Exhibit 13
Class A Recapitalization Term Sheet
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1. Charter Amendment -The charter of Continental Airlines, Inc. (together
with its affiliates, "CO") will be amended by requisite stockholder vote to
recapitalize Class A common stock as described in Section 2 below, to
eliminate all references to Class A and Class D common stock and related
provisions, to redesignate the Class B common stock as "common stock", to
effect the Rights Plan charter provision discussed below and to eliminate all
special rights of Air Partners. Required vote for the recapitalization is
vote of Class A, voting as a separate class, and vote of Class A and Class B,
voting together as a single class. Northwest Airlines Corporation (together
with its affiliates, "NW") will agree to vote all Class A common stock owned
by NW in favor of the recapitalization and charter amendment. The
recapitalization and charter amendment will be effective (the "Effective
Time") immediately after the closing of the Repurchase described below.
2. Recapitalization - Each share of Class A common stock outstanding at the
Effective Time will be reclassified, by charter amendment, into 1.32 shares
of CO common stock.
3. Repurchase -Immediately prior to the Effective Time, CO will purchase
from NW and NW will sell to CO, for $450 million in cash, 6,685,279 shares of
CO Class A common stock then owned by NW (the "Repurchase"). The closing of
the Repurchase will be conditioned on CO having received a minimum of $200
million in net proceeds from a sale of its equity securities (as to which
sale NW shall waive any applicable pre-emptive rights under the Governance
Agreement). At the Effective Time, the remaining 1,975,945 shares of CO Class
A common stock held by NW will be reclassified into 2,608,247 shares of CO
common stock. NW will be entitled to use its existing registration rights
with respect to such CO common stock (and the existing agreement shall be
amended to specifically include NW's 2,608,247 shares of CO common stock and
to not terminate if NW's ownership is greater than 500,000 shares of CO
common stock), and CO will provide reasonable assistance to NW if NW wishes
at some future time to sell such CO common stock in a secondary public
offering.
4. Master Alliance Agreement-
(i) Term. The Master Alliance Agreement will be amended to extend its
term until the end of the year 2025, with automatic 5 year renewals
thereafter unless either party gives three years' advance notice of non-
renewal.
(ii) Issuance of Series B Preferred Stock. As an inducement to
Northwest's agreeing to the recapitalization and Repurchase and in connection
with the amendment to the Master Alliance Agreement, CO will issue to NW one
share of Series B Preferred Stock (as described below) for a consideration of
$100 in cash.
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(iii) Additional Termination Rights.
(a) In the event of a NW Change of Control, each of CO and NW shall have
the right to terminate the Master Alliance Agreement on 6 months' prior
written notice, without liability or penalty to the other party.
(b) In the event of a CO Change of Control, NW shall have the right to
terminate the Master Alliance Agreement on 6 months' prior written notice,
without liability or penalty to CO. In the event of a CO Change of Control,
and (I) NW shall have the voting rights described in Section 5(i) below and
shall vote its Series B Preferred Stock in favor of such CO Change of Control
(or vote its Series B Preferred Stock in favor of the amendment of the
Revised Rights Plan described below or the redemption of outstanding rights
thereunder to permit such CO Change of Control), (II) the Series B Preferred
Stock has become redeemable or has been redeemed or otherwise acquired by CO
other than as a result of a final and non-appealable court order, or (III)
the Series B Preferred Stock has become redeemable or has been redeemed or
otherwise acquired by CO as a result of a final and non-appealable court
order and one or more of the events referred to in Section 5(v)(b), 5(v)(c)
or 5(v)(d) has occurred, then in any such event CO shall have the right to
terminate the Master Alliance Agreement on 6 months' prior written notice,
without liability or penalty to NW.
(c) In the event that CO has the right to redeem the Series B Preferred
Stock pursuant to Section 5(v)(a) or 5(v)(c) below, then CO shall have the
right to terminate the Master Alliance Agreement on 6 months' prior written
notice, without liability or penalty to NW.
(d) For purposes of this term sheet, a "Change of Control" with respect
to either NW or CO shall mean any merger, reorganization, share exchange,
consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving NW or CO, or any sale or
disposition of all or substantially all of NW's or CO's airline assets on a
consolidated basis, involving, or the acquisition of beneficial ownership of
25% or more of the equity securities or voting power of NW or CO by, a third-
party air carrier or carriers with annual passenger revenues in any such
carrier's most recently completed fiscal year in excess of $1 billion, or an
affiliate of any such third-party air carrier(s), or the execution of
definitive agreements in respect of any such transaction.
5. Series B Preferred Stock - The Series B Preferred Stock will be created
by the CO board pursuant to a certificate of designations and will have the
following rights, powers and preferences:
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(i) Vote on Change of Control Transactions-Subject to Section 5(iii)
below, the Series B Preferred Stock will have a separate class vote (A) in
any required vote of CO's stockholders with respect to any CO Change of
Control, or (B) on any dividend or distribution of all or substantially all
of CO's airline assets. See Section 5(viii) for a vote regarding transfers
of all or substantially all of CO's airline assets to one or more of its
affiliates and Section 7 for a vote regarding certain amendments or
redemptions of rights under the Revised Rights Plan.
(ii) Vote on Other Matters -Except as described in Sections 5(i), 5(viii)
and 7 or as otherwise required by applicable law, the Series B Preferred
Stock will not vote on any other matter, other than a change to the terms of
the Series B Preferred Stock that adversely affects the rights of the holders
of Series B Preferred Stock, whether effected by merger, charter amendment or
otherwise, with any such change to such terms requiring the affirmative
separate class vote of the Series B Preferred Stock.
(iii) Termination of Voting Rights -If the Series B Preferred Stock becomes
redeemable, then the voting rights described in Sections 5(i), 5(viii) and 7
will automatically terminate, and the stock will have no voting rights, other
than in respect of a charter amendment adversely affecting the rights of the
holders of Series B Preferred Stock or as otherwise required by applicable
law.
(iv) Dividends -The Series B Preferred Stock will pay no dividends.
(v) Redemption -The Series B Preferred Stock will be redeemable at the
option of CO for an amount equal to its liquidation preference at any time
(a) if the Series B Preferred Stock is transferred or encumbered except as
contemplated by Section 5(ix), (b) after a Change of Control of NW, (c) if NW
materially breaches the Standstill Agreement (as described below), subject to
the ability to cure inadvertent breaches within a reasonable period of time,
or triggers the Revised Rights Plan (as described below), or (d) if the
Master Alliance Agreement (as amended as described above) between CO and NW
terminates or expires, other than as a result of a breach or wrongful
termination thereof by CO.
(vi) Liquidation Preference -The liquidation preference of the Series B
Preferred Stock will be $100.
(vii) Authorized Number of Shares -The authorized number of shares of
Series B Preferred Stock shall be one.
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(viii) Certain Transfers of Assets - CO will not transfer all or
substantially all of its airline assets to one or more affiliates without the
vote of the Series B Preferred Stock, voting as a separate class, unless a
"mirror image" Series B Preferred Stock is issued by such affiliate(s) to NW,
and if a new parent company is created, the Series B Preferred Stock must
exist at the holding company as well as at the subsidiaries, and the Revised
Rights Plan must exist at the holding company and at any subsidiaries that
are publicly held.
(ix) Transfer Restrictions - NW may not transfer or encumber (including
by granting any proxy) the Series B Preferred Stock except that NW may
transfer the Series B Preferred Stock by operation of law to the successor of
NW.
10. Standstill Agreement - At closing, CO and NW will enter into a customary
standstill agreement in the form to be attached to the definitive documents
(the "Standstill Agreement") with the same standstill restrictions and
conduct restrictions as are currently contained in the Governance Agreement,
except that (i) there shall be no restriction on nonpublic lawful
communications regarding ordinary course business activities between NW
directors, officers and employees and CO directors, officers and employees,
(ii) any CO common stock beneficially owned by NW after the Repurchase and
not sold will be voted neutrally with respect to all matters (other than a CO
Change of Control) and will be voted at the discretion of NW with respect to
a CO Change of Control, and (iii) the maximum percent of outstanding CO
shares which NW will be permitted to own under the Standstill Agreement will
be that percentage of outstanding common stock which NW owns immediately
following the Effective Time (the "Permitted Percentage"), which Permitted
Percentage will adjust downward upon any disposition of common stock by NW
and upward upon any decrease in the total number of shares of common stock
outstanding. The Standstill Agreement shall also provide that NW shall be
released from its obligation thereunder if CO publicly announces that it is
for sale. The Governance Agreement (and related voting trust agreement) and
the Supplemental Agreement will be terminated upon the Effective Time.
11. Revised Rights Agreement -The Rights Agreement will be revised (the
"Revised Rights Plan") to take into account the effects of the
recapitalization, the Repurchase and related matters, and to eliminate NW as
an exempt person. As part of the charter amendment, CO's charter will be
amended to provide that until the termination of the Series B Preferred Stock
voting rights as contemplated by Section 5(iii) (or the earlier redemption or
repurchase of the Series B Preferred Stock by CO), CO will maintain and
renew, as necessary, the Revised Rights Plan and, without the approval of the
Series B Preferred Stock, will not amend the Revised Rights Plan or redeem
the rights thereunder to permit any CO Change of Control. This charter
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provision may not be changed, by merger, charter amendment or otherwise,
without the affirmative separate class vote of the Series B Preferred Stock.
12. DOJ Settlement - Effectiveness of the recapitalization, the Repurchase
and other transactions will be conditioned on settlement of the DOJ
litigation against NW and CO in a manner reasonably satisfactory to NW and
CO.
13. Waiver of 1992 Air, Inc. Right of First Offer - Prior to entering into
definitive agreements, CO will have obtained a waiver or other termination of
the rights of offer and re-offer/option with respect to Class A common stock
owned by NW contained in NW's Investment Agreement with the Bonderman related
entities, which waiver or termination will cease to be effective if the
closing of the recapitalization and the Repurchase does not occur. CO has
obtained the agreement in principle of 1992 Air, Inc. for such waiver in
exchange for $10 million in cash (or, at CO's election, CO common stock,
subject to mutually agreeable terms). NW shall agree to terminate, upon the
closing of the recapitalization and the Repurchase, the limited proxy with
respect to CO equity securities owned by the Bonderman related entities
contained in such Investment Agreement.
14. ALPA - Prior to entering into definitive agreements, NW shall have
satisfied its obligations, if any, pursuant to Section G.1 of the Continental
Alliance Letter of Agreement Number 1 with ALPA for the execution of
definitive agreements and the consummation of the transactions described in
this Term Sheet.
15. Fairness Opinion -Prior to CO's execution of definitive
agreements, CO's board and its Committee of Independent Directors will
require the receipt of a fairness opinion from a nationally recognized
investment bank in connection with their consideration of the
recapitalization and Repurchase.
16. Stockholders' Meeting -Promptly after execution of definitive agreements
relating to the recapitalization, the Repurchase and related matters, CO will
call a special stockholders' meeting and will circulate a proxy statement
containing the recommendation of its Board of Directors in favor of the
recapitalization, subject to the Board's fiduciary duties. NW will agree to
vote its Class A common stock in favor of the recapitalization and charter
amendment at the stockholders' meeting.
17. Closing and Related Matters -The closing of the recapitalization and the
Repurchase will be conditioned on consummation of the matters described in
Sections 1, 3, 4, 5, 6, 7, 8, 9 and 12, and each of NW and CO shall use its
reasonable best efforts to consummate such matters. Each of CO and NW shall
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use their reasonable best efforts to negotiate, have approved by each party's
board of directors (and, for CO, approval of its Committee of Independent
Directors) and execute definitive agreements related to the recapitalization,
the Repurchase and the other matters contemplated by this Term Sheet, and
containing customary representations and warranties, by November 13, 2000.
The closing of the transactions contemplated by the definitive agreements
shall be conditioned on the absence of an injunction prohibiting the
transactions contemplated thereby. In the event of litigation challenging the
Repurchase, the recapitalization, the issuance of the Series B Preferred
Stock, the amendment of the Master Alliance Agreement or the other
transactions contemplated by this Term Sheet or arising under or in
connection with the Definitive Agreements, CO will not settle any such
litigation in a manner that adversely affects NW or the Bonderman entities
without the consent of NW and the Bonderman entities, as the case may be,
which consents shall not be unreasonably withheld. Additionally, CO will
indemnify and hold harmless NW and the Bonderman entities and their
respective directors, officers, partners, employees and agents from and
against any losses, damages or expenses arising in connection with any claim,
action or proceeding challenging the Repurchase, the recapitalization, the
issuance of the Series B Preferred Stock, the amendment of the Master
Alliance Agreement or the other transactions contemplated by this Term Sheet
or arising under or in connection with the Definitive Agreements, pursuant to
customary terms and conditions. If definitive agreements are not executed by
the parties by November 13, 2000, the parties agree to resume the DOJ
litigation on Tuesday, November 14, 2000.
18. Alliance Matters - On or before November 13, 2000, NW and CO shall
review the Master Alliance Agreement and shall agree as to any technical
changes which may be required as a result of the transactions contemplated
hereby.
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