, waive all or any part of the
reductions contemplated in clauses (2) and/or (3) of the
proviso of the preceding sentence.
(iv) Form of Retirement Benefit. If Executive is
not married on the date Executive's benefit under paragraph
3.5(iii) commences, then benefits under the Plan will be paid
to Executive in the form of a single life annuity for the life
of Executive. If Executive is married on the date Executive's
benefit under paragraph 3.5(iii) commences, then benefits
under the Plan will be paid in the form of a joint and
survivor annuity that is actuarially equivalent to the benefit
that would have been payable under the Plan to Executive if
Executive was not married on such date, with Executive's
spouse as of the date benefit payments commence being entitled
during such spouse's lifetime after Executive's death to a
benefit equal to 50% of the benefit payable to Executive
during their joint lifetimes.
(v) Death Benefit. Except as provided in this
paragraph 3.5(v), no benefits shall be paid under the Plan if
Executive dies prior to the date Executive's benefit commences
pursuant to paragraph 3.5(iii). In the event of Executive's
death prior to the commencement of Executive's benefit
pursuant to paragraph 3.5(iii), Executive's surviving spouse,
if Executive is married on the date of Executive's death, will
receive a single life annuity consisting of monthly payments
for the life of such surviving spouse determined as follows:
(a) if Executive dies on or before reaching the Retirement
Date, the death benefit such spouse would have received had
Executive terminated employment on the earlier of Executive's
actual date of termination of employment or Executive's date
of death, survived until the Retirement Date, began to receive
Executive's Plan benefit beginning immediately at the
Retirement Date, and died on the day after the Retirement
Date; or (b) if Executive dies after reaching the Retirement
Date, the death benefit such spouse would have received had
Executive begun to receive Executive's Plan benefit beginning
on the day prior to Executive's death. Payment of such
survivor annuity shall begin on the first day of the month
following the later of (1) Executive's date of death or (2)
the Retirement Date; provided, however, that if Executive was
eligible to elect an Early Retirement Benefit as of the date
of Executive's death, then Executive's surviving spouse shall
be entitled to elect to commence to receive such survivor
annuity as of the first day of the month next following the
date of Executive's death, or as the first day of any
subsequent month preceding the Retirement Date. Notice of
such election must be received by Company not less than 15
days prior to the proposed date of commencement of the
benefit, and each payment of such survivor annuity shall be
reduced based on the principles used for the reductions
described in clauses (2) and (3) of the proviso to the third
sentence of paragraph 3.5(iii).
(vi) Unfunded Benefit. The Plan is intended to
constitute an unfunded, unsecured plan of deferred
compensation. Further, it is the intention of Company that
the Plan be unfunded for purposes of the Internal Revenue Code
of 1986, as amended, and Title I of the Employee Retirement
Income Security Act of 1974, as amended. The Plan constitutes
a mere promise by Company to make benefit payments in the
future. Plan benefits hereunder provided are to be paid out
of Company's general assets, and Executive shall have the
status of, and shall have no better status than, a general
unsecured creditor of Company. Executive understands that he
must rely upon the general credit of Company for payment of
benefits under the Plan. Company shall establish a "rabbi"
trust to assist Company in meeting its obligations under the
Plan. The trustee of such trust shall be a nationally-
recognized and solvent bank or trust company that is not
affiliated with Company. Company shall transfer to the
trustee money and/or other property determined in the sole
discretion of the HR Committee based on the advice of the
Actuary (as defined below) on an as-needed basis in order to
assure that the benefit payable under the Plan is at all times
fully funded. The trustee shall pay Plan benefits to
Executive and/or Executive's spouse out of the trust assets if
such benefits are not paid by Company. Company shall remain
the owner of all assets in the trust, and the assets shall be
subject to the claims of Company creditors in the event (and
only in the event) Company ever becomes insolvent. Neither
Executive nor any beneficiary of Executive shall have any
preferred claim to, any security interest in, or any
beneficial ownership interest in any assets of the trust.
Company has not and will not in the future set aside assets
for security or enter into any other arrangement which will
cause the obligation created to be other than a general
corporate obligation of Company or will cause Executive to be
more than a general creditor of Company.
(vii) Actuarial Equivalent. For purposes of the
Plan, the terms "actuarial equivalent", or "actuarially
equivalent" when used with respect to a specified benefit
shall mean the amount of benefit of the referenced different
type or payable at the referenced different age that can be
provided at the same cost as such specified benefit, as
computed by the Actuary and certified to Executive (or, in the
case of Executive's death, to his spouse) by the Actuary. The
actuarial assumptions used under the Plan to determine
equivalencies between different forms and times of payment
shall be the same as the actuarial assumptions then used in
determining benefits payable under the CARP. The term
"Actuary" shall mean the individual actuary or actuarial firm
selected by Company to service its pension plans generally or
if no such individual or firm has been selected, an individual
actuary or actuarial firm appointed by Company and reasonably
satisfactory to Executive and/or Executive's spouse.
(viii) Medicare Payroll Taxes. Company shall
indemnify Executive on a fully grossed-up, after-tax basis for
any Medicare payroll taxes (plus any income taxes on such
indemnity payments) incurred by Executive in connection with
the accrual and/or payment of benefits under the Plan.
ARTICLE 4: EFFECT OF TERMINATION ON COMPENSATION
4.1 By Expiration. If Executive's employment hereunder
shall terminate upon expiration of the term provided in paragraph
2.1 hereof, then all compensation and all benefits to Executive
hereunder shall terminate contemporaneously with termination of his
employment; provided, however, that Executive shall be provided
with Flight Benefits for the remainder of Executive's lifetime, the
benefits described in paragraph 3.5 shall continue to be payable,
the benefits described in clauses (2) through (4) of paragraph
4.7(vi) shall be provided for the time periods specified therein
and Company shall cause all options and shares of restricted stock
awarded to Executive, including, without limitation, any such
awards under Company's 1998 Stock Incentive Plan (the "1998 Plan"),
and other Awards (as defined in the 1998 Plan) made to Executive
under the 1998 Plan, to vest immediately upon such termination and,
with respect to options, be exercisable in full for 30 days after
such termination.
4.2 By Company. If Executive's employment hereunder shall
be terminated by Company prior to expiration of the term provided
in paragraph 2.1 hereof then, upon such termination, regardless of
the reason therefor, all compensation and all benefits to Executive
hereunder shall terminate contemporaneously with the termination of
such employment, except the benefits described in paragraph 3.5
shall continue to be payable, and if such termination shall be for
any reason other than those encompassed by paragraphs 2.2(i), (ii),
(iii) or (iv), then Company shall (a) pay Executive on or before
the effective date of such termination a lump-sum, cash payment in
an amount equal to the Termination Payment (as such term is defined
in paragraph 4.7) and cause all options and shares of restricted
stock awarded to Executive, including, without limitation, any such
awards under Company's 1998 Plan, and other Awards (as defined in
the 1998 Plan) made to Executive under the 1998 Plan, to vest
immediately upon such termination and, with respect to options, be
exercisable in full for 30 days after such termination, (b) provide
Executive with Flight Benefits (as such term is defined in para-
graph 4.7) for the remainder of Executive's lifetime, (c) provide
Executive with Outplacement Services (as such term is defined in
paragraph 4.7), and (d) provide Executive and his eligible
dependents with Continuation Coverage (as such term is defined in
paragraph 4.7) for the Severance Period.
4.3 By Executive. If Executive's employment hereunder shall
be terminated by Executive prior to expiration of the term provided
in paragraph 2.1 hereof then, upon such termination, regardless of
the reason therefor, all compensation and benefits to Executive
hereunder shall terminate contemporaneously with the termination of
employment, except Executive shall be provided Flight Benefits (as
such term is defined in paragraph 4.7) for the remainder of
Executive's lifetime, the benefits described in paragraph 3.5 shall
continue to be payable, and if such termination shall be pursuant
to paragraphs 2.3(i), (ii), (iii), (iv), (v), or (vi), then Company
shall provide Executive with the payments and benefits described in
clauses (a), (c) and (d) of paragraph 4.2.
4.4 Certain Additional Payments by Company.
Notwithstanding anything to the contrary in this Agreement, if any
payment, distribution or provision of a benefit by Company to or
for the benefit of Executive, whether paid or payable, distributed
or distributable or provided or to be provided pursuant to the
terms of this Agreement or otherwise (a "Payment"), would be
subject to an excise or other special additional tax that would not
have been imposed absent such Payment (including, without
limitation, any excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended), or any interest or penalties
with respect to such excise or other additional tax (such excise or
other additional tax, together with any such interest or penalties,
are hereinafter collectively referred to as the "Excise Tax"),
Company shall pay to Executive an additional payment (a "Gross-up
Payment") in an amount such that after payment by Executive of all
taxes (including any interest or penalties imposed with respect to
such taxes), including any income taxes and Excise Taxes imposed on
any Gross-up Payment, Executive retains an amount of the Gross-up
Payment (taking into account any similar gross-up payments to
Executive under the Incentive Plan (as such term is defined in
paragraph 4.7)) equal to the Excise Tax imposed upon the Payments.
Company and Executive shall make an initial determination as to
whether a Gross-up Payment is required and the amount of any such
Gross-up Payment. Executive shall notify Company in writing of any
claim by the Internal Revenue Service which, if successful, would
require Company to make a Gross-up Payment (or a Gross-up Payment
in excess of that, if any, initially determined by Company and
Executive) within ten business days after the receipt of such
claim. Company shall notify Executive in writing at least ten
business days prior to the due date of any response required with
respect to such claim if it plans to contest the claim. If Company
decides to contest such claim, Executive shall cooperate fully with
Company in such action; provided, however, Company shall bear and
pay directly or indirectly all costs and expenses (including
additional interest and penalties) incurred in connection with such
action and shall indemnify and hold Executive harmless, on an
after-tax basis, for any Excise Tax or income tax, including
interest and penalties with respect thereto, imposed as a result of
Company's action. If, as a result of Company's action with respect
to a claim, Executive receives a refund of any amount paid by
Company with respect to such claim, Executive shall promptly pay
such refund to Company. If Company fails to timely notify
Executive whether it will contest such claim or Company determines
not to contest such claim, then Company shall immediately pay to
Executive the portion of such claim, if any, which it has not
previously paid to Executive.
4.5 Payment Obligations Absolute. Company's obligation to
pay Executive the amounts and to make the arrangements provided in
this Article 4 shall be absolute and unconditional and shall not be
affected by any circumstances, including, without limitation, any
set-off, counterclaim, recoupment, defense or other right which
Company (including its subsidiaries and affiliates) may have
against him or anyone else. All amounts payable by Company shall
be paid without notice or demand. Executive shall not be obligated
to seek other employment in mitigation of the amounts payable or
arrangements made under any provision of this Article 4, and,
except as provided in paragraph 4.7 with respect to Continuation
Coverage, the obtaining of any such other employment (or the
engagement in any endeavor as an independent contractor, sole
proprietor, partner, or joint venturer) shall in no event effect
any reduction of Company's obligations to make (or cause to be
made) the payments and arrangements required to be made under this
Article 4.
4.6 Liquidated Damages. In light of the difficulties in
estimating the damages upon termination of this Agreement, Company
and Executive hereby agree that the payments and benefits, if any,
to be received by Executive pursuant to this Article 4 shall be
received by Executive as liquidated damages. Payment of the
Termination Payment pursuant to paragraphs 4.2 or 4.3 shall be in
lieu of any severance benefit Executive may be entitled to under
any severance plan or policy maintained by Company.
4.7 Certain Definitions and Additional Terms. As used
herein, the following capitalized terms shall have the meanings
assigned below:
(i) "Annualized Compensation" shall mean an amount
equal to the sum of (1) Executive's annual base salary
pursuant to paragraph 3.1 in effect immediately prior to
Executive's termination of employment hereunder and (2) a
deemed annual bonus which shall be equal to the Bonus
Percentage of the amount described in clause (1) of this
paragraph 4.7(i). The "Bonus Percentage" shall be a
percentage equal to the annual percentage of base salary
(i.e., 0% to 125%) paid or payable to a participant under the
Company's Executive Bonus Program (and its predecessor or any
successor plan or program) with respect to the most recent
fiscal year ended prior to Executive's termination of employment;
(ii) "Change in Control" shall have the meaning
assigned to such term in the 1998 Plan (as adopted by the
Board of Directors on April 14, 1998 and in effect on such
date, it being understood that such term shall be the new
Change in Control term contained in the 1998 Plan, and not the
alternate Change in Control term (identical to that contained
in the 1997 Stock Incentive Plan) also set forth in the 1998
Plan for the eventuality that the Acquisition does not close);
provided, however, that Company and Executive agree that the
Acquisition, upon the closing thereof, constituted a Change in
Control (as defined in the Existing Agreement prior to the
amendment to the Existing Agreement dated as of November 20,
1998) and will be considered to be, and to have the effect of,
a Change in Control under this Agreement;
(iii) "Continuation Coverage" shall mean the
continued coverage of Executive and his eligible dependents
under Company's welfare benefit plans available to executives
of Company who have not terminated employment (or the
provision of equivalent benefits), including, without
limitation, medical, health, dental, life insurance,
disability, vision care, accidental death and dismemberment,
and prescription drug, at no greater cost to Executive than
that applicable to a similarly situated Company executive who
has not terminated employment; provided, however, that (1)
subject to clause (2) below, the coverage under a particular
welfare benefit plan (or the receipt of equivalent benefits)
shall terminate upon Executive's receipt of comparable
benefits from a subsequent employer and (2) if Executive
(and/or his eligible dependents) would have been entitled to
retiree coverage under a particular welfare benefit plan had
he voluntarily retired on the date of his termination of
employment, then such coverage shall be continued as provided
in such plan upon the expiration of the period Continuation
Coverage is to be provided pursuant to this Article 4.
Notwithstanding any provision in this Article 4 to the
contrary, Executive's entitlement to any benefit continuation
pursuant to Section 601 et. seq. of the Employee Retirement
Income Security Act of 1974, as amended, shall commence at the
end of the period of, and shall not be reduced by the
provision of, any applicable Continuation Coverage;
(iv) "Flight Benefits" shall mean flight benefits on
each airline operated by the Company or any of its affiliates
or any successor or successors thereto (the "CO system"),
consisting of the highest priority space available flight
passes for Executive and Executive's eligible family members
(as such eligibility is in effect on May 18, 1999), a
Universal Air Travel Plan (UATP) card (or, in the event of
discontinuance of the UATP program, a similar charge card
permitting the purchase of air travel through direct billing
to the Company or any successor or successors thereto (a
"Similar Card")) in Executive's name for charging on an annual
basis up to the applicable Annual Travel Limit (as hereinafter
defined) with respect to such year in value (valued
identically to the calculation of imputed income resulting
from such flight benefits described below) of flights (in any
fare class) on the CO system for Executive, Executive's
spouse, Executive's family and significant others as
determined by Executive, a Platinum Elite OnePass Card (or
similar highest category successor frequent flyer card) in
Executive's name for use on the CO system, a membership for
Executive and Executive's spouse in the Company's President's
Club (or any successor program maintained in the CO system)
and payment by the Company to Executive of an annual amount
(not to exceed in any year the applicable Annual Gross Up
Limit (as hereinafter defined) with respect to such year)
sufficient to pay, on an after tax basis (i.e., after the
payment by Executive of all taxes on such amount), the U.S.
federal, state and local income taxes on imputed income
resulting from such flights (such imputed income to be
calculated during the term of such Flight Benefits at the
lowest published fare (i.e., 21 day advance purchase coach
fare, lowest negotiated consolidator net fare, or other lowest
available fare) for the applicable itinerary (or similar
flights on or around the date of such flight), regardless of
the actual fare class booked or flown, or as otherwise
required by law) or resulting from any other flight benefits
extended to Executive as a result of Executive's service as an
executive of the Company;
(v) "Incentive Plan" shall mean Company's 1994
Incentive Equity Plan, as amended;
(vi) "Outplacement Services" shall mean (1)
outplacement services, at Company's cost and for a period of
twelve months beginning on the date of Executive's termination
of employment, to be rendered by an agency selected by
Executive and approved by the Board of Directors or HR
Committee (with such approval not to be unreasonably
withheld), (2) appropriate and suitable office space at the
Company's headquarters (although not on its executive office
floor) or at a comparable location in downtown Houston for use
by Executive, together with appropriate and suitable
secretarial assistance, at Company's cost and for a period of
three years beginning on the date of Executive's termination
of employment, (3) a reserved parking place convenient to the
office so provided and a reserved parking place at George Bush
Intercontinental Airport in Houston, Texas consistent with
past practice, at Company's cost and for as long as Executive
retains a residence in Houston, Texas, and (4) other
incidental perquisites (such as free or discount air travel,
car rental, phone or similar service cards) currently enjoyed
by Executive as a result of his position, to the extent then
available for use by Executive, for a period of three years
beginning on the date of Executive's termination of employment
or a shorter period if such perquisites become unavailable to
the Company for use by Executive;
(vii) "Severance Period" shall mean:
(1)in the case of a termination of Executive's
employment with Company that occurs within two years after the
date upon which a Change in Control occurs, a period
commencing on the date of such termination and continuing for
thirty-six months; or
(2)in the case of a termination of Executive's
employment with Company that occurs prior to a Change in
Control or after the date which is two years after a Change in
Control occurs, a period commencing on the date of such
termination and continuing for twenty-four months; and
(viii) "Termination Payment" shall mean an amount
equal to Executive's Annualized Compensation multiplied by a
fraction, the numerator of which is the number of months in
the Severance Period and the denominator of which is twelve.
As used for purposes of Flight Benefits, with respect to any
year, the term "Annual Travel Limit" shall mean an amount
(initially $50,000), which amount shall be adjusted (i) annually
(beginning with the year 2000) by multiplying such amount by a
fraction, the numerator of which shall be the Company's average
fare per revenue passenger for its jet operations (excluding
regional jets) with respect to the applicable year as reported in
its Annual Report on Form 10-K (or, if not so reported, as
determined by the Company's independent auditors) (the "Average
Fare") for such year, and the denominator of which shall be the
Average Fare for the prior year, (ii) annually to add thereto any
portion of such amount unused since the year 1999, and (iii) after
adjustments described in clauses (i) and (ii) above, automatically
upon any change in the valuation methodology for imputed income
from flights (as compared with the valuation methodology for
imputed income from flights used by the Company as of May 18,
1999), so as to preserve the benefit of $50,000 annually (adjusted
in accordance with clauses (i) and (ii) above) of flights relative
to the valuations resulting from the valuation methodology used by
the Company as of May 18, 1999 (e.g., if a change in the valuation
methodology results, on average, in such flights being valued 15%
higher than the valuation that would result using the valuation
methodology used by the Company as of May 18, 1999, then the Annual
Travel Limit would be increased by 15% to $57,500, assuming no
other adjustments pursuant to clauses (i) and (ii) above). In
determining any adjustment pursuant to clause (iii) above, the
Company shall be entitled to rely on a good faith calculation
performed by its independent auditors based on a statistically
significant random sampling of flight valuations compared with the
applicable prior valuations of identical flights, which calculation
(and the basis for any adjustments pursuant to clauses (i) or (ii)
above) will be provided to Executive upon request. The Company
will promptly notify Executive in writing of any adjustments to the
Annual Travel Limit described in this paragraph.
As used for purposes of Flight Benefits, with respect to any
year, the term "Annual Gross Up Limit" shall mean an amount
(initially $10,000), which amount shall be adjusted (i) annually
(beginning with the year 2000) by multiplying such amount by a
fraction, the numerator of which shall be the Average Fare for such
year, and the denominator of which shall be the Average Fare for
the prior year, (ii) annually to add thereto any portion of such
amount unused since the year 1999, and (iii) after adjustments
described in clauses (i) and (ii) above, automatically upon any
change in the valuation methodology for imputed income from flights
(as compared with the valuation methodology for imputed income from
flights used by the Company as of May 18, 1999), so as to preserve
the benefit of $10,000 annually (adjusted in accordance with
clauses (i) and (ii) above) of tax gross up relative to the
valuations resulting from the valuation methodology used by the
Company as of May 18, 1999 (e.g., if a change in the valuation
methodology results, on average, in flights being valued 15% higher
than the valuation that would result using the valuation
methodology used by the Company as of May 18, 1999, then the Annual
Gross Up Limit would be increased by 15% to $11,500, assuming no
other adjustments pursuant to clauses (i) and (ii) above). In
determining any adjustment pursuant to clause (iii) above, the
Company shall be entitled to rely on a good faith calculation
performed by its independent auditors based on a statistically
significant random sampling of flight valuations compared with the
applicable prior valuations of identical flights, which calculation
(and the basis for any adjustments pursuant to clauses (i) or (ii)
above) will be provided to Executive upon request. The Company
will promptly notify Executive in writing of any adjustments to the
Annual Gross Up Limit described in this paragraph.
As used for purposes of Flight Benefits, a year may consist of
twelve consecutive months other than a calendar year, it being the
Company's practice as of May 18, 1999 for purposes of Flight
Benefits for a year to commence on December 1 and end on the
following November 30 (for example, the twelve-month period from
December 1, 1998 to November 30, 1999 is considered the year 1999
for purposes of Flight Benefits); provided that all calculations
for purposes of clause (i) in the prior two paragraphs shall be
with respect to fiscal years of the Company.
As used for purposes of Flight Benefits, the term "affiliates"
of the Company means any entity controlled by, controlling, or
under common control with the Company, it being understood that
control of an entity shall require the direct or indirect ownership
of a majority of the outstanding capital stock of such entity.
No tickets issued on the CO system in connection with the
Flight Benefits may be purchased other than directly from the
Company or its successor or successors (i.e., no travel agent or
other fee or commission based distributor may be used), nor may any
such tickets be sold or transferred by Executive or any other
person, nor may any such tickets be used by any person other than
the person in whose name the ticket is issued. Executive agrees
that, after receipt of an invoice or other accounting statement
therefor, he will promptly (and in any event within 45 days after
receipt of such invoice or other accounting statement) reimburse
the Company for all charges on his UATP card (or Similar Card)
which are not for flights on the CO system and which are not
otherwise reimbursable to Executive under the provisions of
paragraph 3.4(i) hereof, or which are for tickets in excess of the
applicable Annual Travel Limit. Executive agrees that the credit
availability under Executive's UATP card (or Similar Card) may be
suspended if Executive does not timely reimburse the Company as
described in the foregoing sentence or if Executive exceeds the
applicable Annual Travel Limit with respect to a year; provided,
that, immediately upon the Company's receipt of Executive's
reimbursement in full (or, in the case of exceeding the applicable
Annual Travel Limit, beginning the next following year and after
such reimbursement), the credit availability under Executive's UATP
card (or Similar Card) will be restored.
The sole cost to Executive of flights on the CO system
pursuant to use of Executive's Flight Benefits will be the imputed
income with respect to flights on the CO system charged on
Executive's UATP card (or Similar Card), calculated throughout the
term of Executive's Flight Benefits at the lowest published fare
(i.e., 21 day advance purchase coach fare, lowest negotiated
consolidator net fare or other lowest available fare) for the
applicable itinerary (or similar flights on or around the date of
such flight), regardless of the actual fare class booked or flown,
or as otherwise required by law, and reported to Executive as
required by applicable law. With respect to any period for which
the Company is obligated to provide the tax gross up described
above, Executive will provide to the Company, upon request, a
calculation or other evidence of Executive's marginal tax rate
sufficient to permit the Company to calculate accurately the amount
to be paid to Executive.
Executive will be issued a UATP card (or Similar Card), a
Platinum Elite OnePass Card (or similar highest category successor
frequent flyer card), a membership card in the Company's Presidents
Club (or any successor program maintained in the CO system) for
Executive and Executive's spouse, and an appropriate flight pass
identification card, each valid at all times during the term of
Executive's Flight Benefits.
ARTICLE 5: MISCELLANEOUS
5.1 Interest and Indemnification. If any payment to
Executive provided for in this Agreement is not made by Company
when due, Company shall pay to Executive interest on the amount
payable from the date that such payment should have been made until
such payment is made, which interest shall be calculated at 3% plus
the prime or base rate of interest announced by Texas Commerce Bank
National Association (or any successor thereto) at its principal
office in Houston, Texas (but not in excess of the highest lawful
rate), and such interest rate shall change when and as any such
change in such prime or base rate shall be announced by such bank.
If Executive shall obtain any money judgment or otherwise prevail
with respect to any litigation brought by Executive or Company to
enforce or interpret any provision contained herein, Company, to
the fullest extent permitted by applicable law, hereby indemnifies
Executive for his reasonable attorneys' fees and disbursements
incurred in such litigation and hereby agrees (i) to pay in full
all such fees and disbursements and (ii) to pay prejudgment
interest on any money judgment obtained by Executive from the
earliest date that payment to him should have been made under this
Agreement until such judgment shall have been paid in full, which
interest shall be calculated at the rate set forth in the preceding
sentence.
5.2 Notices. For purposes of this Agreement, notices and
all other communications provided for herein shall be in writing
and shall be deemed to have been duly given when personally
delivered or when mailed by United States registered or certified
mail, return receipt requested, postage prepaid, addressed as
follows:
If to Company to: Continental Airlines, Inc.
1600 Smith, Dept. HQSEO
Houston, Texas 77002
Attention: General Counsel
If to Executive to: Jeffery A. Smisek
5211 Briar Drive
Houston, Texas 77056
or to such other address as either party may furnish to the other
in writing in accordance herewith, except that notices of changes
of address shall be effective only upon receipt.
5.3 Applicable Law. This contract is entered into under,
and shall be governed for all purposes by, the laws of the State of
Texas.
5.4 No Waiver. No failure by either party hereto at any
time to give notice of any breach by the other party of, or to
require compliance with, any condition or provision of this
Agreement shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent
time.
5.5 Severability. If a court of competent jurisdiction
determines that any provision of this Agreement is invalid or
unenforceable, then the invalidity or unenforceability of that
provision shall not affect the validity or enforceability of any
other provision of this Agreement, and all other provisions shall
remain in full force and effect.
5.6 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original,
but all of which together will constitute one and the same
Agreement.
5.7 Withholding of Taxes and Other Employee Deductions.
Company may withhold from any benefits and payments made pursuant
to this Agreement all federal, state, city and other taxes as may
be required pursuant to any law or governmental regulation or
ruling and all other normal employee deductions made with respect
to Company's employees generally.
5.8 Headings. The paragraph headings have been inserted
for purposes of convenience and shall not be used for interpretive
purposes.
5.9 Gender and Plurals. Wherever the context so requires,
the masculine gender includes the feminine or neuter, and the
singular number includes the plural and conversely.
5.10 Successors. This Agreement shall be binding upon and
inure to the benefit of Company and any successor of the Company,
including without limitation any person, association, or entity
which may hereafter acquire or succeed to all or substantially all
of the business or assets of Company by any means whether direct or
indirect, by purchase, merger, consolidation, or otherwise. Except
as provided in the preceding sentence, this Agreement, and the
rights and obligations of the parties hereunder, are personal and
neither this Agreement, nor any right, benefit or obligation of
either party hereto, shall be subject to voluntary or involuntary
assignment, alienation or transfer, whether by operation of law or
otherwise, without the prior written consent of the other party.
5.11 Term. This Agreement has a term co-extensive with the
term of employment as set forth in paragraph 2.1. Termination
shall not affect any right or obligation of any party which is
accrued or vested prior to or upon such termination.
5.12 Entire Agreement. Except as provided in (i) the
benefits, plans, and programs referenced in paragraph 3.4(iii),
(ii) any signed written agreement heretofore executed by Company
and Executive with respect to awards under the Company's stock
option or other incentive plans, or (iii) any signed written
agreement hereafter executed by Company and Executive, this
Agreement constitutes the entire agreement of the parties with
regard to the subject matter hereof, and contains all the
covenants, promises, representations, warranties and agreements
between the parties with respect to employment of Executive by
Company. Without limiting the scope of the preceding sentence, all
prior understandings and agreements among the parties hereto
relating to the subject matter hereof are hereby null and void and
of no further force and effect (it being the specific intent of the
parties hereto that this Agreement shall amend and restate in its
entirety the Existing Agreement). Any modification of this
Agreement shall be effective only if it is in writing and signed by
the party to be charged.
5.13 Deemed Resignations. Any termination of Executive's
employment shall constitute an automatic resignation of Executive
as an officer of Company and each affiliate of Company, and an
automatic resignation of Executive from the Board of Directors (if
applicable) and from the board of directors of any affiliate of
Company.
*******
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the 16th day of September, 1999.
CONTINENTAL AIRLINES, INC.
By:________________________________
Name: Gordon M. Bethune
Title: Chief Executive Officer
"EXECUTIVE"
______________________________
Jeffery A. Smisek
EXHIBIT 10.7
Supplemental Agreement No. 16
to
Purchase Agreement No. 1783
between
The Boeing Company
and
Continental Airlines, Inc.
Relating to Boeing Model 757 Aircraft
THIS SUPPLEMENTAL AGREEMENT, entered into as of
July 2, 1999, by and between THE BOEING COMPANY, a Delaware
corporation with its principal office in Seattle, Washington,
(Boeing) and CONTINENTAL AIRLINES, INC., a Delaware corporation
with its principal office in Houston, Texas (Buyer);
WHEREAS, the parties hereto entered into Purchase Agreement
No. 1783 dated March 18, 1993 (the Agreement), as amended and
supplemented, relating to Boeing Model 757-200 aircraft (the
Aircraft); and
WHEREAS, Boeing and Buyer executed Letter Agreement
6-1162-WLJ-497 to Purchase Agreements No. 1782, 1783, 1784 and 1785
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT] on December 23, 1993, and
WHEREAS, Boeing and Buyer executed Letter Agreement 6-1162-
WLJ-497 with the intent of including such letter in a Supplemental
Agreement, however the letter agreement was inadvertently not
included in any Supplemental Agreement, and
WHEREAS, Boeing and Buyer have mutually agreed to
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT] and
WHEREAS, Boeing and Buyer have agreed to clarify the
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT] provisions of the Agreement; and
WHEREAS, Boeing and Buyer have mutually agreed to amend the
Agreement to incorporate the effect of these and certain other
changes;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties agree to amend the Agreement as follows:
1. Table of Contents and Articles:
1.1 Remove and replace, in its entirety, the "Table of
Contents", with the Table of Contents attached hereto, to reflect
the changes made by this Supplemental Agreement No. 16.
1.2 Remove and replace, in its entirety, Article 1, Subject
Matter of Sale, with new Article 1 (attached hereto) to incorporate
a correction to the title of paragraph 1.1.1.
1.3 Remove and replace, in its entirety, Article 2,
Delivery, Title and Risk of Loss, with new Article 2 (attached
hereto) to incorporate a revised delivery schedule for the two (2)
Block C Aircraft.
1.4 Remove and replace, in its entirety, Article 3, Price
of Aircraft, with new Article 3 (attached hereto) to incorporate
revised Advance Payment Base Prices for the two (2) Block C
Aircraft.
1.5 Remove and replace, in its entirety, the Delivery
Schedule for Model 757-224 Aircraft, following Article 15, with a
revised delivery schedule (attached hereto) to incorporate current
Aircraft delivery data.
2. Letter Agreements:
Add new Letter Agreement 6-1162-WLJ-497 [CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]
(attached hereto).
Remove and replace, in its entirety, Letter Agreement No. 6-
1162-GOC-132R1, "Special Matters" with new Letter Agreement No. 6-
1162-GOC-132R2, "Special Matters" (attached hereto) to incorporate
the effect of clarifying the [CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] Provisions.
3. Credit of Additional Advance Payments.
Within Three (3) business days after execution of this
Supplemental Agreement, Boeing shall transfer to Buyer's account,
the sum of [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT] which sum represents credit then due with
respect to the [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT] provisions and advance payments then
due with respect to the [CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT].
The Agreement will be deemed to be supplemented to the extent
herein provided and as so supplemented will continue in full force
and effect.
EXECUTED IN DUPLICATE as of the day and year first written above.
THE BOEING COMPANY CONTINENTAL AIRLINES, INC.
By: /s/ J. A. McGarvey By: /s/ Brian Davis
Its: Attorney-In-Fact Its: Vice President
<PAGE>
TABLE OF CONTENTS
ARTICLES Page Revised
By
ARTICLE 1. Subject Matter of Sale. . . . . . . 1-1 SA#16
ARTICLE 2. Delivery, Title and Risk of Loss. . 2-1 SA#16
ARTICLE 3. Price of Aircraft . . . . . . . . . 3-1 SA#16
ARTICLE 4. Taxes . . . . . . . . . . . . . . . 4-1
ARTICLE 5. Payment . . . . . . . . . . . . . . 5-1
ARTICLE 6. Excusable Delay . . . . . . . . . . 6-1
ARTICLE 7. Changes to the Detail Specification 7-1 SA#4
ARTICLE 8. Federal Aviation Requirements and
Certificates. . . . . . . . . . . . 8-1
ARTICLE 9. Representatives, Inspection,
Flights and Test Data . . . . . . . 9-1
ARTICLE 10. Assignment, Resale or Lease . . . . 10-1
ARTICLE 11. Termination for Certain Events. . . 11-1
ARTICLE 12. Product Assurance; Disclaimer and
Release; Exclusion of Liabilities;
Customer Support; Indemnification
and Insurance . . . . . . . . . . . 12-1
ARTICLE 13. Buyer Furnished Equipment and
Spare Parts . . . . . . . . . . . . 13-1 SA#2
ARTICLE 14. Contractual Notices and Requests. . 14-1
ARTICLE 15. Miscellaneous . . . . . . . . . . . 15-1
Schedule for Delivery of Model 757-224 Aircraft. SA#16
<PAGE>
TABLE OF CONTENTS (Continued)
EXHIBITS
EXHIBIT A Aircraft Configuration. . . . . . . A-1 SA#8
EXHIBIT B Product Assurance Document. . . . . B-1 SA#2
EXHIBIT C Customer Support Document . . . . . C-1 SA#2
EXHIBIT D Price Adjustments Due to Economic
Fluctuations - Airframe and
Engines . . . . . . . . . . . . . D-1 SA#11
EXHIBIT E Buyer Furnished Equipment Provisions
Document. . . . . . . . . . . . . . E-1 SA#4
EXHIBIT F Defined Terms Document. . . . . . . F-1 SA#2
LETTER AGREEMENTS
1783-1 Spare Parts Support SA#2
1783-2 Seller Purchased Equipment SA#2
1783-4 Waiver of Aircraft Demonstration SA#2
Flights
1783-5 Promotional Support SA#2
1783-6 Configuration Matters SA#2
1783-7 Price Adjustment on Rolls-Royce Engines SA#2
1783-8 Spare Parts Provisioning SA#2
1783-9R1 Escalation Sharing SA#10
6-1162-WLJ-359 Aircraft Performance Guarantees SA#2
6-1162-WLJ-367R5 Disclosure of Confidential Info SA#9
6-1162-WLJ-369 Additional Considerations SA#2
6-1162-WLJ-372 Conditions Relating to SA#2
Purchase Agreement
<PAGE>
TABLE OF CONTENTS (Continued)
6-1162-WLJ-380 Performance Guarantees, Demonstrated SA#2
Compliance
6-1162-WLJ-384 [CONFIDENTIAL MATERIAL OMITTED AND SA#2
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT]
6-1162-WLJ-391R1 Special Purchase Agreement Provisions SA#4
6-1162-WLJ-393 [CONFIDENTIAL MATERIAL OMITTED AND SA#2
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT]
6-1162-WLJ-405 Certain Additional Contractual SA#2
Matters
6-1162-WLJ-409 Satisfaction of Conditions Relating SA#2
to the Purchase Agreement
6-1162-WLJ-497 [CONFIDENTIAL MATERIAL OMITTED AND SA#16
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT]
6-1162-RGP-946R1 Special Provisions Relating to SA#5
the Rescheduled Aircraft
6-1162-MMF-289R1 [CONFIDENTIAL MATERIAL OMITTED AND SA#10
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT]
6-1162-MMF-319 Special Provisions Relating to SA#7
the Rescheduled Aircraft
6-1162-GOC-132R2 Special Matters SA#16
6-1162-DMH-680 Delivery Delay Resolution Program SA#15
<PAGE>
TABLE OF CONTENTS (Continued)
SUPPLEMENTAL AGREEMENTS Dated as of:
Supplemental Agreement No. 1 April 29, 1993
Supplemental Agreement No. 2 November 4, 1993
Supplemental Agreement No. 3 November 19, 1993
Supplemental Agreement No. 4 March 31, 1995
Supplemental Agreement No. 5 November 30, 1995
Supplemental Agreement No. 6 June 13, 1996
Supplemental Agreement No. 7 July 23, 1996
Supplemental Agreement No. 8 October 27, 1996
Supplemental Agreement No. 9 August 13, 1997
Supplemental Agreement No.10 October 10, 1997
Supplemental Agreement No. 11 July 30, 1998
Supplemental Agreement No. 12 September 29, 1998
Supplemental Agreement No. 13 November 16, 1998
Supplemental Agreement No. 14 December 17, 1998
Supplemental Agreement No. 15 February 18, 1999
Supplemental Agreement No. 16 July 2, 1999
<PAGE>
ARTICLE 1. Subject Matter of Sale.
1.1 The Aircraft. Boeing will manufacture and deliver to
Buyer and Buyer will purchase and accept delivery from Boeing of
the following Boeing Model 757-224 aircraft (the Aircraft).
1.1.1 Block A, A-1, B, and C Aircraft. Twenty-seven
(27) Block A and A-1 Aircraft (the Block A and A-1 Aircraft), Nine
(9) Block B Aircraft (the Block B Aircraft), and Five (5) Block C
Aircraft (the Block C Aircraft) manufactured in accordance with
Boeing detail specification D924N104-3, dated as of even date
herewith, as described in Exhibit A, and as modified from time to
time in accordance with this Agreement (Detail Specification).
1.2 Additional Goods and Services. In connection with the
sale of the Aircraft, Boeing will also provide to Buyer certain
other things under this Agreement, including data, documents,
training and services, all as described in this Agreement.
1.3 [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT]
1.4 Defined Terms. For ease of use, certain terms are
treated as defined terms in this Agreement. Such terms are
identified with a capital letter and set forth and/or defined in
Exhibit F.
<PAGE>
ARTICLE 2. Delivery, Title and Risk of Loss.
2.1 Time of Delivery. The Aircraft will be delivered to
Buyer by Boeing, and Buyer will accept delivery of the Aircraft, in
accordance with the following schedule:
Month and Year
of Delivery Quantity of Aircraft
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
2.2 Notice of Target Delivery Date. Boeing will give
Buyer notice of the Target Delivery Date of the Aircraft
approximately 30 days prior to the scheduled month of delivery.
2.3 Notice of Delivery Date. Boeing will give Buyer at
least 7 days' notice of the delivery date of the Aircraft. If an
Aircraft delivery is delayed beyond such delivery date due to the
responsibility of Buyer, Buyer will reimburse Boeing for all costs
incurred by Boeing as a result of such delay, including amounts for
storage, insurance, Taxes, preservation or protection of the
Aircraft and interest on payments due.
2.4 Place of Delivery. The Aircraft will be delivered at
a facility selected by Boeing in the State of Washington, unless
mutually agreed otherwise.
2.5 Title and Risk of Loss. Title to and risk of loss of
an Aircraft will pass from Boeing to Buyer upon delivery of such
Aircraft, but not prior thereto.
2.6 Documents of Title. Upon delivery of and payment for
each Aircraft, Boeing shall deliver to Buyer a bill of sale duly
conveying to Buyer good title to such Aircraft free and clear of
all liens, claims, charges and encumbrances of every kind
whatsoever, and such other appropriate documents of title as Buyer
may reasonably request.
<PAGE>
ARTICLE 3. Price of Aircraft.
3.1 Definitions.
3.1.1 Special Features are the features listed in
Exhibit A which have been selected by Buyer.
3.1.2 Base Airframe Price is the Aircraft Basic
Price excluding the price of Special Features and Engines.
3.1.3 Engine Price is the price established by the
Engine manufacturer for the Engines installed on the Aircraft
including all accessories, equipment and parts set forth in Exhibit
D.
3.1.4 Aircraft Basic Price is comprised of the Base
Airframe Price, the Engine Price and the price of the Special
Features.
3.1.5 Economic Price Adjustment is the adjustment to
the Aircraft Basic Price (Base Airframe, Engine and Special
Features) as calculated pursuant to Exhibit D.
3.1.6 Aircraft Price is the total amount Buyer is to
pay for the Aircraft at the time of delivery.
3.1.7 Price First Published is the first price
published by Boeing for the same model of aircraft to be delivered
in the same general time period as the affected Aircraft and is
used to establish the Base Airframe Price when the Base Airframe
Price was not established at the time of execution of this
Agreement.
3.2 Aircraft Basic Price.
3.2.1 Block A Aircraft. The Aircraft Basic Price of
the Block A Aircraft, expressed in July 1992 dollars, is set forth
below:
Base Airframe Price: [CONFIDENTIAL MATERIAL OMITTED
Special Features AND FILED SEPARATELY WITH THE
Engine Price SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A
Block A Aircraft REQUEST FOR CONFIDENTIAL
Basic Price TREATMENT]
3.2.2 Block A-1 and Block B Aircraft. The Aircraft
Basic Price of the Block A-1 and Block B Aircraft with delivery,
expressed in July 1992 dollars, is set forth below:
Base Airframe Price: [CONFIDENTIAL MATERIAL OMITTED
Special Features AND FILED SEPARATELY WITH THE
Engine Price SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A
Block A-1/B Aircraft REQUEST FOR CONFIDENTIAL
Basic Price TREATMENT]
The special features value above for the Block A-1 and Block B
Aircraft incorporates the special features reprice activity noted
in Exhibit A-1 which includes Exhibit A, Change Orders 1,2, and 3
plus accepted Master Changes as of June 1, 1996.
3.2.2 Block C Aircraft. The Aircraft Basic Price of
the Block C Aircraft with delivery, expressed in July 1997 dollars,
is set forth below:
Base Airframe Price: [CONFIDENTIAL MATERIAL OMITTED
Special Features AND FILED SEPARATELY WITH THE
Engine Price SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A
Block C Aircraft REQUEST FOR CONFIDENTIAL
Basic Price TREATMENT]
The special features value above for the Block C Aircraft
incorporates the special features reprice activity noted in Exhibit
A-1 which includes Exhibit A, Change Orders 1,2, and 3 plus
accepted Master Changes as of June 1, 1996.
3.3 Aircraft Price.
3.3.1 Block A Aircraft, Block A-1 Aircraft and Block
B Aircraft. The Aircraft Price of the Block A Aircraft, Block A-1
Aircraft and Block B Aircraft will be established at the time of
delivery of such Aircraft to Buyer and will be the sum of:
3.3.1.1 the Block A Aircraft Basic Price,
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT] plus
3.3.1.2 the Economic Price Adjustments for
the Aircraft Basic Price, as calculated pursuant to the formulas
set forth in Exhibit D (Price Adjustments Due to Economic
Fluctuations - Airframe and Engine - Block A, Block A-1 and Block
B Aircraft) plus
3.3.1.3 other price adjustments made
pursuant to this Agreement or other written agreements executed by
Boeing and Buyer.
3.3.1 Block C Aircraft. The Aircraft Price of the
Block C Aircraft will be established at the time of delivery of
such Aircraft to Buyer and will be the sum of:
3.3.1.1 the Block C Aircraft Basic Price,
which is [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT] plus
3.3.1.2 the Economic Price Adjustments for
the Aircraft Basic Price, as calculated pursuant to the formulas
set forth in Exhibit D (Price Adjustments Due to Economic
Fluctuations - Airframe and Engine - Block C Aircraft) plus
3.3.1.3 other price adjustments made
pursuant to this Agreement or other written agreements executed by
Boeing and Buyer.
3.4 Advance Payment Base Price.
3.4.1 Advance Payment Base Price. For advance
payment purposes, the following estimated delivery prices of the
Aircraft have been established, using currently available forecasts
of the escalation factors used by Boeing as of the date of signing
this Agreement. The Advance Payment Base Price of each Aircraft is
set forth below:
Month and Year of Advance Payment Base
Scheduled Delivery Price per Aircraft
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
3.4.2 Adjustment of Advance Payment Base Prices -
Long-Lead Aircraft. For Aircraft scheduled for delivery 36 months
or more after the date of this Agreement, the Advance Payment Base
Prices appearing in Article 3.4.1 will be used to determine the
amount of the first advance payment to be made by Buyer on the
Aircraft. No later than 25 months before the scheduled month of
delivery of the first Aircraft scheduled for delivery in a calendar
year (First Aircraft), Boeing will increase or decrease the Advance
Payment Base Price of the First Aircraft and all Aircraft scheduled
for delivery after the First Aircraft as required to reflect the
effects of (i) any adjustments in the Aircraft Price pursuant to
this Agreement and (ii) the then-current forecasted escalation
factors used by Boeing. Boeing will provide the adjusted Advance
Payment Base Prices for each affected Aircraft to Buyer, and the
advance payment schedule will be considered amended to substitute
such adjusted Advance Payment Base Prices.
<PAGE>
Continental Airlines, Inc.
Delivery Schedule for Model 757-224 Aircraft
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
<PAGE>
6-1162-WLJ-497
Continental Airlines, Inc.
2929 Allen Parkway
Houston, Texas 77019
Subject: Letter Agreement No. 6-1161-WLJ-497 to Purchase
Agreement No. 1782, 1783, 1784 and 1785 -
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT]
Gentlemen:
Reference is made to the following Purchase Agreements, each dated
as of March 18, 1993, as amended and supplemented (the Purchase
Agreements) between The Boeing Company (Boeing) and Continental
Airlines, Inc. (Buyer): Purchase Agreement No. 1782 relating to
Model 737-524 Aircraft (Purchase Agreement 1782); Purchase
Agreement No. 1783 relating to Model 757-224 Aircraft (Purchase
Agreement 1783); Purchase Agreement No. 1784 relating to Model 767-
324ER Aircraft (Purchase Agreement 1784); and Purchase Agreement
No. 1785 relating to Model 777-224 Aircraft (Purchase Agreement
1785), collectively referred to as the Purchase Agreements.
Specific reference is made to a Letter Agreement in each of the
Purchase Agreements, entitled Special Matters, each of which
contains provisions relating to Buyer's [CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]
This letter, when accepted by Buyer, will become part of the
Purchase Agreements and will evidence our further agreement with
respect to the matters set forth below.
All terms used herein and in the Purchase Agreements, and not
defined herein, shall have the same meaning as in the Purchase
Agreements.
1. [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
2. [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
3. [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
4. [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
5. Payment Schedule Revision for Other Changes to Purchase
Agreement In addition to the provisions of paragraph (3) and
(4) above, the Payment Schedule shall also be revised to
incorporate the effects of the following changes to the Purchase
Agreements (Other Changes):
5.1 Option Aircraft. The Payment Schedule shall be
revised to incorporate the effects of adding as firm
aircraft those Option Aircraft which Buyer has exercised its
right to purchase (New Firm Aircraft) pursuant to the
applicable Option Aircraft Letter Agreement. Each Option
Aircraft Supplemental Agreement adding New Firm Aircraft
shall include a Revised Payment Schedule, which shall be
effective as of the effective date of the Option Aircraft
Supplemental Agreement (Effective Date).
5.2 Delivery Schedule Revisions.If Boeing and Buyer
mutually agree to change the delivery schedule of one or
more Firm Aircraft (Rescheduled Aircraft) in a Purchase
Agreement, such change will be in the form of a supplemental
agreement to the Purchase Agreement. The supplemental
agreement shall include a Revised Payment Schedule effective
as of the date such supplemental agreement is effective
(Effective Date). The Advance Payment Base Price of
Rescheduled Aircraft shall be calculated using Boeing's
then-current escalation factors.
5.3 [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT]
5.4 Payment Adjustment as of the Effective Date
5.4.1 Advance Payments. Buyer shall pay to Boeing
or Boeing shall refund to Buyer within three (3) business
days after the Effective Date, the difference, if any,
between Advance Payments paid and Advance Payments due as of
the Effective Date.
5.4.2 [CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]
5.5 [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT]
6. [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
7. Payment Instructions. Buyer's payments to Boeing and
Boeing's refunds to Buyer shall be made to the following bank
accounts until written notice is furnished by one party to the
other advising of a change in its account.
Buyer's account: Chase Manhattan Bank, N.A.
New York, New York
ABA 021000021
Account Number:[CONFIDENTIAL
MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT]
Boeing's account: Chase Manhattan Bank, N.A.
New York, New York
ABA 021000021
Account Number:[CONFIDENTIAL
MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT]
8. Confidentiality. This Letter Agreement will be treated
by the parties as privileged and confidential under the terms of
the applicable Disclosure of Confidential Information Letter
Agreement in each of the Purchase Agreements.
If the foregoing accurately reflects your understanding of the
matters treated herein, please so indicate by signature below.
Very truly yours,
THE BOEING COMPANY
By /s/ Richard G. Plant
Its Attorney-in-Fact
ACCEPTED AND AGREED this
Date: December 23, 1993
CONTINENTAL AIRLINES, INC.
By /s/ Gerald Laderman
Its Vice President - Aircraft Programs
<PAGE>
Attachment A to 6-1162-WLJ-497
Effective Date: 12/23/93
CONTINENTAL AIRLINES, INC.
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
<PAGE>
Attachment B to 6-1162-WLJ-497
Page 1
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
<PAGE>
Attachment C to 6-1162-WLJ-497
Page 1
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
<PAGE>
July 2, 1999
6-1162-GOC-132R2
CONTINENTAL AIRLINES, INC.
1600 Smith
Houston, Texas 77002
Subject: Letter Agreement No. 6-1162-GOC-132R2 to Purchase
Agreement No. 1783 - Special Matters
Ladies and Gentlemen:
This Letter Agreement amends and supplements Purchase Agreement No.
1783 dated as of March 18, 1993 (the Purchase Agreement) between
The Boeing Company (Boeing) and Continental Airlines, Inc. (Buyer)
relating to Model 757-224 aircraft (the Aircraft). This Letter
Agreement supersedes and replaces in its entirety Letter Agreement
6-1162-GOC-132R1, dated December 17, 1998.
All terms used herein and in the Purchase Agreement, and not
defined herein, will have the same meaning as in the Purchase
Agreement.
1. Credit Memoranda.
In consideration of Buyer's purchase of Model 757-224
Aircraft, Boeing shall issue at the time of delivery of each
Aircraft and Option Aircraft, a credit memorandum in an amount
equal to [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]. The 757-224 Credit Memorandum Amount is
subject to the same airframe escalation as is used to calculate the
Aircraft price at the time of delivery.
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
2. [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
2.2 Option Aircraft. [CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]
3. [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
4. Option Aircraft.
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
5. Increased Gross Weight.
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
6. Assignment of Credits.
Buyer may not assign the credit memoranda described in this
Letter Agreement without Boeing's prior written consent
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT].
7. [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
8. Confidential Treatment.
Boeing and Buyer understand that certain information
contained in this Letter Agreement, including any attachments
hereto, are considered by both parties to be confidential.
Notwithstanding the provisions of Letter Agreement 6-1162-WLJ-
367R4, Boeing and Buyer agree that each party will treat this
Letter Agreement and the information contained herein as
confidential and will not, without the other party's prior written
consent, disclose this Letter Agreement or any information
contained herein to any other person or entity except as may be
required by applicable law or governmental regulations.
Very truly yours,
THE BOEING COMPANY
By______/s/ J. A. McGarvey____
Its Attorney-In-Fact
ACCEPTED AND AGREED TO this
Date: July 2, 1999
CONTINENTAL AIRLINES, INC.
By_____/s/ Brian Davis _____________
Its_____Vice President______________
<PAGE>
Continental Airlines, Inc.
Purchase Agreement 1783 - Model 757-224 aircraft
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
EXHIBIT 10.8
Supplemental Agreement No. 12
to
Purchase Agreement No. 1951
between
The Boeing Company
and
Continental Airlines, Inc.
Relating to Boeing Model 737 Aircraft
THIS SUPPLEMENTAL AGREEMENT, entered into as of
July 2, 1999, by and between THE BOEING COMPANY, a Delaware
corporation with its principal office in Seattle, Washington,
(Boeing) and CONTINENTAL AIRLINES, INC., a Delaware corporation
with its principal office in Houston, Texas (Buyer);
WHEREAS, the parties hereto entered into Purchase Agreement
No. 1951 dated July 23, 1996 (the Agreement), as amended and
supplemented, relating to Boeing Model 737-500, 737-600, 737-700,
737-800, and 737-900 aircraft (the Aircraft); and
WHEREAS, Buyer has requested to [CONFIDENTIAL MATERIAL OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] and
WHEREAS, Boeing and Buyer have mutually agreed to amend the
Agreement to incorporate the effect of these and certain other
changes;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties agree to amend the Agreement as follows:
1. Table of Contents and Articles:
1.1 Remove and replace, in its entirety, the "Table of
Contents", with the Table of Contents attached hereto, to reflect
the changes made by this Supplemental Agreement No. 12.
1.2 Remove and replace, in its entirely, page T-2 of Table
1 entitled "Aircraft Deliveries and Descriptions" that relates to
Model 737-700 Aircraft with new page T-2 attached hereto for the
Model 737-700 Aircraft reflecting the [CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]
1.3 Remove and replace, in its entirely, page T-3 of Table
1 entitled "Aircraft Deliveries and Descriptions" that relates to
Model 737-800 Aircraft with new page T-3 attached hereto for the
Model 737-800 Aircraft reflecting the [CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT].
The Agreement will be deemed to be supplemented to the extent
herein provided as of the date hereof and as so supplemented will
continue in full force and effect.
EXECUTED IN DUPLICATE as of the day and year first written above.
THE BOEING COMPANY CONTINENTAL AIRLINES, INC.
By: /s/ D. M. Hurt By: /s/ Brian Davis
Its: Attorney-In-Fact Its: Vice President
<PAGE>
TABLE OF CONTENTS
Page SA
Number Number
ARTICLES
1. Subject Matter of Sale. . . . . . . . . . 1-1 SA 5
2. Delivery, Title and Risk of Loss. . . . . 2-1
3. Price of Aircraft . . . . . . . . . . . . 3-1 SA 5
4. Taxes . . . . . . . . . . . . . . . . . . 4-1
5. Payment . . . . . . . . . . . . . . . . . 5-1
6. Excusable Delay . . . . . . . . . . . . . 6-1
7. Changes to the Detail Specification . . . 7-1 SA 5
8. Federal Aviation Requirements and
Certificates and Export License . . . . . 8-1 SA 5
9. Representatives, Inspection,
Flights and Test Data . . . . . . . . . . 9-1
10. Assignment, Resale or Lease . . . . . . . 10-1
11. Termination for Certain Events. . . . . . 11-1
12. Product Assurance; Disclaimer and
Release; Exclusion of Liabilities;
Customer Support; Indemnification
and Insurance . . . . . . . . . . . . . . 12-1
13. Buyer Furnished Equipment and
Spare Parts . . . . . . . . . . . . . . . 13-1
14. Contractual Notices and Requests. . . . . 14-1
15. Miscellaneous . . . . . . . . . . . . . . 15-1
<PAGE>
TABLE OF CONTENTS
Page SA
Number Number
TABLES
1. Aircraft Deliveries and
Descriptions - 737-500. . . . . . . . . . T-1 SA 3
Aircraft Deliveries and
Descriptions - 737-700. . . . . . . . . . T-2 SA 12
Aircraft Deliveries and
Descriptions - 737-800. . . . . . . . . . T-3 SA 12
Aircraft Deliveries and
Descriptions - 737-600. . . . . . . . . . T-4 SA 4
Aircraft Deliveries and
Descriptions - 737-900. . . . . . . . . . T-5 SA 5
EXHIBITS
A-1 Aircraft Configuration - Model 737-724. . SA 2
A-2 Aircraft Configuration - Model 737-824. . SA 2
A-3 Aircraft Configuration - Model 737-624. . SA 1
A-4 Aircraft Configuration - Model 737-524. . SA 3
A-5 Aircraft Configuration - Model 737-924. . SA 5
B Product Assurance Document. . . . . . . . SA 1
C Customer Support Document - Code Two -
Major Model Differences . . . . . . . . . SA 1
C1 Customer Support Document - Code Three -
Minor Model Differences . . . . . . . . . SA 1
D Aircraft Price Adjustments - New
Generation Aircraft (1995 Base Price) . . SA 1
D1 Airframe and Engine Price Adjustments -
Current Generation Aircraft . . . . . . . SA 1
D2 Aircraft Price Adjustments - New
Generation Aircraft (1997 Base Price) . . SA 5
E Buyer Furnished Equipment
Provisions Document . . . . . . . . . . . SA 5
F Defined Terms Document. . . . . . . . . . SA 5
<PAGE>
TABLE OF CONTENTS
SA
Number
LETTER AGREEMENTS
1951-1 Not Used. . . . . . . . . . . . . .
1951-2R3 Seller Purchased Equipment. . . . . SA 5
1951-3R7 Option Aircraft-Model 737-824
Aircraft. . . . . . . . . . . . . . SA 11
1951-4R1 Waiver of Aircraft Demonstration. . SA 1
1951-5R2 Promotional Support - New
Generation Aircraft . . . . . . . . SA 5
1951-6 Configuration Matters . . . . . . .
1951-7R1 Spares Initial Provisioning . . . . SA 1
1951-8R2 Escalation Sharing - New Generation
Aircraft. . . . . . . . . . . . . . SA 4
1951-9R5 Option Aircraft-Model 737-724
Aircraft. . . . . . . . . . . . . . SA 11
1951-11R1 Escalation Sharing-Current Generation
Aircraft. . . . . . . . . . . . . . SA 4
1951-12 Option Aircraft - Model 737-924
Aircraft. . . . . . . . . . . . . . SA 5
1951-13 Configuration Matters -
Model 737-924 . . . . . . . . . . . SA 5
<PAGE>
TABLE OF CONTENTS
SA
Number
RESTRICTED LETTER AGREEMENTS
6-1162-MMF-295 Performance Guarantees - Model
737-724 Aircraft . . . . . .
6-1162-MMF-296 Performance Guarantees - Model
737-824 Aircraft . . . . . .
6-1162-MMF-308R3 Disclosure of Confidential . SA 5
Information
6-1162-MMF-309R1 [CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]. . . SA1
6-1162-MMF-311R3 [CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]. . . SA 5
6-1162-MMF-312R1 Special Purchase Agreement
Provisions . . . . . . . . . SA 1
6-1162-MMF-319 Special Provisions Relating to
the Rescheduled Aircraft . .
6-1162-MMF-378R1 Performance Guarantees - Model
737-524 Aircraft . . . . . . SA 3
6-1162-GOC-015 [CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]. . . SA 2
6-1162-GOC-131R2 Special Matters. . . . . . . SA 5
6-1162-DMH-365 Performance Guarantees - Model
737-924 Aircraft . . . . . . SA 5
6-1162-DMH-624 [CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]. . . SA 8
6-1162-DMH-680 Delivery Delay Resolution
Program. . . . . . . . . . . SA 9
<PAGE>
TABLE OF CONTENTS
SUPPLEMENTAL AGREEMENTS DATED AS OF:
Supplemental Agreement No. 1 . . . . . . . October 10,1996
Supplemental Agreement No. 2 . . . . . . . March 5, 1997
Supplemental Agreement No. 3 . . . . . . . July 17, 1997
Supplemental Agreement No. 4 . . . . . . . October 10,1997
Supplemental Agreement No. 5 . . . . . . . May 21,1998
Supplemental Agreement No. 6 . . . . . . . July 30,1998
Supplemental Agreement No. 7 . . . . . . . November 12,1998
Supplemental Agreement No. 8 . . . . . . . December 7,1998
Supplemental Agreement No. 9 . . . . . . . February 18,1999
Supplemental Agreement No. 10. . . . . . . March 19,1999
Supplemental Agreement No. 11. . . . . . . May 14,1999
Supplemental Agreement No. 12. . . . . . . July 2,1999
<PAGE>
Table 1 to
Purchase Agreement 1951
Aircraft Deliveries and Descriptions
Model 737-700 Aircraft
CFM56-7B24 Engines
Detail Specification No. D6-38808-42 dated January 6, 1997
Exhibit A-1
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
<PAGE>
Table 1 to
Purchase Agreement 1951
Aircraft Deliveries and Descriptions
Model 737-800 Aircraft
CFM56-7B26 Engines
Detail Specification No. D6-38808-44 dated
Exhibit A-2
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
EXHIBIT 10.9
Supplemental Agreement No. 1
to
Purchase Agreement No. 2211
between
The Boeing Company
and
Continental Airlines, Inc.
Relating to Boeing Model 767-200ER Aircraft
THIS SUPPLEMENTAL AGREEMENT, entered into as of July 2, 1999,
by and between THE BOEING COMPANY, a Delaware corporation with its
principal office in Seattle, Washington, (Boeing) and CONTINENTAL
AIRLINES, INC., a Delaware corporation with its principal office in
Houston, Texas (Customer);
WHEREAS, the parties hereto entered into Purchase Agreement
No. 2211 dated November 16, 1998, (the Purchase Agreement) relating
to Boeing Model 767-200ER aircraft, (Aircraft); and
WHEREAS, Boeing and Customer have mutually agreed that the
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT] and
WHEREAS, Boeing and Customer have mutually agreed to
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT] and
WHEREAS, Boeing and Customer have mutually agreed to
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT] and
WHEREAS, Boeing and Customer have mutually agreed to
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT] and
WHEREAS, Boeing and Customer wish to update the Agreement to
reflect the Installation of Cabin Systems Equipment; and
WHEREAS, Boeing and Customer have mutually agreed to amend the
Purchase Agreement to incorporate the effect of these and certain
other changes;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties agree to amend the Purchase Agreement as
follows:
1. Table of Contents:
Remove and replace, in its entirety, the "Table of Contents",
with the Table of Contents attached hereto, to reflect the changes
made by this Supplemental Agreement No. 1.
2. Letter Agreements:
Remove and replace, in its entirety, Letter Agreement 2211-01,
"Option Aircraft" with new Letter Agreement 2211-01R1, "Option
Aircraft" attached hereto, to reflect the revised delivery schedule
for the Option Aircraft.
Remove and replace, in its entirety, Letter Agreement 6-1162-
JMG-0092, "Special Matters" with new Letter Agreement 6-1162-JMG-
0092R1, "Special Matters" attached hereto, to reflect the
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
Add Letter Agreement 6-1162-JMG-184, "Installation of Cabin
Systems Equipment" to incorporate the agreement regarding Cabin
Systems Equipment.
3. Payment of Option Deposit:
Upon execution of this Supplemental Agreement, Customer shall
transfer to Boeing's account at Chase Manhattan Bank, New York,
N.Y., the sum of [CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT], which sum represents the
additional Option Aircraft deposit.
The Purchase Agreement will be deemed to be supplemented to the
extent herein provided as of the date hereof and as so supplemented
will continue in full force and effect.
<PAGE>
EXECUTED IN DUPLICATE as of the day and year first written above.
THE BOEING COMPANY CONTINENTAL AIRLINES, INC.
By: /s/ J. A. McGarvey By: /s/ Brian Davis
Its: Attorney-In-Fact Its: Vice President
<PAGE>
TABLE OF CONTENTS
ARTICLES Revised By:
1. Quantity, Model and Description
2. Delivery Schedule
3. Price
4. Payment
5. Miscellaneous
TABLE
1. Aircraft Information Table
EXHIBIT
A. Aircraft Configuration
B. Aircraft Delivery Requirements and Responsibilities
SUPPLEMENTAL EXHIBITS
BFE1. BFE Variables
CS1. Customer Support Variables
EE1. Engine Escalation/Engine Warranty
and Patent Indemnity
SLP1. Service Life Policy Components
<PAGE>
TABLE OF CONTENTS
LETTER AGREEMENTS Revised By:
2211-01R1 Option Aircraft SA No. 1
2211-02 Demonstration Flights
2211-03 Spares Initial Provisioning
2211-04 Flight Crew Training Spares
Parts Support
2211-05 Escalation Sharing
6-1162-JMG-184 Installation of Cabin Systems
Equipment SA No. 1
<PAGE>
TABLE OF CONTENTS
CONFIDENTIAL LETTER AGREEMENTS Revised By:
6-1162-JMG-0089 Performance Guarantees
6-1162-JMG-0090 Promotion Support
6-1162-JMG-0092R1 Special Matters SA No. 1
SUPPLEMENTAL AGREEMENTS Dated as of:
Supplemental Agreement No. 1 July 2, 1999
<PAGE>
July 2, 1999
2211-01R1
Continental Airlines, Inc.
1600 Smith
Houston, TX 77002
Subject: Option Aircraft
Reference: Purchase Agreement 2211 (the Purchase Agreement)
between The Boeing Company (Boeing) and Continental
Airlines, Inc. (Customer) relating to Model 767-224ER
aircraft (the Aircraft)
This Letter Agreement amends and supplements the Purchase
Agreement. All terms used but not defined in this Letter Agreement
have the same meaning as in the Purchase Agreement. This Letter
Agreement supersedes and replaces in its entirety Letter Agreement
2211-01.
Boeing agrees to manufacture and sell to Customer additional Model
767-224ER aircraft as Option Aircraft. The delivery months, number
of aircraft, Advance Payment Base Price per aircraft and advance
payment schedule are listed in the Attachment to this Letter
Agreement (the Attachment).
1. Aircraft Description and Changes
1.1 Aircraft Description: The Option Aircraft are
described by the Detail Specification listed in the Attachment.
1.2 Changes: The Detail Specification will be revised to
include:
(i) Changes applicable to the basic Model 767
aircraft which are developed by Boeing
between the date of the Detail Specification
and the signing of the definitive agreement
to purchase the Option Aircraft;
(ii) Changes required to obtain required
regulatory certificates; and
(iii) Changes mutually agreed upon.
2. Price
2.1 The pricing elements of the Option Aircraft are listed
in the Attachment.
2.2 Price Adjustments.
2.2.1 Optional Features. The Optional Features
Prices selected for the Option Aircraft will be adjusted to
Boeing's current prices as of the date of execution of the
definitive agreement for the Option Aircraft.
2.2.2 Escalation Adjustments. The Airframe Price
and the Optional Features Prices for Option Aircraft delivering
before January, 2005, will be escalated on the same basis as the
Aircraft, and will be adjusted to Boeing's then-current escalation
provisions as of the date of execution of the definitive agreement
for the Option Aircraft.
The engine manufacturer's current escalation provisions, listed in
Exhibit Supplement EE1 to the Purchase Agreement have been
estimated to the months of scheduled delivery using commercial
forecasts to calculate the Advance Payment Base Price listed in the
Attachment to this Letter Agreement. The engine escalation
provisions will be revised if they are changed by the engine
manufacturer prior to the signing of a definitive agreement for the
Option Aircraft.
2.2.3 Base Price Adjustments. The Airframe Price
and the Engine Price of the Option Aircraft delivering before
January, 2005, will be adjusted to Boeing's and the engine
manufacturer's then current prices as of the date of execution of
the definitive agreement for the Option Aircraft.
2.2.4 Prices for Long Lead Time Aircraft. Boeing
and the engine manufacturer have not established prices and
escalation provisions for Model 767-224ER aircraft and engines for
delivery in the year 2005 and after. When prices and the pricing
bases are established for the Model 767-224ER aircraft delivering
in the year 2005 and after, the information listed in the
Attachment will be appropriately amended.
3. Payment.
3.1 Customer will pay a deposit to Boeing in the amount
shown in the Attachment for each Option Aircraft (Deposit), on the
date of this Letter Agreement. If Customer exercises an option,
the Deposit will be credited against the first advance payment due.
If Customer does not exercise an option, Boeing will retain the
Deposit for that Option Aircraft.
3.2 Following option exercise, advance payments in the
amounts and at the times listed in the Attachment will be payable
for the Option Aircraft. The remainder of the Aircraft Price for
the Option Aircraft will be paid at the time of delivery.
4. Option Exercise.
Customer may exercise an option by giving written notice to Boeing
on or before the date [CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT] months prior to the first
business day of the applicable delivery month listed in the
Attachment (Option Exercise Date).
5. Contract Terms.
Boeing and Customer will use their best efforts to reach a
definitive agreement for the purchase of an Option Aircraft,
including the terms and conditions contained in this Letter
Agreement, in the Purchase Agreement, and other terms and
conditions as may be agreed upon to add the Option Aircraft to the
Purchase Agreement as an Aircraft. In the event the parties have
not entered into a definitive agreement within 30 days following
option exercise, either party may terminate the purchase of such
Option Aircraft by giving written notice to the other within 5
days. [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
Very truly yours,
THE BOEING COMPANY
By /s/ J. A. McGarvey
Its Attorney-In-Fact
ACCEPTED AND AGREED TO this
Date: July 2, 1999
CONTINENTAL AIRLINES, INC.
By /s/ Brian Davis
Its Vice President
Attachment
<PAGE>
Attachment to
Letter Agreement No. 2211-01R1
Option Aircraft Delivery, Description, Price and Advance Payments
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
<PAGE>
July 2 1999
6-1162-JMG-0092R1
Continental Airlines, Inc.
1600 Smith
Houston, Texas 77002
Subject: Special Matters
Reference: Purchase Agreement No. 2211 (the Purchase Agreement)
between The Boeing Company (Boeing) and Continental
Airlines, Inc. (Customer) relating to Model 767-224ER
aircraft (the Aircraft)
Ladies and Gentlemen:
This Letter Agreement amends and supplements the Purchase
Agreement. All terms used and not defined in this Letter Agreement
shall have the same meaning as in the Purchase Agreement.
1. Credit Memoranda.
In consideration of Customer's purchase of Model 767-224ER
Aircraft, Boeing shall issue at the time of delivery of each
Aircraft and Option Aircraft, a credit memorandum in an amount
equal to [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]. The credit memorandum is subject to the
same airframe escalation as is used to calculate the Aircraft Price
at the time of delivery. The credit memorandum may be used by
Customer for the purchase of Boeing goods and services or applied
to the balance due at the time of Aircraft delivery.
2. [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
2.2 Option Aircraft. [CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]
3. [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
4. [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
5. [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
6. Option Aircraft.
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
7. Aircraft Invoices.
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
8. Assignment of Credits.
Customer may not assign the credit memoranda described in
this Letter Agreement without Boeing's prior written consent
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
9. Confidential Treatment.
Boeing and Customer understand that certain information
contained in this Letter Agreement, including any attachments
hereto, are considered by both parties to be confidential. Boeing
and Customer agree that each party will treat this Letter Agreement
and the information contained herein as confidential and will not,
without the other party's prior written consent, disclose this
Letter Agreement or any information contained herein to any other
person or entity except as may be required by applicable law or
governmental regulations.
Very truly yours,
THE BOEING COMPANY
By J. A. McGarvey
Its Attorney-In-Fact
ACCEPTED AND AGREED TO this
Date: July 2, 1999
CONTINENTAL AIRLINES, INC.
By /s/ Brian Davis
Its Vice President
<PAGE>
July 2, 1999
6-1162-JMG-184
Continental Airlines, Inc.
1600 Smith Street
Houston, TX 77002
Subject: Installation of Cabin Systems Equipment
Reference: Purchase Agreement No. 2211 (the Purchase Agreement)
between The Boeing Company (Boeing) and Continental
Airlines, Inc. (Customer) relating to Model 767-200
aircraft (the Aircraft)
Ladies and Gentlemen:
This Letter Agreement amends and supplements the Purchase
Agreement. All terms used but not defined in this Letter Agreement
have the same meaning as in the Purchase Agreement.
Customer has requested that Boeing install in the Aircraft the
inflight entertainment and cabin communications systems (IFE/CCS)
described in Attachment A to this Letter Agreement.
Because of the complexity of the IFE/CCS, special attention and
additional resources will be required during the development,
integration, certification, and manufacture of the Aircraft to
achieve proper operation of the IFE/CCS at the time of delivery of
the Aircraft. To assist Customer, Boeing will perform the
functions of project manager (the Project Manager) as set forth in
Attachment B, according to the requirement of Attachment C.
1. Responsibilities.
1.1 Customer will:
1.1.1 Provide Customer's IFE/CCS system requirements
to Boeing;
1.1.2 Select the IFE/CCS suppliers (Suppliers) from
among those suppliers identified in the Option/s/ listed in
Attachment A to this Letter Agreement, on or before July 7, 1999;
or as otherwise formally offered by Boeing.
1.1.3 Promptly after selecting Suppliers,
participate with Boeing in meetings with Suppliers to ensure that
Supplier's functional system specifications meet Customer's and
Boeing's respective requirements. Such functional systems
specifications define functionality to which Boeing will test prior
to delivery but is not a guarantee of functionality at delivery;
1.1.4 Select Supplier part numbers;
1.1.5 Negotiate and obtain agreements on product
assurance, product support following Aircraft delivery (including
spares support), and any other special business arrangements
directly with Suppliers;
1.1.6 Provide pricing information for part numbers
selected above to Boeing by a mutually selected date;
1.1.7 Negotiate and obtain agreements with any
required service providers; and
1.1.8 Include in Customer's contract with any seat
supplier a condition obligating such seat supplier to enter into
and comply with a Boeing approved bonded stores agreement. This
bonded stores agreement will set forth the procedures concerning
the use, handling and storage for the Boeing owned IFE/CCS
equipment during the time such equipment is under the seat
supplier's control.
1.1.9 Authorize Boeing to obtain production IFE/CCS
spares for test and or rejection replacement as follows:
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT] overage for in-seat LCD monitors, in-seat
cables, handsets, cord reels, and remote jacks; [CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT] overage for seat boxes; and, one each of the head-end
equipment. Unused parts will be returned to the Customer with the
aircraft delivery and any parts returned to the supplier for repair
will be returned to the Customer, at no further cost, after
aircraft delivery.
1.2 Boeing will:
1.2.1 Perform the Project Manager functions stated
in Attachment B;
1.2.2 Provide Aircraft interface requirements to
Suppliers;
1.2.3 Assist Suppliers in the development of their
IFE/CCS system specifications and approve such specifications;
1.2.4 Negotiate terms and conditions (except for
price, product assurance, product support following Aircraft
delivery and any other special business arrangements) and enter
into contracts with Suppliers and manage such contracts for the
IFE/CCS;
1.2.5 Coordinate the resolution of technical issues
with Suppliers;
1.2.6 Ensure that at time of Aircraft delivery the
IFE/CCS configuration meets the requirements of the Options
contained in Attachment A to this Letter Agreement as such
Attachment A may be amended from time to time; and
1.2.7 Obtain FAA certification of the Aircraft with
the IFE/CCS installed therein.
2. Software.
IFE/CCS systems may contain software of the following two
types.
2.1 Systems Software. The software required to operate
and certify the IFE/CCS systems on the Aircraft is the Systems
Software and is part of the IFE/CCS.
2.2 Customer's Software. The software accessible to the
Aircraft passengers which controls Customer's specified optional
features is Customer's Software and is not part of the IFE/CCS.
2.2.1 Customer is solely responsible for specifying
Customer's Software functional and performance requirements and
ensuring that Customer's Software meets such requirements.
Customer and Customer's Software supplier will have total
responsibility for the writing, certification, modification,
revision, or correction of any of Customer's Software. Boeing will
not perform the functions and obligations described in paragraph
1.2 above, nor the Project Manager's functions described in
Attachment B, for Customer's Software.
2.2.2 The omission of any Customer's Software or the
lack of any functionality of Customer's Software will not be a
valid condition for Customer's rejection of the Aircraft at the
time of Aircraft delivery.
2.2.3 Boeing has no obligation to approve any
documentation to support Customer's Software certification. Boeing
will only review and operate Customer's Software if in Boeing's
reasonable opinion such review and operation is necessary to
certify the IFE/CCS system on the Aircraft.
2.2.4 Boeing will not be responsible for obtaining
FAA certification for Customer's Software.
3. Changes.
3.1 After Boeing and Supplier have entered into a contract
for the purchase of the IFE/CCS, changes to such contract may only
be made by Boeing. Any Customer request for changes to the IFE/CCS
specification after the Boeing/Supplier contract has been signed
must be made in writing directly to Boeing. Boeing shall respond
to such request by Customer in a timely manner. If such change is
technically feasible and Boeing has the resources and time to
incorporate such change, then Boeing shall negotiate with the
Supplier to incorporate such change into the contract for the
IFE/CCS. Any Supplier price increase resulting from such a change
will be negotiated between Customer and Supplier.
3.2 Boeing and Customer recognize that the developmental
nature of the IFE/CCS may require changes to the IFE/CCS or the
Aircraft in order to ensure (i) compatibility of the IFE/CCS with
the Aircraft and all other Aircraft systems, and (ii) FAA
certification of the Aircraft with the IFE/CCS installed therein.
In such event Boeing will notify Customer and recommend to Customer
the most practical means for incorporating any such change. If
within 15 days after such notification Customer and Boeing through
negotiations cannot mutually agree on the incorporation of any such
change or alternate course of action, then the remedies available
to Boeing in Paragraph 6 shall apply.
3.3 The incorporation into the Aircraft of any mutually
agreed change to the IFE/CCS may result in Boeing adjusting the
price of the Option/s/ contained in Attachment A to this Letter
Agreement.
3.4 Boeing's obligation to obtain FAA certification of the
Aircraft with the IFE/CCS installed is limited to the IFE/CCS as
described in Attachment A, as Attachment A may be amended from time
to time.
4. Supplier Defaults.
Boeing shall notify Customer in a timely manner in the event
of a default by a Supplier under the Supplier's contract with
Boeing. Within 15 days of Customer's receipt of such notification,
Boeing and Customer shall agree through negotiations on an
alternative Supplier or other course of action. If Boeing and
Customer are unable to agree on an alternative Supplier or course
of action within such time, the remedies available to Boeing in
Paragraph 6 shall apply.
5. Exhibits B and C to the AGTA.
IFE/CCS is deemed to be BFE for the purposes of Exhibit B,
Customer Support Document, and Exhibit C, the Product Assurance
Document, of the AGTA.
6. Boeing's Remedies.
If Customer does not comply with any of its obligations set
forth herein, Boeing may:
6.1 delay delivery of the Aircraft pursuant to the
provisions of Article 7, Excusable Delay, of the AGTA; or
6.2 deliver the Aircraft without part or all of the
IFE/CCS installed, or with part or all of the IFE/CCS inoperative.
6.3 increase the Aircraft Price by the amount of Boeing's
additional costs attributable to such noncompliance.
7. Advance Payments.
7.1 Estimated Price for the IFE/CCS. An estimated price
for the IFE/CCS purchased by Boeing will be included in the
Aircraft Advance Payment Base Price to establish the advance
payments for each Aircraft. The estimated price for the Boeing
purchased IFE/CCS installed on each Aircraft by Option/s/ is
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT] U.S. dollars expressed in 1997 dollars.
7.2 Aircraft Price. The Aircraft Price will include the
actual IFE/CCS prices and any associated transportation costs
charged Boeing by Suppliers.
8. Customer's Indemnification of Boeing.
Customer will indemnify and hold harmless Boeing from and
against all claims and liabilities, including costs and expenses
(including attorneys' fees) incident thereto or incident to
successfully establishing the right to indemnification, for injury
to or death of any person or persons, including employees of
Customer but not employees of Boeing, or for loss of or damage to
any property, including Aircraft, arising out of or in any way
connected with any nonconformance or defect in any IFE/CCS, and
whether or not arising in tort or occasioned in whole or in part by
the negligence of Boeing. This indemnity will not apply with
respect to any nonconformance or defect caused solely by Boeing's
installation of the IFE/CCS.
9. Title and Risk of Loss.
Title and risk of loss of IFE/CCS equipment will remain with Boeing
until the Aircraft title is transferred to Customer.
If the foregoing correctly sets forth your understanding of our
agreement with respect to the matters treated above, please
indicate your acceptance and approval below.
Very truly yours,
THE BOEING COMPANY
By /s/ J. A. McGarvey
Its Attorney-In-Fact
ACCEPTED AND AGREED TO this
Date: July 2, 1999
CONTINENTAL AIRLINES, INC.
By /s/ Brian Davis
Its Vice President
<PAGE>
Attachment A
Cabin Systems Equipment
The following Option/s/ describe/s/ the items of equipment
that under the terms and conditions of this Letter Agreement are
considered to be IFE/CCS. Final configuration will be based on
Customer acceptance of any or all options listed below.
Option Numbers and Titles
Option Numbers and Titles to be added based upon identification of
offerable options and completion of Cabin Systems In-Flight
Entertainment configuration discussions with Continental Airlines
and Boeing.
<PAGE>
Attachment B
Project Manager
This Attachment B describes the functions that Boeing will perform
as Project Manager to support (i) the development and integration
of the IFE/CCS and (ii) the FAA certification of the IFE/CCS when
installed on the Aircraft.
1. Project Management
Boeing will perform the following functions for the IFE/CCS.
Boeing will have authority to make day-to-day management decisions,
and decisions on technical details which in Boeing's reasonable
opinion do not significantly affect form, fit, function, cost or
aesthetics. Boeing will be responsible for:
A. Managing the development of all program schedules;
B. Evaluating and approving Supplier's program management
and developmental plans;
C. Defining program metrics and status requirements;
D. Scheduling and conducting program status reviews;
E. Scheduling and conducting design and schedule reviews
with Customer and Suppliers;
F. Monitoring compliance with schedules;
G. Evaluating and approving any recovery plans or plan
revisions which may be required of either Suppliers or
Customer;
H. Leading the development of a joint IFE/CCS project
management plan (the Program Plan) and;
I. Managing the joint development of the System
Specification
2. System Integration
Boeing's performance as Project Manager will include the
functions of systems integrator (Systems Integrator). As Systems
Integrator Boeing will perform the following functions:
A. As required, assist Suppliers in defining their system
specifications for the IFE/CCS, approve such
specifications and develop an overall system
functional specification;
B. Coordinate Boeing, Customer and Supplier teams to
ensure sufficient Supplier and Supplier sub system
testing and an overall cabin system acceptance test
are included in the Program Plan; and
C. Organize and conduct technical coordination meetings
with Customer and Suppliers to review
responsibilities, functionality, Aircraft installation
requirements and overall program schedule, direction
and progress.
3. Seat Integration
A. Boeing will coordinate the interface requirements
between seat suppliers and Suppliers. Interface
requirements are defined in Boeing Document Nos. D6-
36230, "Passenger Seat Design and Installation"; D6-
36238, "Passenger Seat Structural Design and Interface
Criteria"; D222W232, "Seat Wiring and Control
Requirements"; and D222W013-4, "Seat Assembly
Functional Test Plan".
B. The Suppliers will be required to coordinate
integration testing and provide seat assembly
functional test procedures for seat electronic parts
to seat suppliers and Boeing, as determined by Boeing.
C. The Suppliers will assist the seat suppliers in the
preparation of seat assembly functional test plans.
<TABLE>
<CAPTION>
Attachment C
CAL 767-200
Critical Impact Events
<S> <C> <C> <C>
Events and dates to be added based upon completion of Cabin Systems In-Flight Entertaiment
configuration discussions between Continental Airlines and Boeing.
The Contingency Plan is the alternate course of action which will be implemented if the
critical decision date is not met or other course of action is not agreed to by Boeing and
Buyer. The critical impact events listed below are milestones which must be met by IFE and
BFE Seat Suppliers to achieve the in-sequence installation of the IFE. The Required Due
Dates in such tables are the dates on which Boeing begins to incur disruption costs. The
Critical Decision Dates are the dates after which the critical impact event cannot be
accomplished to maintain the delivery schedule and/or full system testing, certification or
installation. A meeting to discuss a recovery plan cost impact and/or an alternate course
of action will be held within one week of knowledge of delinquency or impending delinquency.
Event Required Critical Contingency Plan
Due Date Decision
Date
Cable routing data from Seat Suppliers to [CONFIDENTIAL IFE/Passenger Service System
Boeing and IFE Supplier MATERIAL OMITTED inoperative at Delivery
AND FILED SEPAR-
Seat abuse load test plan approval ATELY WITH THE Assess out-of-sequence charges
SECURITIES AND
Abuse load test hardware on-dock at EXCHANGE COMMIS- Assess out-of -sequence charges
seat supplier SION PURSUANT TO
A REQUEST FOR
Seat abuse load test conduct CONFIDENTIAL Deliver airplane without seats
TREATMENT] installed (zero passenger) or
assess out-of sequence charges
<PAGE>
Attachment C (continued)
CAL 767-200
Critical Impact Events
IFE production hardware on-dock at seat [CONFIDENTIAL IFE inoperative at Delivery
supplier MATERIAL OMITTED
AND FILED SEPAR-
Seat abuse load test report approval ATELY WITH THE IFE locked out at Delivery
SECURITIES AND
Seats on-dock (complete and in-seat IFE EXCHANGE COMMIS- Deliver airplane without seats
installed hardware functionality tested) SION PURSUANT TO (zero passenger) or assess
at Boeing A REQUEST FOR additional out-of-sequence
CONFIDENTIAL charges
TREATMENT]
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,145
<SECURITIES> 0
<RECEIVABLES> 606
<ALLOWANCES> 0
<INVENTORY> 225
<CURRENT-ASSETS> 2,520
<PP&E> 4,181
<DEPRECIATION> 981
<TOTAL-ASSETS> 8,296
<CURRENT-LIABILITIES> 2,694
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 1,560
<TOTAL-LIABILITY-AND-EQUITY> 8,296
<SALES> 6,537
<TOTAL-REVENUES> 6,537
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,909
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 168
<INCOME-PRETAX> 551
<INCOME-TAX> 214
<INCOME-CONTINUING> 337
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 6
<NET-INCOME> 331
<EPS-BASIC> 4.73
<EPS-DILUTED> 4.44
</TABLE>
