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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
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[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
</TABLE>
CONTINENTAL AIRLINES, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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[CONTINENTAL AIRLINES LOGO]
December 18, 2000
To Our Stockholders:
On behalf of the board of directors of Continental Airlines, Inc., we are
pleased to invite you to attend a special meeting of stockholders. As indicated
in the attached notice, the meeting will be held at the Four Seasons Hotel, 1300
Lamar Street, Houston, Texas, on January 22, 2001, at 9:00 a.m., local time.
At the special meeting, you will be asked to consider and vote upon a
recapitalization proposal intended to reduce Northwest Airlines Corporation's
equity and voting interest in our company and to result in the dismissal of
antitrust litigation brought by the U.S. Department of Justice in connection
with the original acquisition of that equity and voting interest. Immediately
prior to the recapitalization, Continental will repurchase 6,685,279 shares of
our Class A common stock held by Northwest Airlines Corporation and an affiliate
for $450 million in cash. In the recapitalization, each remaining issued share
of Class A common stock (which has ten votes per share) will be reclassified
into 1.32 shares of our Class B common stock (which has one vote per share).
After giving effect to the recapitalization (including the repurchase of
Northwest's shares), Northwest Airlines Corporation will own approximately 2.6
million shares of Class B common stock, or less than 5% of Continental's
outstanding common stock.
In addition, Continental and Northwest Airlines, Inc. will agree to extend
their existing commercial alliance through the end of 2025. In connection with
this extension and the other transactions described above, Continental will
issue to Northwest Airlines, Inc. one share of a new series of preferred stock
that will give it a separate class vote in the event of certain merger or
similar change of control transactions involving Continental.
The shares of our Class B common stock that will be outstanding following
the recapitalization will continue to be traded on the New York Stock Exchange
under the symbol "CAL".
THE ACCOMPANYING PROXY STATEMENT PROVIDES DETAILED INFORMATION ABOUT THE
RECAPITALIZATION. PLEASE READ THE ENTIRE PROXY STATEMENT AND THE ANNEXES
CAREFULLY. FOR CERTAIN RISKS IN CONNECTION WITH THE RECAPITALIZATION, SEE "RISK
FACTORS" BEGINNING ON PAGE 13.
The recapitalization will be accomplished in part by amending our
certificate of incorporation. Our board of directors has approved the amended
and restated certificate of incorporation to be adopted in connection with the
recapitalization and recommends that you vote FOR the adoption of the amended
and restated certificate of incorporation. Our board of directors also urges you
to vote your shares through the internet or by telephone, as described in the
enclosed proxy statement, even if you plan to attend the meeting in person.
Alternatively, you may sign, date and mail the enclosed proxy card in the
envelope provided.
Thank you for your continued support.
Cordially,
/s/ GORDON BETHUNE
Gordon Bethune
Chairman of the Board and Chief
Executive Officer
/s/ GREG BRENNEMAN
Greg Brenneman
President and Chief Operating Officer
THIS PROXY STATEMENT IS DATED DECEMBER 18, 2000, AND IS FIRST BEING MAILED
TO STOCKHOLDERS ON OR ABOUT DECEMBER 20, 2000.
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CONTINENTAL AIRLINES, INC.
1600 SMITH STREET, DEPT. HQSEO
HOUSTON, TEXAS 77002
-------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 22, 2001
-------------------
A special meeting of stockholders of Continental Airlines, Inc. will be
held at the Four Seasons Hotel, 1300 Lamar Street, Houston, Texas, on January
22, 2001, at 9:00 a.m., local time. The purpose of the special meeting is to
consider a proposal to adopt an amended and restated certificate of
incorporation of the company in connection with a proposed recapitalization.
Immediately prior to the recapitalization, Continental will repurchase
6,685,279 shares of its Class A common stock held by Northwest Airlines
Corporation and an affiliate for $450 million in cash. In the recapitalization,
each remaining issued share of Class A common stock will be reclassified into
1.32 shares of Class B common stock. In addition, Continental and Northwest
Airlines, Inc. will agree to extend their existing commercial alliance through
2025. In connection with this extension and the other transactions described
above, Continental will issue to Northwest Airlines, Inc. one share of a new
series of preferred stock that will give it a separate class vote in the event
of certain merger or similar change of control transactions involving
Continental.
The holders of record of the company's Class A common stock and Class B
common stock at the close of business on December 18, 2000, the record date, are
entitled to notice of and to vote at the special meeting. A list of Continental
stockholders entitled to vote at the special meeting will be available for
examination, during ordinary business hours, for ten days before the meeting at
our principal place of business, 1600 Smith Street, Houston, Texas.
A form of proxy and a proxy statement containing more detailed information
with respect to the matters to be considered at the special meeting are included
with this notice.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ADOPTION OF THE
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION IN CONNECTION WITH THE
PROPOSED RECAPITALIZATION.
Adoption of the amended and restated certificate of incorporation is the
only matter to be presented or acted upon at the special meeting. Under our
by-laws, no business besides that stated in the meeting notice may be transacted
at any meeting of stockholders. If any procedural matter is presented at the
meeting on which a vote may properly be taken, the shares represented by proxies
will be voted in accordance with the judgment of the person or persons voting
those shares.
By Order of the Board of Directors,
/s/ JEFFERY A. SMISEK
Jeffery A. Smisek
Secretary
Houston, Texas
December 18, 2000
PLEASE AUTHORIZE YOUR PROXY OR DIRECT YOUR VOTE BY INTERNET OR TELEPHONE AS
DESCRIBED IN THE ENCLOSED PROXY STATEMENT, WHETHER OR NOT YOU PLAN TO ATTEND THE
MEETING IN PERSON. ALTERNATIVELY, YOU MAY SIGN AND DATE THE ENCLOSED PROXY AND
RETURN IT PROMPTLY BY MAIL IN THE ENCLOSED ENVELOPE. IF YOU MAIL THE ENCLOSED
PROXY CARD, NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. IF YOU DO
ATTEND THE MEETING IN PERSON AND DESIRE TO WITHDRAW YOUR PROXY, YOU MAY DO SO IN
THE MANNER DESCRIBED IN THE ENCLOSED PROXY STATEMENT AND VOTE PERSONALLY ON ALL
MATTERS PROPERLY BROUGHT BEFORE THE MEETING.
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TABLE OF CONTENTS
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QUESTIONS AND ANSWERS ABOUT THE
RECAPITALIZATION................... 2
SUMMARY.............................. 5
RISK FACTORS......................... 13
THE SPECIAL MEETING.................. 13
Date, Place and Time............... 13
Purpose of the Special Meeting..... 13
Record Date; Stockholders Entitled
to Vote; Quorum................. 13
Vote Required...................... 14
Voting of Proxies.................. 15
Revocation of Proxies.............. 15
Expenses of Solicitation........... 16
Other Matters to be Acted on at the
Special Meeting................. 16
THE COMPANY.......................... 16
General............................ 16
Recent Developments................ 16
Principal Stockholders............. 17
THE RECAPITALIZATION................. 19
General............................ 19
Background of the
Recapitalization................ 21
Reasons for the Recapitalization... 25
Opinion of UBS Warburg LLC......... 26
Opinion of Credit Suisse First
Boston.......................... 33
Interests of Directors and
Executive Officers in the
Recapitalization................ 37
Effective Time of the
Recapitalization................ 39
Regulatory Review.................. 39
Other Effects of the
Recapitalization................ 40
New York Stock Exchange Listing.... 40
Appraisal Rights................... 40
Certain U.S. Federal Income Tax
Consequences of the
Recapitalization................ 40
FINANCIAL INFORMATION................ 42
Selected Historical Consolidated
Financial Data.................. 42
Unaudited Pro Forma Condensed
Consolidated Financial
Statements...................... 44
MARKET PRICE AND DIVIDEND
INFORMATION........................ 47
THE RECAPITALIZATION DOCUMENTS....... 47
Amended and Restated Certificate of
Incorporation................... 47
The Omnibus Agreement.............. 48
Standstill Agreement............... 51
Series B Preferred Stock
Certificate of Designations..... 52
Reoffer Purchase Agreement......... 57
Amendment of Master Alliance
Agreement....................... 57
DESCRIPTION OF CONTINENTAL CAPITAL
STOCK.............................. 58
Common Stock--All Classes.......... 59
Class B Common Stock and Class A
Common Stock.................... 59
Preferred Stock Purchase Rights.... 60
Corporate Governance and Control... 63
Business Combinations.............. 64
Anti-Dilution Rights of Air
Partners........................ 64
Procedural Matters................. 65
Change of Control.................. 65
Special Class of Common Stock...... 65
Limitation of Director Liability
and Indemnification............. 65
STOCKHOLDER PROPOSALS FOR 2001....... 66
OTHER MATTERS........................ 66
WHERE YOU CAN FIND MORE
INFORMATION........................ 66
FORWARD-LOOKING
STATEMENTS......................... 68
Annex A Amended and Restated
Certificate of
Incorporation...................... A-1
Annex B Series B Preferred Stock
Certificate of
Designations....................... B-1
Annex C Opinion of UBS
Warburg LLC................ C-1
Annex D Opinion of Credit Suisse
First Boston Corporation... D-1
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QUESTIONS AND ANSWERS ABOUT THE RECAPITALIZATION
Q. WHY IS CONTINENTAL PROPOSING THE RECAPITALIZATION?
A. The recapitalization is intended to reduce the equity and voting interest
in our company owned by Northwest Airlines Corporation ("Northwest") and
to facilitate the dismissal of antitrust litigation brought by the U.S.
Department of Justice against Northwest and Continental challenging
Northwest's acquisition of Class A common stock of Continental in 1998.
The recapitalization will reduce Northwest's general voting power in
Continental, which currently includes Northwest's right to vote certain
shares under a limited proxy, from approximately 59.6% to approximately
7%, will reduce Northwest's equity interest in Continental from
approximately 14.8% to less than 5% and will allow Continental and
Northwest Airlines, Inc. ("Northwest Airlines") to focus their attention
on the commercial alliance between the two airlines.
Q. WHAT WILL HAPPEN IN THE RECAPITALIZATION?
A. Immediately prior to the recapitalization, Continental will repurchase
6,685,279 shares of its Class A common stock held by Northwest and an
affiliate for $450 million in cash (plus interest under certain
circumstances). In the recapitalization, each remaining issued share of
Class A common stock will be reclassified into 1.32 shares of Class B
common stock. In addition, Continental and Northwest Airlines will agree
to extend their existing commercial alliance through the end of 2025. In
connection with this extension and the other transactions described above,
Continental will issue to Northwest Airlines one share of a new series of
preferred stock--known as Series B preferred stock--that will give
Northwest Airlines a separate class vote in the event of certain merger or
similar change of control transactions involving Continental.
Q. I CURRENTLY HOLD SHARES OF CLASS A COMMON STOCK. HOW WILL THE SHARES OF
CLASS B COMMON STOCK THAT I WILL RECEIVE IN THE RECAPITALIZATION DIFFER
FROM THE CLASS A COMMON STOCK THAT I HOLD TODAY?
A. You will receive 1.32 shares of Class B common stock for each share of
Class A common stock you hold at the time of the recapitalization. Holders
of shares of Class A common stock are currently entitled to ten votes per
share, while holders of shares of Class B common stock are entitled to
only one vote per share. Otherwise, the shares have the same rights.
Q. I CURRENTLY HOLD SHARES OF CLASS B COMMON STOCK. WHAT WILL HAPPEN TO THESE
SHARES IN THE RECAPITALIZATION?
A. The outstanding shares of Class B common stock will not be affected or
changed by the recapitalization. However, the relative voting power of
those shares will increase because the shares of Class A common
stock--which have ten votes per share--will no longer be outstanding, even
though the number of outstanding shares of Class B common stock will
increase because of the 1 to 1.32 exchange ratio.
Q. WHAT WILL BE THE U.S. FEDERAL INCOME TAX TREATMENT OF THE
RECAPITALIZATION?
A. Generally, a Class A stockholder who receives shares of Class B common
stock in the recapitalization will not recognize gain or loss for federal
income tax purposes except to the extent of cash received in lieu of a
fractional share.
Q. WHAT STOCKHOLDER VOTE IS REQUIRED TO APPROVE THE RECAPITALIZATION?
A. The recapitalization will be accomplished in part by amending our
certificate of incorporation. We cannot adopt the amended and restated
certificate of incorporation or proceed with the recapitalization unless
we receive the approval of:
- a majority of the votes entitled to be cast by the holders of the
outstanding shares of Class A common stock and Class B common stock
voting together as a single class, and
- a majority of the votes entitled to be cast by the holders of the
outstanding shares of Class A common stock voting separately as a class.
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Continental has obtained a contractual voting commitment from Northwest
that ensures that the recapitalization proposal will be approved. As of
the record date for the special meeting, Northwest beneficially owned
8,661,224 shares of Class A common stock and held a limited proxy to vote
an additional 695,894 shares of Class A common stock under certain
circumstances, which represented approximately 85.3% of the voting power
of the Class A common stock voting separately (79.0% excluding the limited
proxy shares) and approximately 59.6% of the voting power of the Class A
common stock and Class B common stock voting together as a single class
(55.1% excluding the limited proxy shares). Northwest has agreed to
instruct the trustee of the voting trust in which its shares are held to
vote all of its 8,661,224 shares of Class A common stock in favor of the
recapitalization proposal. Accordingly, the adoption of the amended and
restated certificate of incorporation is assured regardless of how
stockholders other than Northwest vote their shares.
Q. HOW CAN I VOTE MY SHARES?
A. A stockholder of record can give a proxy to be voted at the special
meeting either:
- electronically, using the internet;
- over the telephone by calling the toll-free number on the proxy card
(telephone voting is not available for shares held by non-U.S.
citizens); or
- by mailing the enclosed proxy card. We have provided a prepaid,
self-addressed envelope for this purpose.
Stockholders who hold their shares in "street name" must vote their shares
in the manner prescribed by their brokers.
The internet and telephone voting procedures have been set up for your
convenience and have been designed to authenticate your identity, to allow
you to give voting instructions and to confirm that those instructions
have been recorded properly. If you are a stockholder of record and you
would like to vote using the internet or by telephone, please refer to the
specific instructions set forth on the enclosed proxy card. If you wish to
vote using a paper format and you return your signed proxy to us before
the special meeting, we will vote your shares as you direct. You may also
vote your shares by attending the special meeting in person and voting by
ballot.
The failure to vote at the special meeting will have the same effect as a
vote against the adoption of the amended and restated certificate of
incorporation.
Q. IF MY BROKER HOLDS MY SHARES IN "STREET NAME," WILL MY BROKER VOTE MY
SHARES FOR ME?
A. Your shares will not be voted unless you follow the directions that your
broker provides to you regarding how to vote your shares.
Q. CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD OR GIVEN A
PROXY BY TELEPHONE OR OVER THE INTERNET?
A. Yes. You can change your vote at any time before your proxy is voted at
the special meeting. You can do this in one of three ways:
- by submitting written notice to our Secretary before the special meeting
that you have revoked your proxy;
- by submitting another proxy by telephone, via the internet or by mail
that is later dated and, if by mail, that is properly signed and mailed
to:
Mellon Investor Services LLC
Proxy Processing
Church Street Station
P.O. Box 1600
New York, New York 10277-1600
1-800-840-1208
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- by voting in person at the special meeting.
Q. I HOLD SHARES OF CLASS A COMMON STOCK. WILL I BE SENT NEW STOCK
CERTIFICATES IN THE RECAPITALIZATION?
A. If you are a record holder of shares of Class A common stock, after the
consummation of the recapitalization you will be sent information on how
to exchange your Class A share certificates for Class B share
certificates. After you surrender your Class A share certificates, you
will receive a Class B share certificate evidencing the shares of Class B
common stock you received in the recapitalization. If you hold your shares
of Class A common stock in a brokerage or other account, the Class B
shares to which you are entitled will be credited directly to that
account. No fractional shares of Class B common stock will be issued. In
lieu of the fractional shares of Class B common stock to which any holder
of Class A common stock would otherwise be entitled (aggregating for this
purpose all of the shares of Class A common stock owned of record by the
stockholder), each holder of Class A common stock who would otherwise be
entitled to receive a fraction of a share will receive a cash payment
equal to (1) the closing price of the Class B common stock on the New York
Stock Exchange on the effective date of the recapitalization multiplied by
(2) the fractional interest not received.
CLASS A STOCKHOLDERS SHOULD NOT SURRENDER THEIR CLASS A SHARE
CERTIFICATES PRIOR TO RECEIVING A TRANSMITTAL FORM WHICH WILL BE SENT TO
YOU AFTER THE EFFECTIVE TIME OF THE RECAPITALIZATION.
CLASS B SHARE CERTIFICATES WILL NOT BE CHANGED OR EXCHANGED IN
CONNECTION WITH THE RECAPITALIZATION.
Q. WHEN DO YOU EXPECT TO COMPLETE THE RECAPITALIZATION?
A. We are working toward completing the recapitalization as quickly as
possible. We hope to complete the recapitalization on or shortly after
January 22, 2001, the date of the special meeting. However, we cannot
assure you as to when or if the recapitalization will occur.
Q. WHERE CAN I FIND MORE INFORMATION ABOUT CONTINENTAL?
A. We file reports and other information with the SEC. You may read and copy
this information at the SEC's public reference facilities. Please call the
SEC at 1-800-SEC-0330 for information about these facilities. This
information is also available on the SEC's World Wide Web site at
http://www.sec.gov and at the offices of the New York Stock Exchange. You
can also request copies of these documents from us.
Q. WHO CAN ANSWER MY QUESTIONS?
A. You may contact our Investor Relations Department at:
Investor Relations Department
Continental Airlines, Inc.
1600 Smith Street, HQSII, 32nd Floor
Houston, Texas 77002
Tel. (713) 324-5238
Attn: Steve Goodweather
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SUMMARY
This summary, together with the preceding questions and answers section,
highlights selected information from this proxy statement and may not contain
all of the information that is important to you. To understand the proposed
recapitalization, you should read carefully this entire proxy statement and the
documents to which we have referred you. See "Where You Can Find More
Information" on page 66. The amended and restated certificate of incorporation
we propose to adopt is included as Annex A to this proxy statement. We have
included page references parenthetically to direct you to a more complete
description of the topics presented in this summary.
THE COMPANY (SEE PAGE 16)
CONTINENTAL AIRLINES, INC.
1600 Smith Street, Dept. HQSEO
Houston, Texas 77002
Telephone: (713) 324-2950
Continental is a major U.S. air carrier engaged in the business of
transporting passengers, cargo and mail. We are the fifth largest U.S. airline
as measured by revenue passenger miles in the first nine months of 2000, and,
together with our wholly owned subsidiaries, Continental Express, Inc. and
Continental Micronesia, Inc., serve 228 airports worldwide. As of October 1,
2000, we flew to 134 domestic and 94 international destinations and offered
additional connecting service through alliances with domestic and foreign
carriers. We directly serve 16 European cities, eight South American cities, Tel
Aviv and Tokyo and are one of the leading airlines providing service to Mexico
and Central America, serving more destinations there than any other U.S.
airline. Through its Guam hub, Continental Micronesia provides extensive service
in the western Pacific, including service to more Japanese cities than any other
U.S. carrier.
For the year ended December 31, 1999, Continental had net income of $455
million, or $6.20 per share. Continental generated income before income taxes,
minority interest, extraordinary charges and cumulative effect of changes in
accounting principle of $798 million for the year ended December 31, 1999. For
the nine months ended September 30, 2000, Continental had net income of $298
million, or $4.76 per share, and generated income before income taxes, minority
interest, extraordinary charges and cumulative effect of changes in accounting
principle of $497 million.
THE RECAPITALIZATION
On November 15, 2000, we entered into a number of agreements with Northwest
and certain of its affiliates (which today hold voting securities of
Continental, including shares as to which Northwest has limited proxy rights,
representing 59.6% of the general voting power) under which the following events
are to take place:
- Repurchase of Shares of Class A Common Stock (See page 19). Immediately
prior to the effective time of the recapitalization, we will repurchase
from Northwest and an affiliate 6,685,279 shares of Continental Class A
common stock for an aggregate purchase price of $450 million in cash (or
approximately $67 per share), plus interest under certain circumstances.
- Reclassification of Shares of Class A Common Stock (See page 19). At the
effective time of the recapitalization, the remaining 1,975,945 shares of
Class A common stock that we will not purchase from Northwest, as well as
all other remaining issued shares of Class A common stock, will be
reclassified into our Class B common stock at an exchange rate of 1.32
shares of Class B common stock per share of Class A common stock.
- Amendment of Master Alliance Agreement (See page 19). In connection with
the recapitalization, we will extend the existing commercial alliance
agreement with Northwest Airlines through the end of 2025, add additional
termination events and make certain other changes.
- Issuance of Series B Preferred Stock (See page 19). In connection with
the transactions described above, including the amendment of the alliance
agreement, we will issue to Northwest Airlines one share of a new series
of preferred stock designated as Series B preferred stock. The Series B
preferred stock will give Northwest Airlines a separate class vote in the
event of certain
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merger or similar change of control transactions involving Continental.
Under certain circumstances, the Series B preferred stock will no longer
have the separate class vote referred to above and, at our option, may be
redeemed.
- Purchase of Right of First Offer (See page 20). In connection with the
recapitalization, we will pay to 1992 Air, Inc. $10 million in cash (or,
at our option, $11 million in the form of our Class B common stock), plus
interest under certain circumstances, in consideration for 1992 Air,
Inc.'s sale to us of its right of first offer to purchase the shares of
Class A common stock that we are going to purchase from Northwest (which
right will terminate immediately after the recapitalization). 1992 Air,
Inc. is an affiliate of David Bonderman, one of our directors.
REASONS FOR THE RECAPITALIZATION (SEE PAGE 25)
The proposed recapitalization is intended to
- ensure our continued independence and the ability of our board of
directors to direct the affairs of the company without the influence of a
large stockholder who might not have the same interests as all
Continental stockholders;
- strengthen the commercial alliance between Continental and Northwest
Airlines while removing an impediment to the continued cooperation
between the companies; and
- facilitate the dismissal of the antitrust litigation brought by the U.S.
Department of Justice.
BOARD RECOMMENDATION TO STOCKHOLDERS
Our board of directors approved the recapitalization and related agreements
and documents at a meeting held on November 15, 2000. Our board of directors
recommends that you vote FOR the recapitalization proposal.
FAIRNESS OPINIONS
In deciding to approve the recapitalization, our board of directors
considered the opinions described below.
The full texts of these opinions describe the bases and assumptions on
which they were rendered and are attached to this proxy statement as Annexes C
and D. We encourage you to read these opinions carefully.
UBS WARBURG LLC (SEE PAGE 26)
UBS Warburg LLC has delivered a written opinion to the Continental board as
to the fairness, from a financial point of view, to the holders of Class B
common stock of the consideration to be paid by Continental in the
recapitalization. The full text of UBS Warburg's written opinion, dated November
15, 2000, is attached to this proxy statement as Annex C. We encourage you to
read this opinion carefully in its entirety for a description of the procedures
followed, assumptions made, matters considered and limitations on the review
undertaken.
UBS WARBURG'S OPINION IS DIRECTED TO THE CONTINENTAL BOARD OF DIRECTORS,
RELATES ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, TO THE HOLDERS OF
CLASS B COMMON STOCK OF THE CONSIDERATION TO BE PAID BY CONTINENTAL IN THE
RECAPITALIZATION AND DOES NOT CONSTITUTE A RECOMMENDATION TO HOLDERS OF
CONTINENTAL COMMON STOCK ABOUT HOW TO VOTE ON THE ADOPTION OF THE AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION OR ANY OTHER MATTER.
CREDIT SUISSE FIRST BOSTON (SEE PAGE 33)
Credit Suisse First Boston Corporation has delivered a written opinion to
the Continental board as to the fairness, from a financial point of view, to the
holders of Class A common stock of Continental, other than Northwest Airlines,
1992 Air, Inc. and their affiliates, of the exchange ratio provided for in the
recapitalization. The full text of Credit Suisse First Boston's written opinion,
dated November 15, 2000, is attached to this proxy statement as Annex D. We
encourage you to read this opinion carefully in its entirety for a description
of the procedures followed, assumptions made, matters considered and limitations
on the review undertaken.
CREDIT SUISSE FIRST BOSTON'S OPINION IS ADDRESSED TO THE CONTINENTAL BOARD
OF DIRECTORS, DOES NOT ADDRESS ANY DIFFERENCES IN THE AMOUNT AND TYPE OF
CONSIDERATION TO BE RECEIVED BY NORTHWEST AIRLINES, 1992 AIR, INC. AND THEIR
AFFILIATES AND THE OTHER HOLDERS OF CLASS A COMMON STOCK PURSUANT TO THE
RECAPITALIZATION AND THE OTHER TRANSACTIONS EF-
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FECTED PURSUANT TO AN OMNIBUS AGREEMENT AMONG CONTINENTAL, NORTHWEST AND CERTAIN
OF ITS AFFILIATES, AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER
AS TO ANY MATTER RELATING TO THE RECAPITALIZATION.
CERTAIN U.S. FEDERAL INCOME TAX
CONSEQUENCES (SEE PAGE 40)
Generally, a Class A stockholder (other than Northwest, 1992 Air, Inc. and
their affiliates) who receives shares of Class B common stock in the
recapitalization will not recognize gain or loss for federal income tax purposes
except to the extent of cash received in lieu of a fractional share.
APPRAISAL RIGHTS (SEE PAGE 40)
Appraisal rights will not be available to holders of Class A common stock
or Class B common stock as a result of the recapitalization.
VOTING (SEE PAGE 13)
TIME AND LOCATION OF SPECIAL MEETING
A special meeting of Continental stockholders will be held at the Four
Seasons Hotel, 1300 Lamar Street, Houston, Texas, on January 22, 2001, at 9:00
a.m., local time.
RECORD DATE; VOTING POWER (SEE PAGE 13)
You may vote at the special stockholders meeting if you owned shares of
Continental common stock as of the close of business on December 18, 2000, the
record date. Subject to certain limitations on voting by non-U.S. citizens, each
share of Class A common stock is entitled to ten votes per share and each share
of Class B common stock is entitled to one vote per share.
STOCKHOLDER VOTE REQUIRED TO ADOPT THE
AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION (SEE PAGE 14)
We cannot adopt the amended and restated certificate of incorporation or
proceed with the recapitalization unless we receive the affirmative vote of :
- a majority of the votes entitled to be cast by the holders of the
outstanding shares of Class A common stock and Class B common stock
voting together as a single class, and
- a majority of the votes entitled to be cast by the holders of the
outstanding shares of Class A common stock voting separately as a class.
As of the record date, Northwest beneficially owned 8,661,224 shares of
Class A common stock and held a limited proxy to vote an additional 695,894
shares of Class A common stock under certain circumstances, which represented
approximately 85.3% of the voting power of the Class A common stock voting
separately (79.0% excluding the proxy shares) and approximately 59.6% of the
voting power of the Class A common stock and Class B common stock voting
together as a single class (55.1% excluding the proxy shares). Northwest has
agreed to instruct the trustee of the voting trust in which its shares are held
to vote all of Northwest's 8,661,224 Class A shares in favor of the
recapitalization proposal. Accordingly, adoption of the amended and restated
certificate of incorporation is assured.
SHARE OWNERSHIP OF DIRECTORS AND OFFICERS
As of the record date for the special meeting, Continental directors and
executive officers, including affiliates of David Bonderman, one of our
directors, owned approximately 6.3% of the outstanding shares of Class A common
stock. As of the record date and assuming the consummation of the
recapitalization, Continental directors and executive officers would have owned
approximately 9.0% of the Class B common stock.
THE RECAPITALIZATION DOCUMENTS
(SEE PAGE 47)
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
(SEE PAGE 47)
The recapitalization will be accomplished in part by amending and restating
our certificate of incorporation. The proposed amended and restated certificate
of incorporation will:
- reclassify each share of Class A common stock as 1.32 shares of Class B
common stock having one vote per share;
- eliminate all references to Class A common stock and Class D common
stock;
- provide that we will have the authority to issue a total of 210 million
shares (as op-
7
<PAGE> 11
posed to 310 million shares under the existing certificate of
incorporation);
- eliminate all special rights and privileges of Air Partners, L.P.;
- provide that until the Series B preferred stock becomes redeemable, we
will not, without Northwest Airlines' approval, amend our rights
agreement or redeem the preferred stock purchase rights to permit a third
party major air carrier to enter into certain transactions that would,
but for the amendment or redemption, result in its becoming an acquiring
person under the rights agreement; and
- provide that until the Series B preferred stock becomes redeemable, we
will take all necessary action to have in effect a rights agreement with
terms and conditions identical in all material respects to the terms and
conditions of our amended and restated rights agreement and to issue the
rights created under that agreement.
The full text of the proposed amended and restated certificate of
incorporation is attached as Annex A to this proxy statement.
CERTIFICATE OF DESIGNATIONS FOR THE SERIES B
PREFERRED STOCK (SEE PAGE 52)
In connection with the transactions contemplated by the omnibus agreement,
including the amendment to the master alliance agreement, we will issue to
Northwest Airlines one share of Series B preferred stock. This share of Series B
preferred stock will give Northwest Airlines a separate class vote in the event
of certain merger or similar change of control transactions involving
Continental. Under certain circumstances, the Series B preferred stock will no
longer have the separate class vote referred to above and, at our option, may be
redeemed.
The full text of the proposed Series B preferred stock certificate of
designations is attached as Annex B to this proxy statement.
THE STANDSTILL AGREEMENT (SEE PAGE 51)
In connection with the recapitalization, we have entered into a standstill
agreement with Northwest and certain of its affiliates that restricts Northwest
and its affiliates from increasing their percentage ownership of our stock or
otherwise attempting to control our company. Under the agreement, Northwest has
agreed to vote neutrally all of our common stock owned by Northwest and its
affiliates after the recapitalization, except that Northwest will be free to
vote its shares in its discretion with respect to a change of control of our
company, as defined in the Series B preferred stock certificate of designations
and except that in the election of directors, Northwest will vote its stock at
its discretion either neutrally or as recommended by our board of directors. The
standstill agreement provides that Northwest will be released from its
obligations if we publicly announce that we are seeking, or have entered into an
agreement with, a third party to acquire a majority of our voting securities or
all or substantially all of our airline assets or if the alliance agreement is
terminated in accordance with its terms.
AMENDMENT TO MASTER ALLIANCE AGREEMENT
(SEE PAGE 57)
In connection with the recapitalization, the master alliance agreement
between Northwest Airlines and us pursuant to which certain joint marketing
activities (such as code sharing, reciprocal frequent flyer programs and
executive lounge access) are undertaken, will be extended until the end of 2025,
with automatic five year renewals thereafter unless either party gives three
years' advance notice of nonrenewal.
In addition to the existing termination provisions of the master alliance
agreement, the amendment provides that the master alliance agreement will be
terminable:
- by either Northwest Airlines or, under certain circumstances, Continental
with six months' prior written notice in the event of a change of control
of Continental; and
- by either Continental or Northwest Airlines with six months' prior
written notice in the event of a change of control of Northwest Airlines.
AMENDED AND RESTATED RIGHTS AGREEMENT
(SEE PAGE 21)
Our rights agreement will be amended and restated, effective upon the
recapitalization, to:
- take into account the effects of the recapitalization;
8
<PAGE> 12
- eliminate Northwest Airlines' status under the rights agreement as a
person who could not trigger the rights agreement;
- change the rights agent under the rights agreement to ChaseMellon
Shareholder Services, LLC (now known as Mellon Investor Services LLC);
and
- address AXA Financial, Inc.'s status under the rights agreement with
respect to its ownership of our Class B common stock as a result of the
recapitalization. See "The Company--Principal Stockholders."
The amended and restated certificate of incorporation and certificate of
designations will be filed with the Delaware Secretary of State following the
special meeting. At that time, the standstill agreement, amendment to the master
alliance agreement and amended and restated rights agreement will become
effective.
REGULATORY REVIEW (SEE PAGE 39)
As a major air carrier entering into an amendment to the master alliance
agreement, we are required under applicable law to submit certain information to
the Secretary of Transportation. Accordingly, consummation of the
recapitalization is subject to termination of the applicable review period by
the U.S. Department of Transportation. The applicable review period terminated
December 17, 2000.
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<PAGE> 13
SELECTED HISTORICAL FINANCIAL DATA (SEE PAGE 42)
SUMMARY FINANCIAL AND OPERATING DATA OF CONTINENTAL AIRLINES, INC.
The following tables summarize certain of our consolidated financial data
and certain operating data. The selected consolidated financial data for the
years ended December 31, 1999, 1998 and 1997 is derived from our audited
consolidated financial statements including the notes thereto contained in our
Annual Report on Form 10-K for the fiscal year ended December 31, 1999 (the
"1999 10-K") incorporated by reference in this proxy statement. The selected
consolidated financial data for the years ended December 31, 1997, 1996 and 1995
is derived from the selected financial data contained in our 1999 10-K and our
audited consolidated financial statements for the years ended December 31, 1997
and 1996 and should be read in conjunction therewith. The consolidated financial
data for the three and nine months ended September 30, 2000 and 1999 is derived
from our unaudited consolidated financial statements contained in our Form 10-Q
for the third quarter of 2000 incorporated by reference in this proxy statement,
which include all adjustments (consisting solely of normal recurring accruals)
that we consider necessary for the fair presentation of the financial position
and results of operations for these periods. Operating results for the three and
nine months ended September 30, 2000 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2000.
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------- --------------- -----------------------------------------------
2000 1999 2000 1999 1999 1998 1997 1996 1995
------ ------ ------ ------ ------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT OPERATING DATA AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL DATA--OPERATIONS:
Operating Revenue.............. $2,622 $2,264 $7,470 $6,487 $8,639 $7,927 $7,194 $6,347 $5,816
Operating Expenses............. 2,368 2,062 6,883 5,885 8,039(1) 7,226(2) 6,478 5,822(3) 5,431
------ ------ ------ ------ ------ ------ ------ ------ ------
Operating Income............... 254 202 587 602 600 701 716 525 385
Nonoperating Income (Expense),
net.......................... (30) (35) (90) (77) 198(4) (53) (76) (97) (75)(5)
------ ------ ------ ------ ------ ------ ------ ------ ------
Income before Income Taxes,
Minority Interest,
Extraordinary Charges and
Cumulative Effect of Changes
in Accounting Principle...... 224 167 497 525 798 648 640 428 310
Net Income..................... $ 135 $ 104 $ 298 $ 288(6) $ 455(6) $ 383 $ 385 $ 319 $ 224
====== ====== ====== ====== ====== ====== ====== ====== ======
Earnings per Common Share...... $ 2.26 $ 1.47 $ 4.85 $ 4.11(7) $ 6.54(7) $ 6.34 $ 6.65 $ 5.75 $ 4.07
====== ====== ====== ====== ====== ====== ====== ====== ======
Earnings per Common Share
Assuming Dilution............ $ 2.21 $ 1.44 $ 4.76 $ 3.86(8) $ 6.20(8) $ 5.02 $ 4.99 $ 4.17 $ 3.37
====== ====== ====== ====== ====== ====== ====== ====== ======
OPERATING DATA(9):
Revenue passenger miles
(millions)(10)............... 17,325 16,394 48,821 45,050 60,022 53,910 47,906 41,914 40,023
Available seat miles
(millions)(11)............... 22,356 21,573 64,691 60,961 81,946 74,727 67,576 61,515 61,006
Passenger load factor(12)...... 77.5% 76.0% 75.5% 73.9% 73.2% 72.1% 70.9% 68.1% 65.6%
Breakeven passenger load
factor(13)(14)............... 65.6% 66.1% 66.3% 63.6% 65.6% 61.6% 60.1% 60.7% 60.8%
Passenger revenue per available
seat mile (cents)(15)........ 10.06 9.07 9.91 9.24 9.06 9.23 9.29 9.01 8.26
Operating cost per available
seat mile (cents)(14)(16).... 9.65 8.83 9.73 8.95 9.03 8.89 9.04 8.75 8.35
Average yield per revenue
passenger mile (cents)(17)... 12.98 11.93 13.13 12.51 12.37 12.79 13.11 13.22 12.59
Average length of aircraft
flight (miles)............... 1,187 1,141 1,158 1,110 1,114 1,044 967 896 836
</TABLE>
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<PAGE> 14
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ------------------------------------------
2000(18) 1999 1998 1997 1996 1995
------------- ------ ------ ------ ------ ------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL DATA--BALANCE SHEET:
Assets:
Cash, Cash Equivalents and Short-Term Investments......... $1,156 $1,590 $1,399 $1,025 $1,061 $ 747
Other Current Assets...................................... 1,193 1,016 955 703 573 568
Total Property and Equipment, Net......................... 4,684 4,173 3,065 2,225 1,596 1,461
Routes, Gates and Slots, Net.............................. 1,093 1,131 1,181 1,425 1,473 1,531
Other Assets, Net......................................... 333 313 486 452 503 514
------ ------ ------ ------ ------ ------
Total Assets...................................... $8,459 $8,223 $7,086 $5,830 $5,206 $4,821
====== ====== ====== ====== ====== ======
Liabilities and Stockholders' Equity:
Current Liabilities....................................... $3,008 $2,775 $2,442 2,285 2,104 1,984
Long-Term Debt and Capital Leases(19)..................... 2,904 3,055 2,480 1,568 1,624 1,658
Deferred Credits and Other Long-Term Liabilities.......... 986 800 860 819 594 564
Minority Interest......................................... -- -- -- -- 15 27
Continental Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trust Holding Solely
Convertible Subordinated Debentures(20)................. -- -- 111 242 242 242
Redeemable Preferred Stock................................ -- -- -- -- 46 41
Common Stockholders' Equity............................... 1,561 1,593 1,193 916 581 305
------ ------ ------ ------ ------ ------
Total Liabilities and Stockholders' Equity........ $8,459 $8,223 $7,086 $5,830 $5,206 $4,821
====== ====== ====== ====== ====== ======
</TABLE>
------------------
(1) Includes an $81 million fleet disposition/impairment loss resulting from
our decision to accelerate the retirement of six DC-10-30 aircraft and
other items in 1999 and the first half of 2000 and to dispose of related
excess inventory. In addition, the impairment charge related to Boeing 747
aircraft no longer operated by our company, and certain other fleet-related
items were included.
(2) Includes a $122 million fleet disposition/impairment loss resulting from
our decision to accelerate the retirement of certain jet and turboprop
aircraft.
(3) Includes a $128 million fleet disposition loss associated primarily with
our decision to accelerate the replacement of certain jet aircraft.
(4) Includes a $297 million gain on the sale of our interest in AMADEUS Global
Travel Distribution, S.A.
(5) Includes a $108 million gain on the sale of our interest in System One
Information Management, Inc.
(6) Includes a $33 million charge for the cumulative effect of changes in the
accounting for the sale of frequent flyer mileage credits to participating
partners and preoperating costs related to the integration of new types of
aircraft.
(7) Reflects earnings per common share after cumulative effect of changes in
accounting principles. See Note (6) for a description of the changes in
accounting principles. Earnings per common share for the nine months ended
September 30, 1999 and year ended December 31, 1999 were $4.58 and $7.02,
respectively, before the cumulative effect of such changes in accounting
principles.
(8) Reflects earnings per common share assuming dilution after cumulative
effect of changes in accounting principles. See Note (6) for a description
of the changes in accounting principles. Earnings per common share assuming
dilution for the nine months ended September 30, 1999 and year ended
December 31, 1999 were $4.29 and $6.64, respectively, before the cumulative
effect of such changes in accounting principles.
(9) Includes operating data for Continental Micronesia, Inc., but does not
include operating data for Express regional jet operations or turboprop
operations. Certain reclassifications have been made to 1998 and prior data
to conform to the 1999 presentation.
(10) The number of scheduled miles flown by revenue passengers.
(11) The number of seats available for passengers multiplied by the number of
scheduled miles those seats are flown.
(12) Revenue passenger miles divided by available seat miles.
(13) 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.
(14) Excludes an $81 million fleet disposition/impairment loss in 1999, a $122
million fleet disposition/impairment loss in 1998 and a $128 million fleet
disposition loss in 1996. See Notes (1), (2) and (3) for description of the
charges.
(15) Passenger revenue divided by available seat miles.
(16) Operating expenses divided by available seat miles.
(17) The average revenue received for each mile a revenue passenger is carried.
(18) See "Unaudited Pro Forma Condensed Consolidated Financial Statements."
(19) In October 2000, we borrowed an additional $316 million to purchase 18
existing aircraft that were previously financed through operating leases
and to purchase one new Boeing aircraft.
(20) The sole assets of the Trust were convertible subordinated debentures. In
November and December 1998, approximately $134 million of such securities
were converted into 5,558,649 shares of Class B common stock, and in
January 1999, the remainder of such securities were converted into
4,752,522 shares of Class B common stock. Accordingly, no debentures were
outstanding at December 31, 1999 and September 30, 2000. On November 6,
2000, Continental Airlines Finance Trust II, a Delaware business trust and
our subsidiary, sold 5,000,000 6% Convertible Preferred Securities, Term
Income Deferrable Equity Securities (TIDES), at an offering price of $50
per security. Each TIDES may be converted into shares of our Class B common
stock at the initial conversion price of $60 per share.
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<PAGE> 15
SELECTED PRO FORMA FINANCIAL INFORMATION (SEE PAGE 44)
The following selected pro forma information of our company is derived from
the application of pro forma adjustments to our consolidated financial
statements and gives effect to the recapitalization (including the repurchase of
6,685,279 shares of Class A common stock). The unaudited pro forma condensed
consolidated statement of operations data for the nine months ended September
30, 2000 and the year ended December 31, 1999 has been prepared as if the
recapitalization had occurred on January 1, 1999. The unaudited pro forma
condensed consolidated balance sheet data as of September 30, 2000 has been
prepared as if the recapitalization had occurred on September 30, 2000.
The following unaudited pro forma condensed consolidated financial
statement data does not indicate what our operations or financial position would
have been had the recapitalization taken place on the dates indicated. In
addition, the results for the nine months ended September 30, 2000 do not
necessarily indicate the results that may be expected for the full year.
These unaudited pro forma condensed consolidated financial statement data
should be read in conjunction with our audited historical financial statements
and the related notes thereto, and the other information about our company
included elsewhere in this document, or incorporated by reference in this
document.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Operating Revenue........................................... $7,470 $8,639
Operating Expenses.......................................... $6,881 $8,036
Other Nonoperating Income (Expense), net.................... $ 44 $ 361
Distributions on Preferred Securities of Trust.............. $ 7 $ 9
Net Income before Cumulative Effect of Accounting Changes
and Extraordinary Charges................................. $ 292 $ 472
Earnings per Common Share before Cumulative Effect of
Accounting Changes and Extraordinary Charge............... $ 5.20 $ 7.34
Average Number of Common Shares............................. 56.0 64.2
Earnings per Common Share before Cumulative Effect of
Accounting Changes and Extraordinary Charge Assuming
Dilution.................................................. $ 4.93 $ 6.64
Average Number of Common Shares Assuming Dilution........... 59.9 72.7
PRO FORMA CONSOLIDATED BALANCE SHEET DATA (AS OF THE END OF
THE PERIOD):
Total Assets................................................ $8,237
Total Liabilities........................................... $6,898
Continental-Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trust Holding Solely Convertible
Subordinated Debentures................................... $ 242
Total Stockholders' Equity.................................. $1,097
</TABLE>
See "Unaudited Pro Forma Condensed Consolidated Financial Statements" for a
description of the pro forma adjustments to the historical financial
information.
12
<PAGE> 16
RISK FACTORS
You should consider the following matters in deciding whether to vote in
favor of the recapitalization. You should also consider the other information
included and incorporated by reference in the document.
AFTER THE RECAPITALIZATION, WE WILL HAVE LESS CASH AVAILABLE TO US AND MORE
LEVERAGE.
After the recapitalization, we will have used some of our cash and will
have issued the 6% Convertible Junior Subordinated Debentures due November 15,
2030 (as described below under "The Company -- Recent Developments") in order to
finance the purchase in cash of $450 million of shares of Class A common stock
from Northwest. The industry in which we operate is a cash-intensive business
and it is therefore desirable for us to maintain adequate cash on hand. While we
believe that the amount of cash, cash equivalents, short-term investments and
borrowing capacity that will remain available to us after the recapitalization
will be sufficient, we cannot provide complete assurance that this will be the
case in all circumstances.
THE RECAPITALIZATION WILL PROVIDE CASH TO NORTHWEST AND ENABLE IT TO REDUCE
ITS EQUITY INVESTMENT IN US WITHOUT ELIMINATING ITS CLASS VOTE OVER CERTAIN
CHANGE OF CONTROL TRANSACTIONS INVOLVING US.
The recapitalization (including the repurchase of the Class A common stock)
will provide cash to Northwest without eliminating Northwest's ability to block
certain transactions involving a change of control of our company. While
currently Northwest's voting power results from its ownership of shares of Class
A common stock, following the recapitalization, Northwest Airlines will have a
class vote (and thus blocking rights) with respect to certain change of control
transactions involving us because of its ownership of one share of Series B
preferred stock. Northwest is not required to maintain any minimum ownership of
our common stock in order for Northwest Airlines to continue to exercise its
rights as the holder of the share of Series B preferred stock.
THE SPECIAL MEETING
DATE, PLACE AND TIME
The special meeting is scheduled to be held at the Four Seasons Hotel, 1300
Lamar Street, Houston, Texas, on January 22, 2001, at 9:00 a.m., local time.
PURPOSE OF THE SPECIAL MEETING
The purpose of the special meeting is to consider a proposal for the
recapitalization of Continental. The recapitalization will be accomplished in
part through the adoption of an amended and restated certificate of
incorporation.
RECORD DATE; STOCKHOLDERS ENTITLED TO VOTE; QUORUM
Stockholders of record on the close of business on December 18, 2000, the
record date, are entitled to notice of and to vote at the special meeting and at
any postponement or adjournment of the meeting. At the close of business on the
record date, Continental had outstanding 10,963,538 shares of Class A common
stock, and 47,475,133 shares of Class B common stock. Subject to certain
limitations on voting by non-U.S. citizens, as described below, each share of
Class A common stock is entitled to ten votes per share and each share of Class
B common stock is entitled to one vote per share. Shares of Class A common stock
may be converted at any time into shares of Class B common stock.
Under U.S. law, no more than 25% of the voting stock of a U.S. air carrier
such as Continental may be owned or controlled, directly or indirectly, by
persons who are not U.S. citizens. In addition, our president and
13
<PAGE> 17
at least two-thirds of our directors or other managing officers must be U.S.
citizens. For these purposes, a "U.S. citizen" means
- an individual who is a citizen of the United States;
- a partnership each of whose partners is an individual who is a citizen of
the United States; or
- a corporation or association organized under the laws of the United
States or a state, the District of Columbia, or a territory or possession
of the United States, of which the president and at least two-thirds of
the board of directors and other managing officers are citizens of the
United States, and in which at least 75% of the voting interest is owned
or controlled by persons who are citizens of the United States.
In order to comply with these rules, our certificate of incorporation provides
that persons who are not U.S. citizens may not vote shares of our capital stock
unless the shares are registered on a separate stock record maintained by us. We
will not register shares on this record if the amount registered would cause us
to violate these rules or adversely affect our operating certificates or
authorities. Registration on this record is made in chronological order based on
the date we receive a written request for registration, except that, until the
consummation of the recapitalization, shares acquired by Air Partners, L.P. in
connection with its original investment in Continental that are subsequently
transferred to any non-U.S. citizen are entitled to be registered prior to, and
to the exclusion of, other shares. An affiliate of AXA Financial, Inc. has
requested that all shares beneficially owned by AXA Financial, Inc. and its
affiliates be included on our foreign stock record. See "The Company--Principal
Stockholders." Although we have not to date limited the registration of any
shares on this record, subsequent to the recapitalization and subject to the
factors set forth under "The Company--Principal Stockholders," the registration
of the shares beneficially owned by AXA Financial, Inc. will preclude the
registration of, and thus the voting of, any shares owned by any other
Continental stockholders that are not U.S. citizens.
A quorum of stockholders is necessary for a valid meeting. The required
quorum for the transaction of business at the special meeting is a majority of
the total voting power of all the outstanding shares of stock entitled to vote
at such meeting, either present in person or represented by proxy and, with
respect to the separate class vote of the Class A common stock, a majority of
the outstanding shares of Class A common stock, either present in person or
represented by proxy. Abstentions and broker non-votes each will be included in
determining the number of shares present at the special meeting for the purpose
of determining the presence of a quorum.
A broker non-vote occurs when a broker is not permitted to vote on a matter
without instructions from the beneficial owner of the shares and no instruction
is given. Under New York Stock Exchange rules, if your broker holds your shares
in its name, your broker may not vote your shares on the recapitalization
proposal absent instructions from you. Therefore, without your voting
instructions, a broker non-vote will occur.
In order to adopt the amended and restated certificate of incorporation, we
are seeking the affirmative vote of (1) a majority of the votes entitled to be
cast by the holders of the outstanding shares of our Class A common stock and
Class B common stock voting together as a single class, and (2) a majority of
the votes entitled to be cast by the holders of the outstanding shares of our
Class A common stock, voting as a separate class. As a result, abstentions and
broker non-votes will have the same effect as votes against such matters.
VOTE REQUIRED
Holders of Class A common stock have approximately 69.8% of the general
voting power of Continental's common stock and holders of Class B common stock
have the remaining 30.2% of the general voting power of Continental's common
stock. The following vote is required to approve the adoption of the amended and
restated certificate of incorporation:
- a majority of the votes entitled to be cast by the holders of the
outstanding shares of Class A common stock and Class B common stock
voting together as a single class, and
14
<PAGE> 18
- a majority of the votes entitled to be cast by the holders of the
outstanding shares of Class A common stock voting separately as a class.
As of the record date for the special meeting, Northwest beneficially owned
8,661,224 shares of Class A common stock and held a limited proxy to vote an
additional 695,894 shares of Class A common stock under certain circumstances,
which represented approximately 85.3% of the voting power of the Class A common
stock voting separately (79.0% excluding the proxy shares) and approximately
59.6% of the voting power of the Class A common stock and Class B common stock
voting together as a single class (55.1% excluding the proxy shares). Northwest
has agreed to instruct the trustee of the voting trust in which Northwest's
shares are held to vote all of its 8,661,224 Class A shares in favor of the
adoption of the amended and restated certificate of incorporation. Accordingly,
the adoption of the amended and restated certificate of incorporation is
assured.
VOTING OF PROXIES
Although you may return the proxy card or voting form that accompanies this
proxy statement in the enclosed postage-paid envelope, please consider the
following alternatives as well. Internet and telephonic proxies save us money.
Please note that the telephonic voting procedures described below are not
available for shares held by non-U.S. citizens.
SHARES HELD BY YOU OF RECORD. Stockholders with shares registered in their
names with Mellon Investor Services LLC, formerly known as ChaseMellon
Shareholder Services LLC, Continental's transfer agent and registrar, may
authorize a proxy by internet at the following internet address:
http://www.eproxy.com/cal or telephonically by calling Mellon Investor Services
at 1-800-840-1208. Proxies submitted through Mellon Investor Services by
internet or telephone must be received by midnight (EST) on January 21, 2001.
The giving of such proxy will not affect your right to vote in person should you
decide to attend the special meeting.
SHARES HELD IN A BANK OR BROKERAGE ACCOUNT. A number of banks and
brokerage firms participate in a program that also permits stockholders to
direct their vote by internet or telephone. This option is separate from that
offered by Mellon Investor Services and will be reflected on the voting form
from a bank or brokerage firm that accompanies this proxy statement. If your
shares are held in an account at a bank or brokerage that participates in such a
program, you may direct the vote of those shares by internet or telephone by
following the instructions on their enclosed voting form. Votes directed by
internet or telephone through such a program must be received by midnight (EST)
on January 21, 2001. The directing of such vote will not affect your right to
vote in person should you decide to attend the meeting; however, you must first
request a legal proxy either on the internet or the voting form that accompanies
this proxy statement. Requesting a legal proxy will automatically cancel any
voting directions you have previously given by internet or by telephone with
respect to such shares.
The internet and telephone proxy procedures are designed to authenticate
stockholders' identities, to allow stockholders to give their proxy instructions
and to confirm that such instructions have been properly recorded. Stockholders
authorizing proxies or directing the voting of shares by internet should bear in
mind the possibility that there may be costs associated with electronic access,
such as usage charges from internet access providers and telephone companies,
that must be borne by the stockholder.
REVOCATION OF PROXIES
You can revoke your proxy at any time before it is exercised at the special
meeting in any of three ways:
- by submitting written notice to our Secretary before the meeting that you
have revoked your proxy;
- by timely submitting another proxy by telephone, via the internet or by
mail that is later dated and, if by mail, that is properly signed; or
- by voting in person at the special meeting.
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<PAGE> 19
EXPENSES OF SOLICITATION
In addition to the solicitation of proxies by mail, proxies may also be
solicited by internet telephone, telegram, fax and in person by regular
employees and directors of Continental, none of whom will receive additional
compensation therefor. In addition, we have retained Morrow & Co., Inc. who will
act as information agent in connection with the special meeting, will perform
ministerial functions in connection with the special meeting, will make no
recommendations to stockholders as to how they should vote and pursuant to
Section 3(a)(9) of the Securities Act, will not solicit exchanges. We will pay
Morrow a fee estimated not to exceed $6,000, plus reasonable out of pocket
expenses.
OTHER MATTERS TO BE ACTED ON AT THE SPECIAL MEETING
We will not act on any matters at the special meeting other than the
adoption of an amended and restated certificate of incorporation in connection
with the recapitalization and procedural matters related to the meeting.
THE COMPANY
GENERAL
We are a major United States air carrier engaged in the business of
transporting passengers, cargo and mail. We are the fifth largest U.S. airline,
as measured by revenue passenger miles in the first nine months of 2000, and,
together with our wholly owned subsidiaries, Continental Express, Inc. and
Continental Micronesia, Inc., serve 228 airports worldwide. As of October 1,
2000, we flew to 134 domestic and 94 international destinations and offered
additional connecting service through alliances with domestic and foreign air
carriers. We directly serve 16 European cities, eight South American cities, Tel
Aviv and Tokyo and are one of the leading airlines providing service to Mexico
and Central America, serving more destinations there than any other U.S.
airline. Through our Guam hub, Continental Micronesia provides extensive service
in the western Pacific, including service to more Japanese cities than any other
U.S. carrier.
We operate our route system primarily through domestic hubs at Newark
International Airport, George Bush Intercontinental Airport in Houston, Hopkins
International Airport in Cleveland, and a Pacific hub on the island of Guam. We
are the primary carrier at each of these hubs, accounting for 55%, 77%, 49% and
70% of average daily jet departures from these locations, respectively, as of
October 1, 2000 (in each case excluding regional jets). Each of our domestic
hubs is located in a large business and population center, contributing to a
high volume of "origin and destination" traffic. The Guam hub is strategically
located to provide service from Japanese and other Asian cities to popular
resort destinations in the western Pacific.
We are a Delaware corporation, with executive offices located at 1600 Smith
Street, Houston, Texas 77002. Our telephone number is (713) 324-2950.
RECENT DEVELOPMENTS
TERM INCOME DEFERRABLE EQUITY SECURITIES. On November 6, 2000, Continental
Airlines Finance Trust II, a Delaware business trust and our subsidiary, placed
an offering of 5,000,000 6% Convertible Preferred Securities, Term Income
Deferrable Equity Securities (TIDES), at an offering price of $50 per security
resulting in aggregate net proceeds to Continental of $242 million. Each TIDES
may be converted into shares of our Class B common stock at the initial
conversion price of $60 per share. This price is equivalent to an initial
conversion rate of approximately .8333 shares of Class B common stock for each
of the TIDES.
We own all of the outstanding common securities of the trust. The trust's
purpose is to issue its common securities and TIDES and to use the proceeds of
the sale of TIDES to purchase 6% Convertible Junior Subordinated Debentures due
November 15, 2030 issued by us. We plan to use the $242 million net proceeds
from the sale of the debentures to the trust to partially finance the $450
million repurchase of 6,685,279 shares of Class A common stock held by Northwest
and an affiliate in connection with the recapitalization.
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<PAGE> 20
OFFER FOR CERTAIN ASSETS OF US AIRWAYS. In October 2000, we made an offer
to purchase for $215 million in cash certain assets currently used by US
Airways, Inc. at Reagan National Airport that United Air Lines, Inc. proposes to
sell if the proposed merger of United and US Airways occurs. The assets would
include 119 jet and 103 commuter slots at Reagan National Airport, as well as
eight gates and related ticket counter, ramp, aircraft parking, office space and
other facilities at the airport. The offer also includes the option to assume
the lease of a US Airways line maintenance hangar at Reagan National Airport.
CONCORDE ACCIDENT. On July 25, 2000, a Concorde aircraft operated by Air
France crashed shortly after takeoff from France's Charles de Gaulle Airport,
killing 114 people and destroying the aircraft. The preliminary investigation
conducted by French authorities suggests that one of the aircraft's tires burst
and that pieces of rubber from the tire pierced a wing of the aircraft and
ruptured fuel tanks, leading to a fire and the crash. In early September 2000,
we learned that a small piece of metal found on the runway after the Concorde
took off is believed by the French authorities to have caused or contributed to
the tire failure and is suspected by investigators to have come from a
Continental DC-10 aircraft that had taken off on the same runway a short time
before the Concorde.
Several lawsuits involving us have been filed to date in connection with
the accident, and we anticipate that additional suits will be filed against us
in the future. This pending litigation, and the investigation of the Concorde
accident, are in preliminary stages. We are cooperating with French and U.S.
authorities in the investigation of the accident. Although the outcome of these
suits or any future litigation cannot be known at this time, our costs to defend
these matters and, we believe, any potential liability exposure are covered by
insurance. Consequently, we do not expect this litigation or any additional
suits that may arise from the accident to have a material adverse effect on our
financial position or results of operations.
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of December 18, 2000 (except as
otherwise specified below), certain information with respect to persons owning
beneficially (to our knowledge) more than five percent of any class of our
voting securities, including the general voting power that they hold. The table
also sets forth this same information after giving effect to the
recapitalization (including our repurchase of 6,685,279 shares of Class A common
stock from Northwest). Unless otherwise noted, information in the table is based
on reports that have been filed with the Securities and Exchange Commission
pursuant to the Exchange Act.
<TABLE>
<CAPTION>
PRO FORMA
BENEFICIAL BENEFICIAL GENERAL
TITLE OF OWNERSHIP OF OWNERSHIP OF CLASS B VOTING
CLASS OF COMMON STOCK GENERAL COMMON STOCK POWER
NAME AND ADDRESS OF COMMON PRE- PERCENT VOTING RESULTING FROM THE PERCENT UNCAPPED
BENEFICIAL HOLDER STOCK RECAPITALIZATION OF CLASS POWER(1) RECAPITALIZATION OF CLASS (1)(2)
------------------- -------- ---------------- -------- -------- -------------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Northwest Airlines
Corporation
2700 Lone Oak Parkway
Eagan, MN 55121.......... Class A 9,357,118(3) 85.3% 59.6% 2,608,247 4.9% 4.9%
1998 CAI Partners,
L.P.(4).................. Class A 466,384 4.3% 3.0% 615,626 1.2% 1.2%
1992 Air, Inc.(4).......... Class A 679,494 6.2% 4.3% 896,932 1.7% 1.7%
David Bonderman(4)......... Class A 695,894 6.3% 4.4% -- -- --
Class B 1,040,952 2.2% 0.7% 1,959,532 3.7% 3.7%
AXA Financial, Inc.
1290 Avenue of the
Americas
New York, NY 10104....... Class B 24,858,083(5) 52.4% 15.8% 24,858,083(5) 46.8% 46.8%
<CAPTION>
GENERAL
VOTING
POWER
NAME AND ADDRESS OF CAPPED
BENEFICIAL HOLDER (1)(2)
------------------- -------
<S> <C>
Northwest Airlines
Corporation
2700 Lone Oak Parkway
Eagan, MN 55121.......... 7.2%
1998 CAI Partners,
L.P.(4).................. 1.7%
1992 Air, Inc.(4).......... 2.5%
David Bonderman(4)......... --
5.4%
AXA Financial, Inc.
1290 Avenue of the
Americas
New York, NY 10104....... 25.0%
</TABLE>
------------------
(1) Each share of Class A common stock is entitled to ten votes, and each share
of Class B common stock is entitled to one vote. General Voting Power
includes the combined total of the votes attributable to Class A common
stock and Class B common stock outstanding at December 18, 2000. Shares of
Class A common stock may be converted at any time into shares of Class B
common stock. Because the Class A common stock has ten votes per share and
the Class B common stock has one vote per share, such conversions
effectively increase the relative voting power of those Class A stockholders
who do not convert.
(2) Based on information provided to us by an affiliate of AXA Financial, Inc.
(formerly the Equitable Companies Incorporated), as of December 8, 2000, AXA
Financial beneficially owned 24,858,083 shares of Class B common stock.
According to an amendment to Schedule 13G filed with the SEC pursuant to the
Exchange Act in August 2000 by AXA Financial and certain of its affiliates
(see
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<PAGE> 21
footnote 5 below), AXA, a French company, and AXA Conseil Vie Assurance
Mutuelle, AXA Assurances I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle, and
AXA Courage Assurance Mutuelle, each a French mutual insurance company
(collectively referred to as "Mutuelles AXA"), may be deemed to have owned
as of July 31, 2000, for purposes of Regulation 13D-G, up to 23,953,602
shares of Class B common stock. Under U.S. federal aviation statutes, in
order for us to continue operations as a U.S. air carrier, at least 75% of
our general voting power must be owned or controlled by persons who are
citizens of the United States. In addition, the U.S. Department of
Transportation has broad authority to determine on a case-by-case basis
whether an air carrier is effectively owned and controlled by citizens of
the United States, and has indicated that the ownership of less than 50% of
an air carrier's total equity securities by non-citizens of the United
States, taken alone, is not indicative of foreign control of the air
carrier. To ensure compliance with these restrictions on voting by non-U.S.
citizens, Continental's certificate of incorporation and bylaws allow
Continental to require holders of record to certify the extent to which
Continental securities held of record or beneficially by such holder are
owned and controlled by non-U.S. citizens, and provide for the maintenance
of a foreign stock record and for special voting procedures applicable to
shares listed on this record to prevent the exercise of voting power by
foreign owners in excess of 25% in the aggregate. See "Description of
Continental Capital Stock--Class B Common Stock and Class A Common
Stock--Limitation on Voting by Foreign Owners." AXA and Mutuelles AXA have
disclaimed beneficial ownership of the securities held by AXA Financial and
its subsidiaries for purposes of Regulation 13D-G and AXA Financial has not
admitted that the shares beneficially owned by its affiliates are owned by
non-U.S. citizens for purposes of U.S. federal aviation statutes or
Continental's certificate of incorporation or bylaws. However, an affiliate
of AXA Financial has requested that all of the shares beneficially owned by
AXA Financial and its affiliates be included on our foreign stock record.
After the recapitalization, Continental intends to implement the special
voting procedures with respect to the shares beneficially owned by AXA
Financial and its affiliates, which procedures will have the effect of
limiting the voting power of these shares to 25% of the aggregate general
voting power of the Class B common stock. The effect of this limitation will
be to increase proportionally the voting power of shares held by all other
Continental stockholders who are U.S. citizens. The resulting general voting
power of Continental's principal stockholders will be as set forth in the
column designated "General Voting Power--Capped" (and all of the
post-recapitalization voting percentages included in this proxy statement,
including those with respect to Northwest, have been calculated in
accordance with this limitation). Should it be determined by an appropriate
regulatory or judicial authority that the voting by AXA Financial, Inc. or
its affiliates of such shares would not violate the statutory restrictions
and the provisions of our certificate of incorporation and bylaws, then the
special voting procedures would no longer be in effect with respect to such
shares, and the voting power of shares held by all of Continental's
stockholders would be proportional to their beneficial ownership of the
Class B common stock. The resulting general voting power of Continental's
principal stockholders would then be as set forth in the column designated
"General Voting Power--Uncapped."
(3) As described above and based on reports filed with the SEC pursuant to the
Exchange Act and information provided to us, Northwest shares voting and
dispositive power as to all such shares. Northwest beneficially owns
8,661,224 shares of Class A common stock, and has the right to vote in
certain circumstances under a limited proxy granted to it an additional
695,894 shares. The 8,661,224 owned shares have been placed in a voting
trust, for which Wilmington Trust Company acts as trustee. Wilmington
Trust's address is Rodney Square North, 1100 North Market Street,
Wilmington, Delaware 19890, and the manner in which it is permitted to vote
is described above. Of the shares subject to a limited proxy, 466,384 are
held by 1998 CAI Partners, L.P., a Texas limited partnership, 213,110 are
beneficially owned by 1992 Air, Inc. and 16,400 are beneficially owned by
Bonderman Family Limited Partnership. See also note (4) below. Northwest
held approximately 55.1% of the general voting power (59.6% including the
limited proxy voting rights mentioned above) as of December 18, 2000.
(4) The principal business address of each such party is 201 Main Street, Suite
2420; Forth Worth, Texas 76102. 1992 Air GP is the general partner of 1998
CAI Partners, L.P. and thus could be deemed to be the beneficial owner of
the shares held by 1998 CAI Partners, L.P. 1992 Air, Inc., as the majority
general partner of 1992 Air GP and because of its direct ownership of
213,110 shares of Class A common stock, may be deemed to be the beneficial
owner of an aggregate of 679,494 shares of Class A common stock. David
Bonderman, as the controlling stockholder of 1992 Air, Inc., and the sole
general partner of Bonderman Family Limited Partnership, may be deemed to be
the beneficial owner of 695,894 shares of Class A common stock. The
aggregate number of shares of Class A common stock that Bonderman Family
Limited Partnership may be deemed to own is 33,504, comprised of the 16,400
shares it owns directly and 17,104 shares it may be deemed to own
beneficially because of its position as a limited partner of 1998 CAI
Partners, L.P., and on the basis of certain provisions of the Limited
Partnership Agreement of 1998 CAI Partners, L.P. David Bonderman and Donald
Sturm, each a director of ours, are also limited partners of 1998 CAI
Partners, L.P. Included in the amounts shown are 180,483 shares of Class B
common stock owned by Mr. Bonderman, 31,000 shares of Class B common stock
subject to outside director stock options held by Mr. Bonderman, 147,019
shares of Class B common stock held by 1998 CAI Partners, L.P. and 682,450
shares of Class B common stock beneficially owned by Bonderman Family
Limited Partnership, which Mr. Bonderman may be deemed to beneficially own.
(5) Based on information as of December 8, 2000 provided to us by an affiliate
of AXA Financial. Based on information as of July 31, 2000 contained in an
amended Schedule 13G filed with the SEC pursuant to the Exchange Act in
August 2000 AXA, which beneficially owns a majority interest in AXA
Financial, Inc., and Mutuelles AXA, which beneficially owns a majority
interest in AXA, reported holdings of 23,953,602 shares of Class B common
stock. The shares represented beneficial ownership by registered
broker-dealer or investment advisor subsidiaries of AXA Financial. According
to the amended Schedule 13G, the following such subsidiaries had an interest
in the reported securities representing greater than 5% of the Class B
common stock: Alliance Capital Management L.P. (21,047,802 shares) and
Equitable Life Assurance Society of the United States (2,901,800 shares). Of
the shares reported in the amended Schedule 13G, AXA Financial may be deemed
to have had sole voting power with respect to 8,624,715 shares, shared
voting power with respect to 10,835,935 shares, sole dispositive power with
respect to 23,950,357 shares and
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<PAGE> 22
shared dispositive power with respect to 3,245 shares. AXA and Mutuelles AXA
have disclaimed beneficial ownership of the securities held by AXA Financial
and its subsidiaries.
THE RECAPITALIZATION
GENERAL
On November 15, 2000, we entered into a number of agreements with Northwest
and some of its affiliates under which we would, among other things, repurchase
most of the Class A common stock of Continental owned by Northwest, reclassify
the remaining shares of Class A common stock into Class B common stock, make
other adjustments to our corporate and alliance relationship with Northwest
Airlines and issue to Northwest Airlines a share of preferred stock with certain
blocking rights. Under the agreements relating to the recapitalization,
Continental and Northwest have agreed to support an adjournment of antitrust
litigation brought by the U.S. Department of Justice, pending closing of the
recapitalization and to seek dismissal of the litigation upon or promptly after
the closing.
REPURCHASE OF SHARES OF CLASS A COMMON STOCK. Immediately prior to the
effective time of the recapitalization, Continental will repurchase from
Northwest and an affiliate, out of funds legally available for the repurchase,
6,685,279 shares of Continental Class A common stock for an aggregate purchase
price of $450 million in cash (or approximately $67 per share), plus interest if
the transaction closes after February 7, 2001. The shares being repurchased
represent approximately 77% of the total number of shares of Class A common
stock owned by Northwest, excluding shares subject to a limited proxy held by
Northwest. This limited proxy will be terminated upon the closing of the
recapitalization. After giving effect to the repurchase and the reclassification
of the remaining shares of Class A common stock into Class B common stock,
Northwest's general voting power with respect to us will be reduced from
approximately 59.6%, which includes Northwest's right to vote the shares subject
to the limited proxy prior to the closing of the recapitalization, to
approximately 7%, which gives effect to the termination of the limited proxy
held by Northwest at the closing of the recapitalization. This percentage does
not include the share of Series B preferred stock to be issued to Northwest
Airlines in the recapitalization, which will not have general voting rights but
will have a special class vote on certain change of control transactions as
described below.
RECLASSIFICATION OF SHARES OF CLASS A COMMON STOCK. At the effective time
of the recapitalization, the remaining 1,975,945 shares of Class A common stock
that we will not purchase from Northwest, as well as all other remaining issued
shares of Class A common stock, will be reclassified into Class B common stock
at an exchange rate of 1.32 shares of Class B common stock per share of Class A
common stock. Unlike the shares of Class A common stock, which are entitled to
ten votes per share, the shares of Class B common stock into which they will be
reclassified are only entitled to one vote per share.
AMENDMENT OF MASTER ALLIANCE AGREEMENT. In connection with the
recapitalization, the master alliance agreement between us and Northwest
Airlines, pursuant to which certain joint marketing activities (such as code
sharing, reciprocal frequent flyer programs and executive lounge access) are
undertaken, will be extended until the end of 2025, with automatic five-year
renewals thereafter unless either party gives three years' advance notice of
nonrenewal. The master alliance agreement will be amended so that it will be
terminable by either Northwest Airlines or, under certain limited circumstances,
Continental with six months' prior written notice in the event of a change of
control of Continental, and by either Continental or Northwest Airlines with six
months prior written notice in the event of a change of control of Northwest
Airlines. See "The Recapitalization Documents--Series B Preferred Stock
Certificate of Designations."
ISSUANCE OF SERIES B PREFERRED STOCK. In connection with the transactions
contemplated by the omnibus agreement, including the amendment of the master
alliance agreement described above, we will issue to Northwest Airlines one
share of a new series of preferred stock designated as Series B preferred stock
for
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<PAGE> 23
consideration of $100 in cash. The Series B preferred stock will give Northwest
Airlines the right to vote, as a separate class, during the term of the master
alliance agreement or, if earlier, until the Series B preferred stock becomes
redeemable, on:
- any amendment to article seven of our certificate of incorporation (which
relates, in general, to the requirement to obtain the approval of the
holder of the Series B preferred stock to amend the rights agreement);
- certain business combinations and similar change of control transactions
including Continental and a third party major air carrier with respect to
which the stockholders of Continental are entitled to vote;
- any dividend or distribution of all or substantially all of Continental's
airline assets; and
- certain reorganizations and restructuring transactions including
Continental.
Except for the right to vote on any amendment to our certificate of
incorporation that adversely effects the Series B preferred stock and on any
other matter as may be required by law, the Series B preferred stock will not
have any other voting rights. Those blocking rights of the Series B preferred
stock will be eliminated and the Series B preferred stock will, at our option,
be redeemable if:
- Northwest Airlines transfers (other than to a successor) or encumbers the
Series B preferred stock;
- there is a change of control of Northwest (as described below under "The
Recapitalization Documents--Series B Preferred Stock Certificate of
Designations");
- Northwest breaches in certain respects the standstill agreement described
below;
- Northwest or certain of its affiliates takes action that has the effect
or result of Northwest or certain of its affiliates becoming, or
otherwise causes Northwest or certain of its affiliates to become, an
acquiring person under the amended and restated rights agreement;
- the master alliance agreement described above terminates or expires
(other than as a result of a breach or wrongful termination by us); or
- certain other events occur that are described under "The Recapitalization
Documents--Series B Preferred Stock Certificate of Designations."
PURCHASE OF RIGHT OF FIRST OFFER. In connection with the recapitalization,
we will pay to 1992 Air, Inc. $10 million in cash (or, at our option, $11
million in the form of our Class B common stock), plus interest if the
transaction closes after February 15, 2001, in consideration for its sale to us
of its right of first offer to purchase the shares of Class A common stock that
we are going to purchase from Northwest (which right will terminate immediately
after the recapitalization). 1992 Air, Inc. is an affiliate of David Bonderman,
one of our directors.
STANDSTILL AGREEMENT. In connection with the recapitalization, we have
entered into a standstill agreement with Northwest and certain of its affiliates
that contains standstill and conduct restrictions that are substantially similar
to those currently contained in the corporate governance agreement between the
parties, except that the percentage of Continental stock that Northwest and its
affiliates can own will be adjusted downward to reflect their holdings following
the recapitalization and any subsequent dispositions by them of Continental
common stock, and upward if their percentage ownership increases as a result of
decreases in the number of outstanding shares of Continental common stock. The
agreement restricts Northwest and its affiliates from increasing their
percentage ownership of shares of our stock or otherwise attempting to control
or influence our company. Under the agreement, Northwest agreed to vote
neutrally all of our common stock owned by it after the recapitalization, except
that Northwest will be free to vote its shares in its discretion with respect to
a change of control of our company, as defined in the Series B preferred stock
certificate of designations, and will vote neutrally or as recommended by our
board of directors with respect to the election of directors. The standstill
agreement provides that Northwest will be released from its obligations if we
publicly announce that we are seeking, or have entered into an agreement with, a
third party to acquire a
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<PAGE> 24
majority of our voting securities or all or substantially all of our airline
assets or if the alliance agreement is terminated in accordance with its terms.
AMENDMENT OF THE RIGHTS AGREEMENT. We will also amend and restate our
rights agreement to take into account the effects of the recapitalization, to
eliminate Northwest's status as an exempt person that would not trigger the
provisions of the rights agreement, to change the rights agent under the rights
agreement to ChaseMellon Shareholder Services, LLC (now known as Mellon Investor
Services LLC), and to address AXA Financial, Inc.'s status under the rights
agreement with respect to its ownership of our Class B common stock as result of
the recapitalization. The amended and restated rights agreement will permit AXA
Financial to beneficially own, without triggering the rights under the rights
agreement, so long as it retains its status as a passive institutional investor,
up to 47% of the outstanding shares of Class B common stock through December 31,
2001, and, after December 31, 2001, the lesser of 47% of the outstanding shares
of Class B common stock and the percentage of Class B common stock reported as
beneficially owned by it in any Schedule 13G filed with the Securities and
Exchange Commission after December 31, 2001(such that the percentage permitted
to be beneficially owned by it will be reduced (down to 25% of the outstanding
shares of Class B common stock) to reflect reductions in its beneficial
ownership percentage resulting from subsequent sales of Class B common stock or
increases in the total number of shares of Class B common stock outstanding).
The rights agreement as currently in effect is more fully described below under
"Description of Continental Capital Stock--Preferred Stock Purchase Rights."
ADOPTION OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION. The
certificate of incorporation of Continental will be amended, effective
immediately following the recapitalization, to:
- reclassify the Class A common stock into 1.32 shares of our Class B
common stock;
- eliminate all references to Class A and Class D common stock;
- eliminate the special rights of a Northwest affiliate that currently owns
Class A common stock;
- provide that until the Series B preferred stock becomes redeemable,
Continental will not, without the consent of Northwest Airlines, amend
our rights agreement or redeem the preferred stock purchase rights under
the rights agreement unless the amendment or redemption does not permit a
third party major air carrier to enter into certain transactions that
would result in its becoming, but for such amendment or redemption, an
acquiring person under the rights agreement; and
- provide that until the Series B preferred stock becomes redeemable, we
will take all necessary action to have in effect a rights agreement with
terms and conditions identical in all material respects to the terms and
conditions of our amended and restated rights agreement and to issue the
rights created under that agreement.
BACKGROUND OF THE RECAPITALIZATION
In 1998, Continental entered into a long-term global alliance with
Northwest Airlines. The alliance includes the placing by each carrier of its
code on a large number of the flights of the other and reciprocal frequent flyer
programs and executive lounge access. See "--Master Alliance Agreement."
In connection with the creation of the alliance, in November 1998,
Northwest and an affiliate acquired beneficial ownership of the 8,661,224 shares
of Class A common stock held by Air Partners, L.P. and certain other investors.
As of the record date, these shares represented approximately 14.8% of the
common equity interest and 55.1% of the voting power of our company. In
addition, Northwest holds a limited proxy to vote certain additional shares of
our stock that raises its voting power to approximately 59.6% of our voting
power.
In connection with Northwest's 1998 share acquisition, we entered into a
corporate governance agreement with Northwest designed to ensure our
independence during the six-year term of the agreement. Northwest agreed to
restrictions on its ability to acquire additional voting securities of our
company and agreed to deposit the common stock it had acquired into a voting
trust. Under the voting trust, an independent
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<PAGE> 25
trustee must vote Northwest's shares neutrally, except in the event of change of
control transactions, in which case Northwest can direct the voting of the
shares. In addition, Northwest must vote its stock so that a majority of our
directors consist of "independent directors" as defined in the corporate
governance agreement.
Northwest also agreed to certain restrictions on its transfer of our stock
and to not seek control of our company. We granted Northwest preemptive rights
with respect to issuances of Class A common stock and certain issuances of Class
B common stock.
Originally, the governance agreement would have expired on November 20,
2004. However, in response to concerns raised by the Department of Justice in
its antitrust review of our transactions with Northwest, we adopted a
supplemental agreement with Northwest in November 1998, which extended the
effect of several (but not all) of the provisions of the governance agreement
for an additional four years.
On October 23, 1998, the Department of Justice filed a lawsuit challenging
Northwest's acquisition of our stock. It did not challenge the alliance, which
is very profitable to both our company and Northwest.
In early November 1999, Larry Kellner, our Executive Vice President and
Chief Financial Officer, called Gary Wilson, Chairman of the board of directors
and a principal stockholder of Northwest, to advise Mr. Wilson that we desired
to buy from Northwest the shares of our Class A common stock that were the basis
for the antitrust lawsuit. On November 22, 1999, Mr. Kellner met with Mr. Wilson
to further discuss our interest in buying those Class A shares. Mr. Wilson
indicated that Northwest was not interested in selling the shares to us.
Between late November 1999 and mid-January 2000, we had preliminary
discussions with Northwest concerning our desire to repurchase Northwest's Class
A common stock. On January 18, 2000, we announced that we had held preliminary
discussions with Northwest regarding the repurchase of their Continental shares.
On February 9, 2000, Gordon Bethune, Chairman of the board of directors and
Chief Executive Officer of our company, wrote to John Dasburg, President and
Chief Executive Officer of Northwest, and made a proposal designed to assure the
stability and growth of the alliance, remove the uncertainty about Continental's
future that concerned stockholders, customers and employees, end the
time-consuming and expensive litigation with the Department of Justice and
benefit both companies' stockholders. To do so, we proposed to:
- acquire all of our stock held by Northwest in the voting trust in a
transaction that would also reclassify all of our outstanding Class A
common stock into Class B common stock;
- amend the alliance agreement to extend its term for a significant time
period and provide for significant liquidated damages for breach of the
agreement by either party; and
- enter into appropriate ancillary agreements to transition to seamless
alliance activities and maximize the alliance's cost-saving benefits.
Over the next three months, we discussed with Northwest various
alternatives for ensuring the continuation of our commercial alliance while
reducing Northwest's ownership position but were unable to reach agreement.
On April 18, 2000, Messrs. Bethune and Kellner, together with Greg
Brenneman, President and Chief Operating Officer of Continental, and Jeff
Smisek, Executive Vice President, General Counsel and Secretary of Continental,
met with Mr. Dasburg, Mickey Foret, Executive Vice President and Chief Financial
Officer of Northwest, and Douglas Steenland, Executive Vice President and Chief
Corporate Officer of Northwest to discuss the proposed stock repurchase and
related matters. At the meeting, we proposed reclassifying all our shares of
Class A common stock into Class B common stock, extending our alliance agreement
with Northwest Airlines and providing mutual and significant liquidated damages
in the event of a breach of the alliance agreement, including after a change of
control. Northwest suggested that mutual liquidated damages were not sufficient
protection, and asked that we consider offering to Northwest some form of
blocking right.
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<PAGE> 26
On May 10, 2000, Mr. Kellner wrote to Mr. Foret confirming that our company
was continuing its attempts to develop a mutually acceptable transaction that,
pursuant to prior discussions with Northwest, would:
- provide Northwest a 30% premium, in the form of additional Class B
shares, for its shares of Continental Class A common stock;
- allow Northwest to retain the ability to block certain change of control
transactions of our company through issuance of a special series of
preferred stock that would have these blocking rights;
- modify the alliance agreement, including to extend its term to 25 years,
followed by unlimited five-year renewal periods; and
- address certain other matters, including the reclassification of Class A
common stock into Class B common stock as discussed above.
Meanwhile, we continued to prepare for trial in the Department of Justice
antitrust lawsuit, which was scheduled to begin on October 26, 2000. However, in
the week before trial, Northwest requested that the trial be postponed to permit
Northwest and Continental to negotiate a repurchase of Northwest's Class A
common stock and related matters to obviate the necessity for trial.
Consequently, we agreed with Northwest and the U.S. Department of Justice to
postpone the commencement of trial for six days until November 1, 2000 to allow
time for a transaction to be negotiated.
On October 27, 2000, Mr. Dasburg wrote to Mr. Bethune and advised him that
Northwest was willing to enter into a transaction to allow us to repurchase our
shares if:
- Northwest would receive $649.5 million in cash for its Class A common
stock;
- Northwest would receive a blocking right on a broad range of corporate
transactions, including a change of control of Continental;
- the alliance agreement were modified to extend its term to 2025, followed
by unlimited five-year renewal periods and to provide for significant
liquidated damages for breach of the agreement by Continental (but not by
Northwest); and
- certain complex alliance issues could be resolved and appropriate
ancillary agreements entered into.
Mr. Bethune responded on October 28, 2000. He expressed concern about
certain specific terms, including the price to be paid for Northwest's shares
and the inclusion in the negotiations of a requirement that the parties resolve
complex alliance issues that were unrelated to the stock ownership issue before
the court. He advised Mr. Dasburg that Continental believed that the special
series of preferred stock should be redeemable if Northwest experienced a change
in control and that the blocking rights needed to be narrowed, and that
liquidated damages should not be added to the alliance agreement because the
preferred stock adequately protected Northwest's interest in the alliance.
Nevertheless, he reaffirmed our company's interest in structuring a transaction
that would permit Northwest to recover its financial investment in the Class A
common stock, extend and protect the alliance and resolve the concerns raised by
the Department of Justice.
Mr. Dasburg responded on the morning of October 30, 2000. He disagreed with
the price we offered for the shares of stock held by Northwest and insisted on a
large cash component, indicated that Northwest was unwilling to agree to vote
its stock in favor of a recapitalization of the Class A common stock into Class
B common stock and insisted that the proposed unilateral liquidated damages
against Continental be added to the alliance agreement, but he agreed to remove
the resolution of certain previously identified alliance issues in exchange for
an early termination right if such issues were not satisfactorily resolved
within a certain time frame.
Mr. Bethune wrote back that afternoon making a counterproposal on the price
to be paid for the shares, offering to Northwest $450 million in cash and
approximately 2.4 million Class B shares for all of Northwest's Class A shares.
He stated that the recapitalization was essential to the transaction in order to
ensure that all of our stockholders would have the same rights in the future. He
reaffirmed that liquidated damages were not
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<PAGE> 27
needed in the alliance agreement because Northwest would already be able to
block a change of control of our company through the preferred stock. He noted
our continued disagreement with Northwest's position on the special series of
preferred stock, and that it should apply to a narrow range of transactions and
only apply to transactions changing our control if the other party were another
major air carrier. In addition, he stated that in light of Northwest's ability
to block a change of control of our company, we felt it was appropriate for
Northwest to sign a standstill agreement to prevent it from seeking control of
Continental.
Mr. Dasburg wrote back to Mr. Bethune on October 31, 2000 proposing a
compromise on the price to be paid for its Class A shares and the mix of cash
and Class B common stock to be received by Northwest. He reiterated that
Northwest would not commit to vote its shares in favor of the recapitalization
to reclassify Class A common stock as Class B common stock. He offered certain
other concessions, but affirmed Northwest's desire for a unilateral liquidated
damages clause in the alliance agreement.
Trial began on the morning of November 1, 2000. On the afternoon of
November 1, 2000, Mr. Bethune wrote to Mr. Dasburg and indicated his
understanding that certain of Northwest's negotiating points were final
positions for Northwest and unfortunately remained unacceptable to Continental.
As a result, all settlement discussions terminated on the morning of November 2,
2000.
On the afternoon of November 2, 2000, Mr. Dasburg wrote back to Mr. Bethune
indicating his willingness to make the liquidated damages mutual and rejecting
our proposal to apply the preferred stock blocking rights only to transactions
with other major air carriers. He expressed Northwest's willingness to further
discuss the matters. Trial continued on November 2, and was scheduled to
continue the following week.
On Saturday, November 4, 2000, Messrs. Bethune, Brenneman, Kellner and
Smisek met with Messrs. Dasburg, Foret and Steenland, together with David
Bonderman, a member of our board of directors and a stockholder of Northwest.
Significant progress was made in negotiating material issues including the
purchase of shares from Northwest and the recapitalization of our equity.
On Sunday, November 5, 2000, our board of directors met and approved an
agreement in principle that was signed later that day with Northwest. The
agreement in principle set forth the conceptual agreements reached by the
parties and included a term sheet that specified the steps to be taken and
definitive documents to be negotiated and executed to carry out the repurchase
and recapitalization. The terms embodied in the term sheet included, among
others:
- the recapitalization of the Class A common stock into 1.32 shares of
Class B common stock;
- Northwest would vote all of the Class A common stock owned by Northwest
in favor of the recapitalization;
- immediately prior to the recapitalization, Continental would purchase
from Northwest 6,685,279 shares of Class A common stock for $450 million
in cash;
- the alliance agreement would be amended to extend its term until the end
of 2025 and provide for certain additional termination rights relating to
change of control transactions involving Northwest and Continental;
- in connection with the transactions contemplated by the omnibus
agreement, including the amendment to the alliance agreement, we would
issue to Northwest one share of Series B preferred stock having blocking
rights in the event of a change of control transaction involving
Continental and another major air carrier; and
- Northwest would enter into a standstill agreement.
The parties agreed not to include a liquidated damages provision as part of the
amendment to the alliance agreement.
On November 6, 2000, the parties announced their agreement in principle,
which was endorsed by the Department of Justice, and Continental, Northwest and
the Department of Justice requested that the court
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<PAGE> 28
postpone continuation of the trial until November 14, 2000 to permit us and
Northwest to negotiate definitive agreements and obtain approval from our board
of directors at its November 13, 2000 meeting.
On November 13, 2000, our board of directors met and received oral fairness
opinions regarding the consideration to be paid or issued in the
recapitalization from a financial point of view to the holders of Class B common
stock and to the holders of Class A common stock, other than Northwest and 1992
Air, Inc. and their affiliates. Our board of directors, with Messrs. Bonderman
and Sturm abstaining from the vote, approved the repurchase, recapitalization
and related transactions, subject to its further approval of certain specific
terms that remained pending. The board of directors also established a special
committee composed of our directors Kirbyjon Caldwell, George G.C. Parker and
Karen Hastie Williams to review and approve the final terms of the Series B
preferred stock.
Certain issues remained pending on November 13, 2000. Consequently, the
parties requested that the court further postpone the trial until November 16,
2000 while we continued to negotiate definitive agreements. On November 15,
2000, agreement was reached on all outstanding points, our board of directors
met and, with Messrs. Bonderman and Sturm abstaining from the vote, approved the
agreements as finalized. The board received written fairness opinions from UBS
Warburg and Credit Suisse First Boston dated that date. Later in the day, the
special committee of the board of directors met and approved the terms of the
Series B preferred stock.
On November 27, 2000, the U.S. Department of Justice informed the Court
that it would agree to dismiss the antitrust litigation without prejudice upon
closing of the repurchase and recapitalization, and the litigation was adjourned
pending closing of the transactions.
REASONS FOR THE RECAPITALIZATION
Notwithstanding the corporate governance and supplemental agreements that
we signed with Northwest in connection with Northwest's purchase of our shares
in 1998, our stockholders, employees and customers and the Department of Justice
have expressed concern about our independence, both during the term of those
agreements and upon their termination. We believe the uncertainty regarding our
independence and our future has hurt morale.
The repurchase of our shares from Northwest removes a good deal of
uncertainty for the benefit of all parties, as well as facilitating the
dismissal of the U.S. Department of Justice's antitrust lawsuit. In addition, in
connection with the repurchase, we are extending our alliance agreement with
Northwest Airlines, which has been highly profitable for us.
In addition to the benefits of the repurchase, the recapitalization, which
would not have been possible without the repurchase, permits all of our
stockholders to be on even footing in the future. The current structure of
ten-vote Class A common stock and one-vote Class B common stock was put in place
when we emerged from bankruptcy over seven years ago. It allowed the parties
risking significant capital at the time to ensure that they controlled the
company's future. As the company has matured and stabilized, the two-tier voting
structure has become less important to the company's stability but no less
determinative of its future.
At a board of directors meeting on November 13, 2000, our board of
directors discussed the following business reasons for and benefits to be
derived from the recapitalization:
- increase in our operational and financial flexibility;
- alignment of management and stockholder goals;
- positive response of customers, employees and management resulting from
resolution of ownership uncertainty;
- avoidance of prolonged litigation with the U.S. Department of Justice and
of potential adverse effects on the commercial alliance with Northwest
Airlines;
- preservation and enhancement of the benefits connected with the
commercial alliance;
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<PAGE> 29
- simplified capital structure; and
- accretion to earnings per share.
We believe the transactions are fair to all stockholders currently and will
be beneficial to all stockholders in the long-run. We also believe that the
recapitalization will make the company a more attractive investment for
potential stockholders, in part because it increases the likelihood that our
very successful management team will remain in place.
The repurchase and recapitalization will reduce the general voting power
(including eliminating Northwest's limited proxy rights) held by Northwest from
approximately 59.6% to approximately 7%. While Northwest Airlines' ownership of
a share of Series B preferred stock received in connection with the repurchase
and the recapitalization will give it the ability to block certain change of
control transactions involving our company and other major air carriers, it will
not be able to block other transactions and any benefits paid to stockholders in
the future in a transaction where Northwest Airlines does not have a blocking
right will be shared ratably among all stockholders. If there is a change of
control of Northwest, then Northwest Airlines will lose all blocking rights.
We retained UBS Warburg LLC to act as our financial advisor in connection
with the recapitalization, and received a written opinion dated November 15,
2000 of UBS Warburg to the effect that, as of the date of the opinion and based
on and subject to the matters described in the opinion, the consideration to be
paid by Continental in the recapitalization was fair, from a financial point of
view, to the holders of the Class B common stock. In addition, we retained
Credit Suisse First Boston Corporation to deliver to us a fairness opinion in
connection with the recapitalization, and received a written opinion dated
November 15, 2000 of Credit Suisse First Boston to the effect that, as of the
date of the opinion and based on and subject to the matters described in the
opinion, the exchange ratio was fair from a financial point of view to holders
of Class A common stock (other than Northwest Airlines, 1992 Air, Inc. and their
affiliates). These opinions are described below.
OPINION OF UBS WARBURG LLC
We retained UBS Warburg LLC to deliver a fairness opinion in connection
with the recapitalization. At the meeting of the Continental board held on
November 13, 2000, UBS Warburg delivered its oral opinion to the effect that, as
of the date of the opinion and based on and subject to the matters described in
the opinion, including a review of the definitive agreements for the
transaction, the transaction consideration to be paid by Continental in the
transaction was fair, from a financial point of view, to the holders of the
Class B common stock. The opinion was confirmed by delivery of a written opinion
dated November 15, 2000, the date of execution of the definitive agreements.
THE FOLLOWING SUMMARY OF THE UBS WARBURG OPINION IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION. THE FULL TEXT OF THE UBS
WARBURG OPINION SETS FORTH THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS
CONSIDERED AND LIMITATIONS ON THE SCOPE OF THE REVIEW UNDERTAKEN AND IS ATTACHED
AS ANNEX C TO THIS PROXY STATEMENT AND INCORPORATED IN THIS PROXY STATEMENT BY
REFERENCE. WE ENCOURAGE YOU TO READ CAREFULLY THE UBS WARBURG OPINION IN ITS
ENTIRETY.
For the purposes of UBS Warburg's opinion and related financial and
comparative analyses and the summary of such matters set forth below, the
"transaction" consists of the following events: (1) the purchase by Continental
from Northwest and an affiliate of 6,685,279 shares of Class A common stock, and
(2) the reclassification of each remaining issued share of Class A common stock
into 1.32 shares of Class B common stock. The "transaction consideration" to be
paid by Continental in the transaction consists solely of the following: (1)
$450 million in cash to be paid to Northwest, (2) the shares of Class B common
stock to be issued in the reclassification, and (3) the payment or delivery, as
the case may be, to 1992 Air, Inc. of, at Continental's election pursuant to the
terms of the reoffer purchase agreement, either (a) $10 million in cash or (b)
shares of Class B common stock with a market value, as described below, equal to
$11 million.
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<PAGE> 30
UBS Warburg's opinion:
- is directed to the Continental board;
- relates only to the fairness, from a financial point of view, to the
holders of Class B common stock of the transaction consideration to be
paid by Continental in the transaction;
- does not constitute a recommendation to holders of Continental common
stock about how to vote on the adoption of the amended and restated
certificate of incorporation or any other matter;
- does not address Continental's underlying business decision to effect the
transaction or the form of the transaction; and
- is necessarily based upon economic, monetary, market and other conditions
as they existed as of the date of the opinion and should be evaluated
based upon those conditions.
In arriving at its opinion, UBS Warburg, among other things:
- reviewed publicly available business and historical financial information
relating to Continental;
- reviewed the reported prices and trading activity for the Class A common
stock and the Class B common stock;
- reviewed internal financial information and other data concerning the
business and financial prospects of Continental, including estimates and
financial forecasts prepared by the management of Continental, which were
provided to UBS Warburg by Continental and not publicly available;
- held discussions with members of the senior management of Continental
regarding the business and prospects of Continental, as well as other
matters it believed relevant to its inquiry;
- reviewed publicly available financial and stock market data with respect
to selected companies in lines of business UBS Warburg believed to be
generally comparable to those of Continental;
- compared the financial terms of the transaction with the publicly
available financial terms of selected other transactions that UBS Warburg
believed to be generally relevant;
- considered specified pro forma effects of the transaction on
Continental's financial statements;
- reviewed the omnibus agreement, the amended and restated certificate of
incorporation and the reoffer purchase agreement; and
- conducted and considered other financial studies, analyses,
investigations and information that it considered necessary or
appropriate.
In connection with its review, at Continental's direction, UBS Warburg:
- did not independently verify any of the information referred to above and
relied on it as being complete and accurate in all material respects;
- assumed that the financial forecasts, estimates and pro forma effects
referred to above were reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the management of
Continental as to the future performance of Continental;
- assumed that the future financial results referred to above will be
achieved at the times and in the amounts projected by management of
Continental;
- did not make any independent evaluation or appraisal of any of the assets
or liabilities of Continental, nor was UBS Warburg furnished with any
similar evaluation or appraisal;
- did not express any opinion as to the financing of the cash portion of
the transaction consideration, the terms of the master alliance agreement
and any changes thereto and the related Series B preferred stock or the
prices at which the Class B common stock would trade subsequent to the
transaction;
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<PAGE> 31
- did not opine or provide any advice with respect to the impact of the
transaction and the related financing on the solvency, viability or the
financial condition of Continental or its ability to satisfy its
obligations as they become due; and
- assumed that Continental, Northwest and 1992 Air, Inc. would comply with
all material terms of the omnibus agreement, the charter amendment and
the reoffer purchase agreement, and that the transaction will be
consummated in accordance with the terms of such agreements.
In performing the financial and comparative analyses in connection with the
rendering of its opinion, UBS Warburg considered the amount being paid by
Continental to Northwest for the shares of Class A common stock being
repurchased to include the amount being paid by Continental to 1992 Air, Inc.
under the reoffer purchase agreement to purchase 1992 Air, Inc.'s rights of
offer and re-offer/option with respect to the shares of Class A common stock
owned by Northwest, such payment being, at Continental's election, either (1)
$10 million in cash or (2) shares of Class B common stock with a 20-day trailing
weighted average market value of $11 million.
UBS Warburg was not asked to and did not recommend the specific
consideration payable in the transaction, which was determined through
negotiation among Continental, Northwest and 1992 Air, Inc. Except to the extent
set forth above, Continental did not limit UBS Warburg regarding the procedures
to be followed or factors to be considered in rendering its opinion.
In preparing its opinion, UBS Warburg performed a variety of financial and
comparative analyses. The material analyses are summarized below. The
preparation of a fairness opinion is a complex analytical process involving
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of those methods to the particular
circumstances and, therefore, is not susceptible to partial analysis or summary
descriptions. In arriving at its opinion, UBS Warburg made qualitative judgments
as to the significance and relevance of each analysis and factor considered by
it. Accordingly, UBS Warburg believes that its analyses must be considered as a
whole and that selecting portions of its analyses and the factors considered by
it, without considering all analyses and factors, could create an incomplete
view of the processes underlying the analyses set forth in its opinion.
In performing its analyses, UBS Warburg made numerous assumptions with
respect to industry performance, general business, financial, market and
economic conditions and other matters, many of which are beyond the control of
Continental. No company, transaction or business used in those analyses as a
comparison is identical to Continental or its businesses or the transaction, nor
is an evaluation of the results entirely mathematical. Rather, the analyses
involve complex considerations and judgments concerning financial and operating
characteristics and other factors that could affect the acquisition, public
trading or other values of the companies, business segments or transactions
being analyzed.
The estimates contained in the analyses performed by UBS Warburg and the
ranges of valuations resulting from any particular analysis are not necessarily
indicative of actual values or predictive of future results or values, which may
be significantly more or less favorable than suggested by these analyses. In
addition, analyses relating to the value of businesses or securities do not
purport to be appraisals or to reflect the prices at which a business might
actually be sold or the prices at which any securities may trade at the present
time or at any time in the future.
Continental selected UBS Warburg based on its experience, expertise and
reputation. UBS Warburg is an internationally recognized investment banking firm
that regularly engages in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
bids, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. In the past,
UBS Warburg and its predecessors have provided investment banking services to
Continental and Northwest and received customary compensation for the rendering
of these services. In addition, in November 2000, UBS Warburg acted as a
placement agent for a private placement of convertible preferred securities
issued by a special purpose trust affiliated with Continental and convertible
into Class B common stock, the proceeds of which private placement are expected
to be used to finance, in part, the payment of the cash portion of the
transaction consideration. In the ordinary course of its business,
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<PAGE> 32
UBS Warburg, its successors and affiliates may trade or have traded securities
of Continental and Northwest for their own accounts and, accordingly, may at any
time hold a long or short position in such securities. UBS Warburg and its
affiliates, including UBS AG, may have other business relationships with
Continental, Northwest and their respective affiliates.
Pursuant to an engagement letter, dated October 27, 2000, between
Continental and UBS Warburg, UBS Warburg provided financial advisory services
and its financial fairness opinion to Continental in connection with the
transaction, and Continental agreed to pay UBS Warburg $1 million upon delivery
of the fairness opinion and $2 million upon the closing of the repurchase of
Northwest's shares and the recapitalization. Continental has also agreed to
reimburse UBS Warburg for its expenses incurred in performing its services. In
addition, Continental has agreed to indemnify UBS Warburg and its affiliates,
their respective directors, officers, agents and employees and each person, if
any, controlling UBS Warburg or any of its affiliates against certain
liabilities and expenses related to or arising out of UBS Warburg's engagement
and any related transactions. Continental also paid UBS Warburg an additional $1
million for financial advisory services rendered pursuant to an engagement
letter dated July 14, 2000.
The following is a summary of the material financial analyses used by UBS
Warburg in connection with the rendering of its opinion. The financial analyses
summarized below include information presented in tabular format. In order to
understand the financial analyses fully, the tables must be read together with
the text of each summary. Considering the data set forth below without
considering the full narrative description of the financial analyses, including
the methodologies and assumptions underlying the analyses, could create a
misleading or incomplete view of the financial analyses.
HISTORICAL STOCK PRICE ANALYSIS. UBS Warburg reviewed the historical
trading prices for the Class B common stock for the period from November 7, 1997
through November 9, 2000, and compared the movements in those prices to the
movements of a composite index of publicly-traded domestic airline companies for
the same period. The airline company composite index consists of AMR
Corporation, the holding company of American Airlines, Delta Air Lines, Inc.,
Northwest, UAL Corporation, the holding company of United Airlines, US Airways
Group, Inc. and Southwest Airlines Co. UBS Warburg observed that during the
period from November 7, 1997 through November 9, 2000, the Class B common stock
closing price increased 12.2% from $43.38 to $48.69 as compared to an 8.4%
increase in the airline company index during the same period.
SELECTED PUBLIC COMPANIES TRADING ANALYSIS. UBS Warburg reviewed and
analyzed selected financial information, ratios and public market multiples for
the following six publicly-traded domestic airline companies and compared the
implied multiples derived for the selected public companies with the relevant
implied multiples for Continental:
- AMR Corporation
- Delta Air Lines, Inc.
- Northwest
- UAL Corporation
- US Airways Group, Inc.
- Southwest Airlines Co.
UBS Warburg chose the selected public companies because they were
publicly-traded companies that, for purposes of the analysis, UBS Warburg
considered reasonably similar to Continental in that these companies operate in
the domestic airline industry. The selected public companies may significantly
differ from Continental based on, among other things, the size of the companies,
the geographic coverage of the companies' operations and the financial condition
of the companies.
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<PAGE> 33
UBS Warburg reviewed, among other things, the following:
- enterprise value, calculated as the market value of fully diluted equity
securities plus indebtedness and minority interests less cash, as of
November 3, 2000, as a multiple of last fiscal year earnings before
interest, taxes, depreciation and amortization, commonly referred to as
EBITDA;
- adjusted enterprise value, calculated by adding to the enterprise value
seven times the last 12 months aggregate aircraft rental expense, as a
multiple of estimated calendar 2000 earnings before interest, taxes,
depreciation, amortization and aircraft rental expense, referred to as
EBITDAR, and estimated calendar 2001 EBITDAR; and
- equity values, calculated as per share closing stock prices on November
3, 2000, as a multiple of estimated fiscal 2000 earnings per share,
commonly referred to as EPS, and estimated fiscal 2001 EPS.
This analysis indicated the following implied multiples for the selected
public companies and for Continental:
<TABLE>
<CAPTION>
LOW HIGH MEAN MEDIAN CONTINENTAL
---- ----- ----- ------ -----------
<S> <C> <C> <C> <C> <C>
ENTERPRISE VALUE TO:
Actual Last Fiscal Year EBITDA...................... 3.1x 14.3x 6.2x 4.5x 4.8x
ADJUSTED ENTERPRISE VALUE TO:
Estimated 2000 EBITDAR.............................. 3.8x 11.6x 6.0x 4.7x 5.6x
Estimated 2001 EBITDAR.............................. 3.4x 10.2x 5.1x 4.2x 5.1x
EQUITY VALUE TO:
Estimated Fiscal 2000 EPS........................... 6.5x 24.9x 11.7x 8.8x 9.1x
Estimated Fiscal 2001 EPS........................... 6.1x 21.6x 11.8x 8.9x 8.0x
</TABLE>
Actual last fiscal year data for Continental and the selected companies
were based on the respective companies' Forms 10-K. Estimated financial data for
the selected companies were based on publicly available research analysts'
estimates. Estimated financial data for Continental were based on internal
estimates provided by Continental.
SELECTED TRANSACTIONS ANALYSIS. UBS Warburg reviewed and compared publicly
available information relating to the following five selected transactions
involving the acquisition of at least a majority of the outstanding common
equity interests of the target company and the following five selected
transactions involving the acquisition of less than a majority of the
outstanding common equity interests of the target company, in each case in the
airline industry consummated since 1992 and compared the implied multiples
derived for the selected transactions with the relevant implied multiples for
Continental derived for the transaction:
MAJORITY ACQUISITIONS
<TABLE>
<CAPTION>
TARGET ACQUIROR CONSUMMATION DATE
------ -------- -----------------
<S> <C> <C>
US Airways Group, Inc. UAL Corporation 5/2000(1)
Canadian Airlines International Ltd. Air Canada 1/2000
Comair Holdings Inc. Delta Air Lines, Inc. 10/1999
ASA Holdings, Inc. Delta Air Lines, Inc. 2/1999
Reno Air, Inc. AMR Corporation 11/1998
</TABLE>
------------------
(1) Announcement date; not yet consummated.
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MINORITY ACQUISITIONS
<TABLE>
<CAPTION>
TARGET ACQUIROR CONSUMMATION DATE
------ -------- -----------------
<S> <C> <C>
Virgin Atlantic Airways Singapore Airlines 12/1999
Limited
Continental(1) Northwest 1/1998
Northwest KLM Royal Dutch Airlines 9/1994
US Airways Group, Inc. British Airways Plc 1/1993
Qantas Airways Ltd. British Airways Plc 12/1992
</TABLE>
------------------
(1) Acquired 15% economic interest and 55% of outstanding voting power.
UBS Warburg chose the selected transactions because they were business
combinations or acquisitions of significant majority or minority interests that,
for the purposes of the analysis, UBS Warburg considered to be reasonably
similar to the transaction in that these transactions involved companies in the
airline industry. The selected transactions may significantly differ from the
transaction based on, among other things, the size of the transactions, the
structure of the transactions, the date the transactions were consummated or
announced, as the case may be, and the existing relationships between or among
the parties to the transactions.
UBS Warburg reviewed, among other things, the following:
- the enterprise values implied in the relevant transaction as a multiple
of actual last fiscal year EBITDA and actual last fiscal year earnings
before interest and taxes, commonly referred to as EBIT;
- adjusted enterprise values implied in the relevant transactions as a
multiple of actual last fiscal year EBITDAR; and
- equity values per share implied in the relevant transaction as a multiple
of actual last fiscal year EPS.
This analysis indicated the following implied multiples for the selected
transactions and for Continental in the transaction:
MAJORITY ACQUISITIONS
<TABLE>
<CAPTION>
LOW HIGH MEAN CONTINENTAL(1)
----- ----- ----- --------------
<S> <C> <C> <C> <C>
ENTERPRISE VALUE TO:
Actual Last Fiscal Year EBITDA........................... 7.1x 11.7x 9.5x 5.7x
Actual Last Fiscal Year EBIT............................. 9.1x 16.9x 12.3x 9.1x
ADJUSTED ENTERPRISE VALUE TO:
Actual Last Fiscal Year EBITDAR.......................... 7.1x 10.3x 8.7x 6.3x
EQUITY VALUE TO:
Actual Last Fiscal Year EPS.............................. 14.4x 21.9x 17.1x 12.0x
</TABLE>
------------------
(1) All data for Continental is actual last 12 months rather than last fiscal
year.
MINORITY ACQUISITIONS
<TABLE>
<CAPTION>
LOW HIGH MEAN CONTINENTAL(1)
---- ----- ----- --------------
<S> <C> <C> <C> <C>
ENTERPRISE VALUE TO:
Actual Last Fiscal Year EBITDA............................ 5.0x 27.6x 16.0x 5.7x
Actual Last Fiscal Year EBIT.............................. 6.8x 43.9x 20.2x 9.1x
ADJUSTED ENTERPRISE VALUE TO:
Actual Last Fiscal Year EBITDAR........................... 5.7x 11.5x 8.7x 6.3x
EQUITY VALUE TO:
Actual Last Fiscal Year EPS............................... 9.9x 19.3x 13.8x 12.0x
</TABLE>
------------------
(1) All data for Continental is actual last 12 months rather than last fiscal
year.
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<PAGE> 35
All multiples for the selected transactions were based on publicly
available information at the time of the announcement or consummation, as
applicable, of the particular transaction. Actual last 12 months data for
Continental were based on its applicable Forms 10-K and 10-Q.
DISCOUNTED CASH FLOW ANALYSIS. UBS Warburg performed a discounted cash
flow analysis, using internal estimates of the management of Continental which
did not include any of the anticipated benefits of the transaction and the
related transactions, in order to derive an implied equity value reference range
for Continental. This analysis was based on:
- the present value of the estimated unlevered, after-tax free cash flows
that Continental could generate over the five-year period 2001 through
2005; and
- the present value of the 2005 terminal value of Continental based on a
range of multiples applied to its estimated future 2005 EBITDA.
For purposes of this analysis, UBS Warburg used discount rates of 9.0% to
11.0%, which were based on Continental's estimated weighted average cost of
capital, and terminal 2005 EBITDA multiples of 4.00x to 4.50x, which were
derived by reference to the selected public companies trading analysis. This
analysis implied a per share equity value reference range for Continental of
$70.19 to $89.10 on a fully diluted basis.
UBS Warburg also performed a discounted cash flow analysis, using internal
estimates of the management of Continental, in order derive an implied range of
values for the estimated after-tax benefits the management of Continental
anticipates deriving from the transaction and the related transactions. For
purposes of this analysis, UBS Warburg used the discount rates and terminal 2005
EBITDA multiples specified above. This analysis implied an aggregate present
value for the estimated transaction benefits of $492.6 million to $567.7
million.
PRO FORMA TRANSACTION ANALYSIS. UBS Warburg analyzed the potential pro
forma financial effects of the transaction and the related transactions on
Continental's estimated EPS for 2001 and 2002, based on internal estimates of
the management of Continental, including the estimated benefits that management
of Continental anticipates deriving from the transaction and the related
transactions. This analysis indicated that the transaction and the related
transactions could have an accretive effect on Continental's EPS in 2001 and
2002. The actual results achieved by Continental may vary from projected results
and the variations may be material.
PREMIUM PAID ANALYSIS. Using publicly available information for the period
from 1995 through 1999 published by Mergerstat Review and Securities Data
Corporation, UBS Warburg compared the average premium over the target company
stock prices one week before the date of transaction announcement paid in
acquisitions of controlling interests in publicly-traded companies ("Control
Acquisition Transactions") to such average premium over the same period paid in
transactions in which a majority stockholder or stockholders purchased the
remaining publicly-held shares in the target companies ("Minority Acquisition
Transactions"). According to this information, the average premium paid was 40%
for Control Acquisition Transactions as compared to the approximately 22%
average premium paid in Minority Acquisition Transactions. Based on
Continental's stock market capitalization of $3,037 million using a $52 per
share price (the closing price of the Class B common stock on the last day prior
to announcement of the agreement in principle) and $2,704.6 million using a
$46.31 per share price (the average of the closing prices of the Class B common
stock for the 30 trading days prior to announcement of the transaction) and
applying the 40% average control premium for Control Acquisition Transactions,
UBS Warburg arrived at a theoretical acquisition premium for all of
Continental's common equity of $1,214.8 million and $1,081.8 million,
respectively. UBS Warburg then calculated that, based on the 22% average premium
paid in Minority Acquisition Transactions and the 81.2% economic interest in
Continental's common equity represented by the Class B common stock, the holders
of Class B common stock would theoretically receive $542.5 million of the
$1,214.8 million theoretical control premium and $483.2 million of the $1,081.8
million theoretical control premium, while the holders of the Class A common
stock would theoretically receive $672.3 million of the $1,214.8 million
32
<PAGE> 36
theoretical control premium and $598.6 million of the $1,081.8 million
theoretical control premium or $61.34 and $54.62, respectively, per Class A
share of incremental theoretical value for the control premium. UBS Warburg
observed that this theoretical incremental value per Class A share is 118%
greater than the $52 per share closing stock price on the last day prior to
announcement of the transaction as well as the $46.31 per share average closing
price for the 30 trading days prior to the announcement of the transaction. In
performing the premium paid analysis, UBS Warburg noted that the transaction
together with the related transactions differ significantly from the typical
Control Acquisition Transaction in that, among other things, the transaction
does not involve the acquisition of control of Continental by a third party,
Northwest's control over Continental was limited by the terms of the governance
agreement, and the Series B Preferred Stock being issued to Northwest as part of
the related transactions effectively precludes a major airline company from
acquiring control of Continental except in limited circumstances.
OPINION OF CREDIT SUISSE FIRST BOSTON
We retained Credit Suisse First Boston to deliver an opinion to the board
of directors of Continental in connection with the recapitalization. Continental
selected Credit Suisse First Boston based on Credit Suisse First Boston's
experience, expertise and reputation, and its familiarity with Continental's
business. Credit Suisse First Boston is an internationally recognized investment
banking firm and is regularly engaged in the valuation of businesses and
securities in connection with mergers and acquisitions, leveraged buyouts,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes.
In connection with Credit Suisse First Boston's engagement, Continental
requested that Credit Suisse First Boston evaluate the fairness, from a
financial point of view, to the holders of Class A common stock of Continental,
other than Northwest, 1992 Air, Inc. and their affiliates, of the exchange ratio
provided for in the recapitalization. On November 15, 2000, at a meeting of the
board of directors of Continental held to evaluate the recapitalization, Credit
Suisse First Boston delivered a written opinion dated that date, to the effect
that, as of that date and based on and subject to the matters described in its
opinion, the exchange ratio of 1.32 shares of Class B common stock for each
share of Class A common stock was fair, from a financial point of view, to the
holders of Class A common stock of Continental, other than Northwest, 1992 Air,
Inc. and their affiliates.
THE FULL TEXT OF CREDIT SUISSE FIRST BOSTON'S WRITTEN OPINION, DATED
NOVEMBER 15, 2000, TO THE BOARD OF DIRECTORS OF CONTINENTAL, WHICH SETS FORTH,
AMONG OTHER THINGS, THE PROCEDURES FOLLOWED, ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX D TO
THIS PROXY STATEMENT AND IS INCORPORATED INTO THIS PROXY STATEMENT BY REFERENCE.
HOLDERS OF CONTINENTAL COMMON STOCK ARE URGED TO READ THIS OPINION CAREFULLY AND
IN ITS ENTIRETY.
Credit Suisse First Boston's opinion:
- is addressed to the board of directors of Continental;
- relates only to the fairness of the exchange ratio from a financial point
of view to the holders of Class A common stock of Continental, other than
Northwest, 1992 Air, Inc. and their affiliates as of the date of the
opinion;
- does not address any differences in the amount and type of consideration
to be received by Northwest, 1992 Air, Inc. and their affiliates and the
other holders of Class A common stock of Continental pursuant to the
recapitalization and the other transactions effected pursuant to the
omnibus agreement or any other aspect of the recapitalization or any
related transaction; and
- does not constitute a recommendation to any stockholder as to any matter
relating to the recapitalization.
The summary of Credit Suisse First Boston's opinion in this proxy statement is
qualified in its entirety by reference to the full text of the opinion.
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<PAGE> 37
In arriving at its opinion, Credit Suisse First Boston:
- reviewed the omnibus agreement (including the form of the amended and
restated certificate of incorporation) and certain related documents;
- reviewed certain publicly available business and financial information
relating to Continental;
- reviewed certain other information, including financial forecasts, that
Continental provided to or discussed with Credit Suisse First Boston;
- discussed the business and prospects of Continental with Continental's
management;
- considered certain financial and stock market data of Continental, and
compared those data with similar data for other publicly held companies
in businesses similar to that of Continental; and
- considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria that it deemed
relevant.
In connection with its review, Credit Suisse First Boston did not assume
any responsibility for independent verification of any of the information that
was provided to or otherwise reviewed by it and relied on that information being
complete and accurate in all material respects. With respect to financial
forecasts, Credit Suisse First Boston assumed that the forecasts were reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the management of Continental as to the future financial
performance of Continental.
Credit Suisse First Boston was advised by Continental, and assumed, that
the recapitalization would be treated as a tax-free reorganization for federal
income tax purposes and that the shares of Class A common stock currently owned
by Northwest and its affiliates represent the right to cast a majority of the
total votes that may be cast on matters submitted to a vote of all stockholders
of Continental. Credit Suisse First Boston was also advised by Continental, and
assumed, that Northwest and its affiliates have agreed to vote or cause to be
voted all of the shares of Class A common stock owned by them in favor of the
recapitalization and that such vote will be sufficient to approve the
recapitalization regardless of the votes cast by any other stockholder of
Continental. Credit Suisse First Boston also assumed, with Continental's
consent, that the recapitalization would occur in the manner contemplated in the
omnibus agreement.
Credit Suisse First Boston was not requested to make, and did not make, an
independent evaluation or appraisal of the assets or liabilities, contingent or
otherwise, of Continental, nor was Credit Suisse First Boston furnished with any
evaluations or appraisals. Credit Suisse First Boston's opinion was necessarily
based on information available to it, and financial, economic, market and other
conditions as they existed and could be evaluated on the date of the opinion.
Credit Suisse First Boston did not express any opinion as to what the value of
the Class B common stock will be when issued to Continental's Class A
stockholders pursuant to the recapitalization or the prices at which the Class B
common stock will trade subsequent to the recapitalization. Credit Suisse First
Boston did not participate in any negotiations or discussions relating to the
omnibus agreement or the recapitalization.
In preparing its opinion to the board of directors of Continental, Credit
Suisse First Boston performed a variety of financial and comparative analyses,
including those described below. The summary of Credit Suisse First Boston's
analyses described below is not a complete description of the analyses
underlying its opinion. The preparation of a fairness opinion is a complex
process involving various determinations as to the most appropriate and relevant
methods of financial analysis and the application of those methods to the
particular circumstances and, therefore, a fairness opinion is not readily
susceptible to partial analysis or summary description. In arriving at its
opinion, Credit Suisse First Boston made qualitative judgments as to the
significance and relevance of each analysis and factor that it considered.
Accordingly, Credit Suisse First Boston believes that its analyses must be
considered as a whole and that selecting portions of its analyses and factors or
the narrative description of the analyses, could create a misleading or
incomplete view of the processes underlying its analyses and opinion.
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<PAGE> 38
In its analyses, Credit Suisse First Boston considered industry
performance, regulatory, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of
Continental. No company, transaction or business used in Credit Suisse First
Boston's analyses as a comparison is identical to Continental or the proposed
recapitalization, and an evaluation of the results of those analyses is not
entirely mathematical. Rather, the analyses involve complex considerations and
judgments concerning financial and operating characteristics and other factors
that could affect the acquisition, public trading or other values of the
companies, business segments or transactions being analyzed.
The estimates contained in Credit Suisse First Boston's analyses and the
ranges of valuations resulting from any particular analysis are not necessarily
indicative of actual values or predictive of future results or values, which may
be significantly more or less favorable than those suggested by the analyses. In
addition, analyses relating to the value of businesses or securities do not
necessarily purport to be appraisals or to reflect the prices at which
businesses or securities actually may be sold. Accordingly, Credit Suisse First
Boston's analyses and estimates are inherently subject to substantial
uncertainty.
Credit Suisse First Boston's opinion and financial analyses were among many
factors considered by the board of directors of Continental in its evaluation of
the proposed recapitalization and should not be viewed as determinative of the
views of the board of directors of Continental or management with respect to the
recapitalization or the exchange ratio.
The following is a summary of the material financial analyses underlying
Credit Suisse First Boston's opinion dated November 15, 2000 delivered to the
board of directors of Continental in connection with the recapitalization. The
financial analyses summarized below include information presented in tabular
format. In order to fully understand Credit Suisse First Boston's financial
analyses, the tables must be read together with the text of each summary. The
tables alone do not constitute a complete description of the financial analyses.
Considering the data set forth in the tables below without considering the full
narrative description of the financial analyses, including the methodologies and
assumptions underlying the analyses, could create a misleading or incomplete
view of Credit Suisse First Boston's financial analyses.
HISTORICAL STOCK TRADING ANALYSIS. Credit Suisse First Boston analyzed the
prices at which Class A common stock and Class B common stock traded over the
period from November 7, 1997 through November 10, 2000 and the ratio of the
closing price of Class A common stock divided by Class B common stock during the
period:
<TABLE>
<CAPTION>
RATIO OF CLASS A COMMON
SHARE PRICE TO CLASS B
COMMON SHARE PRICE
PERIOD PRIOR TO -----------------------
NOVEMBER 10, 2000 HIGH AVERAGE LOW
----------------- ----- ------- -----
<S> <C> <C> <C>
November 10, 2000 Close..................................... 1.29x 1.29x 1.29x
One-month................................................... 1.30x 1.06x 0.99x
Three-month................................................. 1.30x 1.02x 0.99x
Six-month................................................... 1.30x 1.01x 0.98x
One-year.................................................... 1.30x 1.01x 0.98x
Since November 7, 1997...................................... 1.30x 1.02x 0.97x
</TABLE>
Credit Suisse First Boston noted that the exchange ratio of 1.32 shares of
Class B common stock for each share of Class A common stock subject to the
recapitalization was higher than the ratio of the share price of Class A common
stock to the share price of Class B common stock for any trading day since
November 7, 1997.
COMPARABLE COMPANIES ANALYSIS. Credit Suisse First Boston compared
selected financial, operating and stock market data of Continental to
corresponding data of the following publicly trading companies in the airline
industry:
- AMR Corporation
- Delta Air Lines, Inc.
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<PAGE> 39
- Northwest
- UAL Corporation
- US Airways Group, Inc.
For each company, Credit Suisse First Boston:
- calculated enterprise value, calculated as equity market value plus net
debt as multiples of estimated calendar years 2000 and 2001 EBITDA, which
stands for earnings before interest, taxes, depreciation and
amortization, and EBIT, which stands for earnings before interest and
taxes;
- calculated adjusted enterprise value, calculated as enterprise value plus
the present value of operating leases, as multiples of estimated calendar
years 2000 and 2001 sales and EBITDAR, which stands for earnings before
interest, taxes, depreciation, amortization and rent; and
- compared price to earnings multiples using estimated net income for
calendar years 2000 and 2001.
Equity market values were calculated based on closing stock prices on
November 10, 2000 and enterprise values and adjusted enterprise values were
calculated based on the selected companies' public filings. Estimated financial
data for Continental and the selected companies were based on publicly available
research analysts' estimates. This analysis indicated the ranges and medians for
multiples as set forth below, and Credit Suisse First Boston compared this
information to the multiples for Continental on a pro forma basis after giving
effect to the recapitalization and the other transactions contemplated by the
omnibus agreement:
<TABLE>
<CAPTION>
ADJUSTED ENTERPRISE VALUE ENTERPRISE VALUE P/E
--------------------------------- -------------------------------- --------------
2000 2001 2000 2001 2000 2001
--------------- --------------- -------------- -------------- ----- -----
SALES EBITDAR SALES EBITDAR EBITDA EBIT EBITDA EBIT
----- ------- ----- ------- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High................. 1.07x 10.7x 0.99x 7.9x 10.0x 10.0x(1) 6.0x 13.5x 14.3x(2) 24.7x
Median............... 1.00x 5.1x 0.97x 4.7x 4.6x 7.0x(1) 3.6x 5.9x(1) 7.5x(2) 6.3x(1)
Low.................. 0.86x 4.2x 0.83x 4.2x 3.1x 5.1x(1) 3.0x 5.0x 6.2x(2) 6.0x
Continental.......... 1.06x 4.2x 1.02x 4.0x 4.6x 7.1x 4.4x 7.1x 7.3x 7.4x
</TABLE>
------------------
(1) Calculation excludes data from US Airways, Inc., which was significantly
higher than that of the other comparable companies and therefore not
meaningful.
(2) Calculation excludes data from US Airways, Inc., which was a negative figure
and therefore not meaningful.
DISCOUNTED CASH FLOW ANALYSIS. Credit Suisse First Boston performed
discounted cash flow analyses in order to estimate the present value of
Continental's future stand-alone, unlevered, after-tax free cash flow from
calendar years 2001 through 2004 plus their terminal values derived from
estimated multiples of 2004 EBITDAR ranging from 4.25x to 4.75x both prior to
and giving effect to the transactions contemplated by the omnibus agreement.
Cash flows were discounted at rates ranging from 8.0% to 10.0%. The discounted
cash flow analyses were based on estimates of Continental's future financial
performance provided by and discussed with the management of Continental. Credit
Suisse First Boston then calculated the implied equity value of the percentage
interest in Continental of public holders of Class A common stock, who are
holders other than Northwest, 1992 Air, Inc. and their affiliates, based on
equity ownership of 2.8% prior to the transaction and 4.0% giving effect to the
transaction, and calculated implied equity value per basic share outstanding to
these holders based on 1.606 million shares of Class A common stock outstanding
prior to the transaction as indicated below:
<TABLE>
<CAPTION>
TOTAL EQUITY VALUE PER SHARE EQUITY VALUE
TO PUBLIC HOLDERS OF TO PUBLIC HOLDERS OF
CLASS A COMMON STOCK: CLASS A COMMON STOCK
--------------------- ----------------------
(IN MILLIONS)
<S> <C> <C>
Pre-Transaction.............................. $139-$196 $ 86.53-$122.01
Post-Transaction............................. $180-$262 $112.05-$163.10
</TABLE>
OWNERSHIP STRUCTURE ANALYSIS. Credit Suisse First Boston analyzed the
ownership structure of Continental and found that shares of Class A common stock
of Continental (other than those held by Northwest,
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<PAGE> 40
1992 Air, Inc. and their affiliates) are held diffusely and do not represent a
significant minority stake in Continental, measured on either an economic or
voting power basis. Nevertheless, Credit Suisse First Boston noted that the
exchange ratio of 1.32 shares of Class B common stock to be received for each
share of Class A common stock subject to the recapitalization represents a
significant premium over the 1:1 conversion rate by which shares of Class A
common stock are convertible into shares of Class B common stock.
MISCELLANEOUS. Continental paid Credit Suisse First Boston a fee of
$250,000 for delivering its opinion. Continental also has agreed to reimburse
Credit Suisse First Boston for all of its out-of-pocket expenses, including fees
and expenses of its legal counsel and any other advisor retained by Credit
Suisse First Boston, and to indemnify Credit Suisse First Boston and certain
related parties against liabilities, including liabilities under the federal
securities laws, arising out of its engagement.
Credit Suisse First Boston and its affiliates have in the past provided
certain financial and investment banking services to Continental and its
affiliates unrelated to the recapitalization, for which services Credit Suisse
First Boston and its affiliates have received compensation. Credit Suisse First
Boston also acted as lead manager and book-runner in the November 6, 2000
offering of TIDES by Continental Airlines Finance Trust II, for which it
received compensation. In the ordinary course of business, Credit Suisse First
Boston and its affiliates may actively trade the debt and equity securities of
Continental, Northwest and affiliates of 1992 Air, Inc. for their own accounts
and for the accounts of customers and, accordingly, may at any time hold long or
short positions in those securities.
INTERESTS OF DIRECTORS AND EXECUTIVE OFFICERS IN THE RECAPITALIZATION
In considering the recommendation of our board of directors, our
stockholders should note that certain of our directors and executive officers
have interests in the recapitalization that are different from, or in addition
to, the interests of stockholders generally as described below.
STOCK OPTIONS. Assuming that our largest stockholder, AXA Financial, Inc.
owns at the closing of the recapitalization approximately the same number of
shares of Class B common stock as it held as of July 31, 2000, the consummation
of the recapitalization will constitute a change in control for purposes of each
of our 1994 Incentive Equity Plan, 1997 Stock Incentive Plan, 1998 Stock
Incentive Plan and Incentive Plan 2000 and certain other compensation plans and
programs. Upon a change in control, as defined within those plans, stock options
held by executive officers automatically vest and become fully exercisable
notwithstanding any vesting or exercisability provisions, and all restrictions
on the transfer of shares acquired pursuant to the options terminate. In
addition, all restrictions under the Incentive Plan 2000 applicable to
restricted stock and incentive awards will be deemed satisfied and any
outstanding restricted stock, incentive awards and retention awards will also
immediately vest in full. However, all of the executive officers of Continental
have agreed to waive the application of the change in control provisions to the
recapitalization under each of the foregoing plans and programs. Therefore, none
of their stock options, restricted stock, incentive awards or retention awards
will vest or become exercisable as a result of the recapitalization.
AWARD PROGRAMS. Assuming that our largest stockholder, AXA Financial, Inc.
owns at the closing of the recapitalization approximately the same number of
shares of Class B common stock as it held as of July 31, 2000, the consummation
of the recapitalization will constitute a change in control for purposes of (1)
the Executive Bonus Performance Award Program, in which each of the executive
officers of Continental, including the Chairman and Chief Executive Officer, the
President and Chief Operating Officer, the Executive Vice President and Chief
Financial Officer, the Executive Vice President-Operations and the Executive
Vice President, General Counsel and Secretary, and each Senior Vice President
participate and (2) the Long Term Incentive Performance Award Program, in which
all of the company's officers participate. Pursuant to the terms of the
Executive Bonus Performance Award Program and the Long Term Incentive
Performance Award Program, if, following a change in control, a participant
suffers a "qualifying event," then the participant is entitled to receive
payment from Continental as specified in the applicable program. All of the
executive officers have agreed to waive the application of the change in control
provisions as they relate to the repurchase and the recapitalization.
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<PAGE> 41
Assuming that our largest stockholder, AXA Financial, Inc. owns at the
closing of the recapitalization approximately the same number of shares of Class
B common stock as it held as of July 31, 2000, the consummation of the
recapitalization will also constitute a change in control for purposes of the
Officer Retention and Incentive Award Program. Upon such a change in control,
each of the participants will obtain a 100% vested interest in all of the
outstanding awards held by such participants. All of the executive officers
participating in such program have waived the change in control provisions as
they apply to the repurchase and the recapitalization.
EMPLOYMENT AGREEMENTS. Assuming that our largest stockholder, AXA
Financial, Inc. owns at the closing of the recapitalization approximately the
same number of shares of Class B common stock as it held as of July 31, 2000,
the consummation of the recapitalization will constitute a change in control
under the terms of the employment agreements of the Executive Vice Presidents
and Senior Vice Presidents. Accordingly, if any of their employment is
terminated within two years after a change in control, the severance period
under their respective employment agreements will be expanded to 36 months from
24 months. All of such officers have waived the change of control provisions as
they apply to the repurchase and the recapitalization.
INTERESTS OF CERTAIN OF OUR DIRECTORS, DAVID BONDERMAN AND DONALD
STURM. David Bonderman, one of our directors and principal stockholders, is the
controlling stockholder of 1992 Air, Inc. Donald Sturm, one of our directors, is
a limited partner of 1998 CAI Partners, L.P., an affiliate of 1992 Air, Inc. In
connection with the proposed recapitalization, 1992 Air, Inc. has agreed to sell
to Continental its "rights of offer and reoffer" with respect to the shares of
Class A common stock held by Northwest and certain of its affiliates. The sale
of the rights of offer and reoffer will be void if the closing of the
recapitalization does not occur. The consideration to be paid by Continental to
1992 Air, Inc. for the purchase of the rights of offer and reoffer is $10
million in cash, or, at Continental's election, a number of shares of Class B
common stock of Continental equal to (a) $11 million divided by (b) the average
of the closing prices of the Class B common stock on the New York Stock Exchange
for the 20 trading days immediately preceding the third business day prior to
the closing of the transactions contemplated by the recapitalization. If the
closing of the recapitalization transactions occurs later than February 15,
2001, then the $10 million in cash to be paid by us or the $11 million in Class
B common stock, whichever we elect to pay as the purchase price for the rights
of offer and reoffer, will be increased by 7% per year of those amounts,
respectively, from and including February 16, 2001 through but excluding the
closing date of the recapitalization transactions. The rights of offer and
reoffer will terminate immediately after the closing of the recapitalization.
BENEFICIAL OWNERSHIP OF COMMON STOCK BY DIRECTORS AND EXECUTIVE OFFICERS
BEFORE AND AFTER THE RECAPITALIZATION. In the recapitalization, each share of
Class A common stock will be reclassified into 1.32 shares of our Class B common
stock. The following table presents certain information as of the record date
regarding the beneficial ownership of Class A common stock by each director and
executive officer and after giving effect to the reclassification of those Class
A shares into Class B shares upon the consummation of the recapitalization:
<TABLE>
<CAPTION>
PRO FORMA BENEFICIAL
OWNERSHIP OF CLASS B
BENEFICIAL OWNERSHIP OF COMMON STOCK
CLASS A COMMON STOCK GENERAL VOTING RESULTING FROM THE GENERAL VOTING
NAME PRE-RECAPITALIZATION POWER(1)(2) RECLASSIFICATION(3) POWER(1)(2)
---- ----------------------- -------------- ---------------------- --------------
<S> <C> <C> <C> <C>
David Bonderman(4)..... 695,894 Class A shares 4.4% 918,580 Class B shares 1.7%
David Grizzle.......... 1,200 Class A shares * 1,584 Class B shares *
Richard W. Pogue....... 2,000 Class A shares * 2,640 Class B shares *
Jeffery A. Smisek...... 2,000 Class A shares * 2,640 Class B shares *
</TABLE>
------------------
* Less than 1%
(1) Each share of Class A common stock is entitled to ten votes and each share
of Class B common stock is entitled to one vote. Pursuant to the
recapitalization, each share of Class A common stock will be reclassified
into 1.32 shares of Class B common, each of which will be entitled to one
vote. General Voting Power includes the combined total of the votes
attributable to Class A common stock and Class B common stock outstanding as
of the record date and includes the total of the votes attributable to Class
B common stock to be issued in connection with the recapitalization.
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<PAGE> 42
(2) As of the record date, all executive officers and directors as a group
beneficially owned 4,025,139 shares of Class B common stock (2.5% of the
general voting power), including 1,985,275 shares subject to vested options
or options subject to vesting within 60 days of the record date and the
referenced shares of Class A common stock which are currently convertible
into an equivalent number of shares of Class B common stock. After giving
effect to the recapitalization, all executive officers and directors as a
group would beneficially own 4,950,583 shares of Class B common stock (9.0%
of the general voting power) including 1,985,275 shares subject to vested
options or options subject to vesting within 60 days of the record date. The
shares of Class A common stock, including those listed in the table above,
may currently be converted at any time into shares of Class B common stock
on a one-for-one basis.
(3) Excludes Class B common stock owned prior to the recapitalization.
(4) David Bonderman, as the controlling shareholder of 1992 Air, Inc. and the
sole general partner of Bonderman Family Limited Partnership, may be deemed
to be the owner of 695,894 shares of Class A common stock. 1992 Air, Inc.
may be deemed to be the beneficial owner of an aggregate of 679,494 shares
of Class A common stock as the majority general partner of 1992 Air GP and
because of its direct ownership of 213,110 shares of Class A common stock.
The Bonderman Family Limited Partnership may be deemed to own 33,504 shares
of Class A common stock, comprised of 16,400 shares it owns directly and
17,104 shares it may be deemed to own beneficially because of its position
as a limited partner of 1998 CAI Partners, L.P. ("CAIP"), a Texas limited
partnership, and on the basis of certain provisions of the Limited
Partnership Agreement of CAIP. David Bonderman and Donald Sturm, each a
director of Continental, are also limited partners of CAIP.
EFFECTIVE TIME OF THE RECAPITALIZATION
The recapitalization will become effective when the amended and restated
certificate of incorporation is filed with the Delaware Secretary of State. This
is expected to occur on January 22, 2001.
At the effective time, each share of Class A common stock will be
reclassified into 1.32 shares of our Class B common stock. No fractional shares
of Class B common stock will be issued to any Class A common stockholder. In
lieu of the fractional shares of Class B common stock to which any holder of
Class A common stock would otherwise be entitled (aggregating for this purpose
all of the shares of Class A common stock owned of record by the stockholder),
each holder of Class A common stock who would otherwise be entitled to receive a
fraction of a share will receive a cash payment equal to (1) the closing price
of the Class B common stock on the New York Stock Exchange on the date on which
the effective time occurs multiplied by (2) the fractional interest not
received.
Promptly after the effective time, transmittal forms and exchange
instructions will be mailed to each holder of record of Class A common stock to
be used to exchange certificates formerly evidencing shares of Class A common
stock for certificates evidencing shares of Class B common stock. After receipt
and upon execution of the transmittal forms, each holder of certificates
formerly representing Class A common stock will be able to surrender the
certificates to the exchange agent in exchange for certificates evidencing the
number of whole shares of Class B common stock to which the holder is entitled
and any cash that may be payable in lieu of fractional shares of Class A common
stock.
CLASS A STOCKHOLDERS SHOULD NOT SURRENDER THEIR CLASS A SHARE CERTIFICATES
PRIOR TO RECEIVING A TRANSMITTAL FORM WHICH WILL BE SENT TO CLASS A STOCKHOLDERS
AFTER THE EFFECTIVE TIME OF THE RECAPITALIZATION.
CLASS B SHARE CERTIFICATES WILL NOT BE CHANGED OR EXCHANGED IN CONNECTION
WITH THE RECAPITALIZATION.
REGULATORY REVIEW
In accordance with applicable law, the amendment to the master alliance
agreement may be subject to review by the U.S. Department of Transportation. Any
major air carrier entering into a "joint venture agreement" (which may include
the amendment to the master alliance agreement) is required to submit to the
Secretary of Transportation, within a designated period of time before the
agreement takes effect, a complete copy of the agreement and all related
agreements and any other information and documentary material that the Secretary
of Transportation may require by regulation. A joint venture agreement refers to
an agreement between two or more major air carriers on or after January 1, 1998
with regard to either:
- code-sharing, blocked-space arrangements, long-term wet leases of a
substantial number of aircraft or frequent flyer programs, or
- any other cooperative working arrangement between two or more major air
carriers that affects more than 15% of the total number of available seat
miles offered by the major air carriers.
39
<PAGE> 43
Continental and Northwest Airlines submitted the amendment to the master
alliance agreement and related documents to the Department of Transportation on
November 17, 2000, and the period for review by the Department of Transportation
expired on December 17, 2000, without action.
OTHER EFFECTS OF THE RECAPITALIZATION
AMENDMENT TO REGISTRATION RIGHTS AGREEMENT. Pursuant to the omnibus
agreement, an existing registration rights agreement among Continental,
Northwest and Air Partners, L.P. will be amended to grant to Northwest
registration rights with respect to the Class B common stock to be issued to
Northwest in connection with the recapitalization. We have agreed to provide
reasonable assistance to Northwest if Northwest wishes at some future time to
sell its Class B common stock in a secondary public offering.
TERMINATION OF CERTAIN AGREEMENTS. In connection with the
recapitalization, certain agreements entered into at the time of the original
Northwest investment in Continental will be terminated, including (1) a voting
trust agreement which provided for the deposit by Northwest and certain of its
affiliates of all voting securities of Continental beneficially owned by them
(other than the shares with respect to which they hold only a limited proxy) in
a voting trust with an independent voting trustee and required that such
securities be voted in the manner specified in the agreement, (2) the governance
agreement described below under "Corporate Governance and Control--Corporate
Governance Agreement and Supplemental Agreement" and (3) the supplemental
agreement described below under "Corporate Governance and Control--Corporate
Governance Agreement and Supplemental Agreement."
BENEFIT PLANS. The 1994 Incentive Equity Plan, the 1997 Stock Incentive
Plan, the 1998 Stock Incentive Plan and the Incentive Plan 2000 currently
provide that acquisition of control of Continental by certain entities will not
constitute a change in control for purposes of these plans.
Under the plans, Northwest, or any person controlling, controlled by or
under common control with Northwest (unless Northwest is controlled by or under
common control with Delta Air Lines, Inc.), is excluded from the definition of a
person that could trigger a change in control under the plans. However, the
exclusion will end if Northwest (together with any person controlling,
controlled by or under common control with Northwest) ceases to beneficially own
at least 25% of the combined voting power of Continental's outstanding
securities for 30 consecutive days. Consequently, following the consummation of
the recapitalization, Northwest will no longer be excluded from the change of
control provisions in the 1994 Incentive Equity Plan, the 1997 Stock Incentive
Plan, the 1998 Stock Incentive Plan and the Incentive Plan 2000. In addition,
under the plans, certain affiliates of Air Partners are also excluded from the
definition of a person that could trigger a change in control under the plans.
However, the exclusion will not apply if the person acquiring beneficial
ownership of Continental is not controlled by David Bonderman, one of our
directors, or James Coulter.
NEW YORK STOCK EXCHANGE LISTING
Our Class A common stock and Class B common stock are both currently listed
on the New York Stock Exchange. Following the recapitalization, the Class B
common stock will continue to be listed on the New York Stock Exchange under the
symbol "CAL".
APPRAISAL RIGHTS
Appraisal rights will not be available to holders of Class A common stock
or Class B common stock as a result of the recapitalization.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE RECAPITALIZATION
The following discussion summarizes the material U.S. federal income tax
consequences of the recapitalization to holders of Class A common stock (other
than Northwest, 1992 Air, Inc. and their affiliates). This discussion assumes
that shares of Class A common stock are held as capital assets and does
40
<PAGE> 44
not address all of the U.S. federal income tax consequences that may be relevant
to particular stockholders in light of their individual circumstances or to
stockholders that are subject to special rules, such as:
- financial institutions;
- mutual funds;
- tax-exempt organizations;
- insurance companies;
- dealers in securities or foreign currencies,
- traders in securities who elect to apply a mark-to-market method of
accounting,
- stockholders that hold such shares as a hedge against currency risk or as
part of a straddle, constructive sale or conversion transaction; or
- stockholders who acquired their shares upon the exercise of employee
stock options or otherwise as compensation.
The following discussion is not binding on the Internal Revenue Service. It
is for general information only and is based upon the Internal Revenue Code,
laws, regulations, rulings and decisions in effect as of the date of this proxy
statement, all of which are subject to change, possibly with retroactive effect.
Tax consequences under state, local and foreign laws are not addressed herein.
No ruling has been or will be sought from the Internal Revenue Service as to the
U.S. federal income tax consequences of the recapitalization. EACH STOCKHOLDER
IS STRONGLY URGED TO CONSULT HIS OR HER TAX ADVISOR AS TO THE SPECIFIC TAX
CONSEQUENCES TO SUCH STOCKHOLDER OF THE RECAPITALIZATION, INCLUDING THE
APPLICATION OF FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS IN
HIS OR HER PARTICULAR FACTS AND CIRCUMSTANCES.
In the opinion of Vinson & Elkins L.L.P., which is based upon our
representations, the recapitalization will constitute a "recapitalization" of
our company within the meaning of Section 368(a)(1)(E) of the Internal Revenue
Code. Assuming that the recapitalization qualifies as such, the U.S. federal
income tax consequences to each stockholder of the exchange pursuant to the
recapitalization will depend upon such stockholder's particular facts and
circumstances. In general, a Class A stockholder who receives solely Class B
common stock will not recognize any gain or loss. A Class A stockholder who
receives cash in lieu of a fractional share will be treated as having received
the fractional share and sold it for cash. Accordingly, the Class A stockholder
will recognize gain or loss equal to the difference, if any, between the amount
of cash so received and the tax basis of the Class A common stock allocable to
the fractional share. Any gain or loss will be capital gain or loss and will be
long-term capital gain or loss if the stockholder has held the Class A stock as
a capital asset for over one year at the time of the recapitalization. A Class A
stockholder will have a tax basis in the common stock received in the
recapitalization equal to the tax basis of the stockholder's Class A common
stock (less the tax basis allocable to any fractional share).
41
<PAGE> 45
FINANCIAL INFORMATION
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following tables set forth certain of our consolidated financial data
and certain operating data. The selected consolidated financial data for the
years ended December 31, 1999, 1998 and 1997 is derived from our audited
consolidated financial statements including the notes thereto contained in our
Annual Report on Form 10-K for the fiscal year ended December 31, 1999 (the
"1999 10-K") incorporated by reference in this proxy statement. The selected
consolidated financial data for the years ended December 31, 1997, 1996 and 1995
is derived from the selected financial data contained in the 1999 10-K and our
audited consolidated financial statements for the years ended December 31, 1997
and 1996 and should be read in conjunction therewith. Our consolidated financial
data for the three and nine months ended September 30, 2000 and 1999 is derived
from our unaudited consolidated financial statements incorporated by reference
in this proxy statement, which include all adjustments (consisting solely of
normal recurring accruals) that we consider necessary for the fair presentation
of the financial position and results of operations for these periods. Operating
results for the three and nine months ended September 30, 2000 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000.
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------- --------------- -----------------------------------------------
2000 1999 2000 1999 1999 1998 1997 1996 1995
------ ------ ------ ------ ------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT OPERATING DATA AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL DATA--OPERATIONS:
Operating Revenue.............. $2,622 $2,264 $7,470 $6,487 $8,639 $7,927 $7,194 $6,347 $5,816
Operating Expenses............. 2,368 2,062 6,883 5,885 8,039(1) 7,226(2) 6,478 5,822(3) 5,431
------ ------ ------ ------ ------ ------ ------ ------ ------
Operating Income............... 254 202 587 602 600 701 716 525 385
Nonoperating Income (Expense),
net.......................... (30) (35) (90) (77) 198(4) (53) (76) (97) (75)(5)
------ ------ ------ ------ ------ ------ ------ ------ ------
Income before Income Taxes,
Minority Interest,
Extraordinary Charges and
Cumulative Effect of Changes
in Accounting Principle...... 224 167 497 525 798 648 640 428 310
Net Income..................... $ 135 $ 104 $ 298 $ 288(6) $ 455(6) $ 383 $ 385 $ 319 $ 224
====== ====== ====== ====== ====== ====== ====== ====== ======
Earnings per Common Share...... $ 2.26 $ 1.47 $ 4.85 $ 4.11(7) $ 6.54(7) $ 6.34 $ 6.65 $ 5.75 $ 4.07
====== ====== ====== ====== ====== ====== ====== ====== ======
Earnings per Common Share
Assuming Dilution............ $ 2.21 $ 1.44 $ 4.76 $ 3.86(8) $ 6.20(8) $ 5.02 $ 4.99 $ 4.17 $ 3.37
====== ====== ====== ====== ====== ====== ====== ====== ======
OPERATING DATA(9):
Revenue passenger miles
(millions)(10)............... 17,325 16,394 48,821 45,050 60,022 53,910 47,906 41,914 40,023
Available seat miles
(millions)(11)............... 22,356 21,573 64,691 60,961 81,946 74,727 67,576 61,515 61,006
Passenger load factor(12)...... 77.5% 76.0% 75.5% 73.9% 73.2% 72.1% 70.9% 68.1% 65.6%
Breakeven passenger load
factor(13)(14)............... 65.6% 66.1% 66.3% 63.6% 65.6% 61.6% 60.1% 60.7% 60.8%
Passenger revenue per available
seat mile (cents)(15)........ 10.06 9.07 9.91 9.24 9.06 9.23 9.29 9.01 8.26
Operating cost per available
seat mile (cents)(14)(16).... 9.65 8.83 9.73 8.95 9.03 8.89 9.04 8.75 8.35
Average yield per revenue
passenger mile (cents)(17)... 12.98 11.93 13.13 12.51 12.37 12.79 13.11 13.22 12.59
Average length of aircraft
flight (miles)............... 1,187 1,141 1,158 1,110 1,114 1,044 967 896 836
</TABLE>
42
<PAGE> 46
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- ------------------------------------------
2000(18) 1999 1998 1997 1996 1995
------------- ------ ------ ------ ------ ------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL DATA--BALANCE SHEET:
Assets:
Cash, Cash Equivalents and Short-Term Investments......... $1,156 $1,590 $1,399 $1,025 $1,061 $ 747
Other Current Assets...................................... 1,193 1,016 955 703 573 568
Total Property and Equipment, Net......................... 4,684 4,173 3,065 2,225 1,596 1,461
Routes, Gates and Slots, Net.............................. 1,093 1,131 1,181 1,425 1,473 1,531
Other Assets, Net......................................... 333 313 486 452 503 514
------ ------ ------ ------ ------ ------
Total Assets...................................... $8,459 $8,223 $7,086 $5,830 $5,206 $4,821
====== ====== ====== ====== ====== ======
Liabilities and Stockholders' Equity:
Current Liabilities....................................... $3,008 $2,775 $2,442 2,285 2,104 1,984
Long-Term Debt and Capital Leases(19)..................... 2,904 3,055 2,480 1,568 1,624 1,658
Deferred Credits and Other Long-Term Liabilities.......... 986 800 860 819 594 564
Minority Interest......................................... -- -- -- -- 15 27
Continental Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trust Holding Solely
Convertible Subordinated Debentures(20)................. -- -- 111 242 242 242
Redeemable Preferred Stock................................ -- -- -- -- 46 41
Common Stockholders' Equity............................... 1,561 1,593 1,193 916 581 305
------ ------ ------ ------ ------ ------
Total Liabilities and Stockholders' Equity........ $8,459 $8,223 $7,086 $5,830 $5,206 $4,821
====== ====== ====== ====== ====== ======
</TABLE>
------------------
(1) Includes an $81 million fleet disposition/impairment loss resulting from
our decision to accelerate the retirement of six DC-10-30 aircraft and
other items in 1999 and the first half of 2000 and to dispose of related
excess inventory. In addition, the impairment charge related to Boeing 747
aircraft no longer operated by our company, and certain other fleet-related
items were included.
(2) Includes a $122 million fleet disposition/impairment loss resulting from
our decision to accelerate the retirement of certain jet and turboprop
aircraft.
(3) Includes a $128 million fleet disposition loss associated primarily with
our decision to accelerate the replacement of certain jet aircraft.
(4) Includes a $297 million gain on the sale of our interest in AMADEUS Global
Travel Distribution, S.A.
(5) Includes a $108 million gain on the sale of our interest in System One
Information Management, Inc.
(6) Includes a $33 million charge for the cumulative effect of changes in the
accounting for the sale of frequent flyer mileage credits to participating
partners and preoperating costs related to the integration of new types of
aircraft.
(7) Reflects earnings per common share after cumulative effect of changes in
accounting principles. See Note 6 for a description of the changes in
accounting principles. Earnings per common share for the nine months ended
September 30, 1999 and year ended December 31, 1999 were $4.58 and $7.02,
respectively, before the cumulative effect of such changes in accounting
principles.
(8) Reflects earnings per common share assuming dilution after cumulative
effect of changes in accounting principles. See Note (6) for a description
of the changes in accounting principles. Earnings per common share assuming
dilution for the nine months ended September 30, 1999 and year ended
December 31, 1999 were $4.29 and $6.64, respectively, before the cumulative
effect of such changes in accounting principles.
(9) Includes operating data for Continental Micronesia, Inc., but does not
include operating data for Express regional jet operations or turboprop
operations. Certain reclassifications have been made to 1998 and prior data
to conform to the 1999 presentation.
(10) The number of scheduled miles flown by revenue passengers.
(11) The number of seats available for passengers multiplied by the number of
scheduled miles those seats are flown.
(12) Revenue passenger miles divided by available seat miles.
(13) 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.
(14) Excludes an $81 million fleet disposition/impairment loss in 1999, a $122
million fleet disposition/impairment loss in 1998 and a $128 million fleet
disposition loss in 1996. See Notes (1), (2) and (3) for description of the
charges.
(15) Passenger revenue divided by available seat miles.
(16) Operating expenses divided by available seat miles.
(17) The average revenue received for each mile a revenue passenger is carried.
(18) See "Unaudited Pro Forma Condensed Consolidated Financial Statements."
(19) In October 2000, we borrowed an additional $316 million to purchase 18
existing aircraft that were previously financed through operating leases
and to purchase one new Boeing aircraft.
(20) The sole assets of the Trust were convertible subordinated debentures. In
November and December 1998, approximately $134 million of such securities
were converted into 5,558,649 shares of Class B common stock, and in
January 1999, the remainder of such securities were converted into
4,752,522 shares of Class B common stock. Accordingly, no debentures were
outstanding at December 31, 1999 and September 30, 2000. On November 6,
2000, Continental Airlines Finance Trust II, a Delaware business trust and
our subsidiary, sold 5,000,000 6% Convertible Preferred Securities, Term
Income Deferrable Equity Securities (TIDES), at an offering price of $50
per security. Each TIDES may be converted into shares of our Class B common
stock at the initial conversion price of $60 per share.
43
<PAGE> 47
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial
statements of our company are derived from the application of pro forma
adjustments to our consolidated financial statements and give effect to the
recapitalization. The unaudited pro forma condensed consolidated statements of
operations for the nine months ended September 30, 2000 and the year ended
December 31, 1999 have been prepared as if the recapitalization had occurred on
January 1, 1999. The unaudited pro forma condensed consolidated balance sheet on
September 30, 2000 has been prepared as if the recapitalization had occurred on
September 30, 2000.
The following unaudited pro forma condensed consolidated financial
statement data does not indicate what our operations or financial position would
have been had the recapitalization taken place on the dates indicated. In
addition, the results for the nine months ended September 30, 2000 do not
necessarily indicate the results that may be expected for the full year.
These unaudited pro forma condensed consolidated financial statements
should be read in conjunction with our audited historical financial statements
and the related notes thereto, and the other information about our company
included elsewhere in this document, or incorporated by reference in this
document.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 2000
---------------------------------------------
ADJUSTMENTS TO PRO FORMA
REFLECT REFLECTING
ACTUAL RECAPITALIZATION RECAPITALIZATION
------ ---------------- ----------------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS:
Operating Revenue...................................... $7,470 $7,470
Operating Expenses..................................... 6,883 $ (2)(a)(b) 6,881
------ ---- ------
Operating Income....................................... 587 2 589
Interest Expense, net.................................. (145) (145)
Other Nonoperating Income (Expense), net............... 55 (11)(b) 44
------ ---- ------
Income before Income Taxes and Extraordinary Charge.... 497 (9) 488
Income Tax Provision................................... (193) 4(b) (189)
Distributions on Preferred Securities of Trust, net of
applicable income taxes of $4........................ -- (7)(a) (7)
------ ---- ------
Net Income before Extraordinary Charge................. $ 304 $(12) $ 292
====== ==== ======
Earnings per Common Share before Extraordinary
Charge............................................... $ 4.95 $ 5.20
====== ======
Average Number of Common Shares........................ 61.3 56.0
====== ======
Earnings per Common Share before Extraordinary Charge
Assuming Dilution.................................... $ 4.85 $ 4.93
====== ======
Average Number of Common Shares Assuming Dilution...... 62.5 59.9
====== ======
</TABLE>
44
<PAGE> 48
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
---------------------------------------------
ADJUSTMENTS TO PRO FORMA
REFLECT REFLECTING
ACTUAL RECAPITALIZATION RECAPITALIZATION
------ ---------------- ----------------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS:
Operating Revenue...................................... $8,639 $8,639
Operating Expenses..................................... 8,039 $ (3)(a)(b) 8,036
------ ---- ------
Operating Income....................................... 600 3 603
Interest Expense, net.................................. (178) (178)
Other Nonoperating Income (Expense), net............... 376 (15)(b) 361
------ ---- ------
Income before Income Taxes and Cumulative Effect of
Accounting Changes................................... 798 (12) 786
Income Tax Provision................................... (310) 5(b) (305)
Distributions on Preferred Securities of Trust, net of
applicable income taxes of $6........................ -- (9)(a) (9)
------ ---- ------
Net Income before Cumulative Effect of Accounting
Changes.............................................. $ 488 $(16) $ 472
====== ==== ======
Earnings per Common Share before Cumulative Effect of
Accounting Changes................................... $ 7.02 $ 7.34
====== ======
Average Number of Common Shares........................ 69.5 64.2
====== ======
Earnings per Common Share before Cumulative Effect of
Accounting Changes Assuming Dilution................. $ 6.64 $ 6.64
====== ======
Average Number of Common Shares Assuming Dilution...... 73.9 72.7
====== ======
</TABLE>
------------------
(a) Represents the distributions and the related profit sharing benefit on the
$250 million 6% Convertible Preferred Securities, Term Income Deferrable
Equity Securities. See "The Company--Recent Developments."
(b) Represents the reduced interest income, and the related profit sharing and
income tax benefit, as a result of the $222 million in net cash used in the
recapitalization. See "The Recapitalization."
45
<PAGE> 49
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
--------------------------------------------
ADJUSTMENTS TO PRO FORMA
REFLECT REFLECTING
ACTUAL RECAPITALIZATION RECAPITALIZATION
------ ---------------- ----------------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET:
ASSETS:
Cash and Cash Equivalents............................. $1,156 $(222)(a) $ 934
Accounts receivable, net.............................. 600 600
Spare parts and supplies, net......................... 264 264
Deferred income taxes................................. 142 142
Prepayments and other assets.......................... 187 187
------ ----- ------
Total Current Assets.......................... 2,349 (222) 2,127
Total Property and Equipment, Net..................... 4,684 4,684
Total Other Assets, Net............................... 1,426 1,426
------ ----- ------
Total Assets.......................................... $8,459 $(222) $8,237
====== ===== ======
LIABILITIES:
Total Current Liabilities............................. $3,008 $ $3,008
Long-term Debt, less current maturities............... 2,738 2,738
Capital Leases, less current maturities............... 166 166
Other Long-Term Liabilities........................... 986 986
------ ------
Total Liabilities............................. 6,898 6,898
Commitments and Contingencies......................... -- --
Continental-Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trust Holding Solely
Convertible Subordinated Debentures................ -- 242(b) 242
STOCKHOLDERS' EQUITY:
Preferred Stock, Series B............................... -- --(c) --
Class A common stock.................................... -- --(d) --
Class B common stock.................................... 1 --(d) 1
Additional paid-in capital.............................. 814 (701)(d) 113
Retained earnings....................................... 1,411 1,411
Accumulated other comprehensive income.................. 20 20
Treasury stock.......................................... (685) 237(d) (448)
------ ----- ------
Total Stockholders' Equity.............................. 1,561 (464) 1,097
------ ----- ------
Total Liabilities and Stockholders' Equity.............. $8,459 $(222) $8,237
====== ===== ======
</TABLE>
------------------
(a) Reflects the cash outlay for the recapitalization, and related transaction
fees, less the net proceeds from the $250 million 6% Convertible Preferred
Securities, Term Income Deferrable Equity Securities offering. See "The
Recapitalization" and "The Company--Recent Developments."
(b) Reflects the net proceeds of the $250 million 6% Convertible Preferred
Securities, Term Income Deferrable Equity Securities. See "The
Company--Recent Developments."
(c) Reflects the issuance of one share of Series B preferred stock to Northwest
Airlines in consideration of $100 cash as part of the recapitalization. See
"The Recapitalization."
(d) This adjustment reflects the recapitalization which includes (i) the
repurchase of 6,685,279 shares of Class A common stock, which will include
a cash payment to Northwest and an affiliate of $450 million and a cash
payment of $10 million to 1992 Air, Inc. to purchase the right of offer and
reoffer covering the shares of Class A common stock owned by Northwest,
(ii) the reclassification of 4,278,259 shares of Class A common stock into
5,647,302 shares of Class B common stock, (iii) the cancellation of all
Class A common stock and (iv) estimated transaction fees. See "The
Recapitalization" and "The Company--Recent Developments." For accounting
purposes, the $450 million repurchase obligation will be treated as
redeemable common stock above the stockholders' equity section of the
consolidated balance sheet until the transaction is consummated.
46
<PAGE> 50
MARKET PRICE AND DIVIDEND INFORMATION
Our Class A common stock and Class B common stock trade on the New York
Stock Exchange. The table below shows the high and low sales prices for the
company's Class A common stock and Class B common stock as reported on the New
York Stock Exchange during 1998, 1999 and 2000.
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK
--------------------------- ---------------------------
HIGH LOW HIGH LOW
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1998
First Quarter............................................. $64 1/4 $47 3/4 $62 1/16 $44
Second Quarter............................................ $64 1/2 $55 3/4 $64 $54 1/16
Third Quarter............................................. $64 3/4 $36 1/2 $65 1/8 $35 3/4
Fourth Quarter............................................ $43 5/16 $30 7/8 $42 13/16 $28 7/8
1999
First Quarter............................................. $44 15/16 $34 1/8 $41 11/16 $30
Second Quarter............................................ $48 $36 13/16 $48 $36 7/16
Third Quarter............................................. $44 3/8 $31 13/16 $44 9/16 $31 5/8
Fourth Quarter............................................ $44 11/16 $32 3/16 $44 3/8 $32 3/8
2000
First Quarter............................................. $46 1/2 $29 1/16 $46 5/8 $29
Second Quarter............................................ $49 1/8 $38 3/16 $50 $37 5/8
Third Quarter............................................. $54 3/4 $43 3/8 $54 13/16 $43 1/8
Fourth Quarter (through December 15, 2000)................ $68 1/2 $40 13/16 $54 9/16 $40 1/2
</TABLE>
RECENT SHARE PRICES. On November 3, 2000, the last trading day before the
public announcement of the agreement in principle with respect to the
recapitalization, the closing sale prices of Continental Class A common stock
and Class B common stock on the New York Stock Exchange were $51 7/8 and $52,
respectively.
DIVIDENDS. We have paid no cash dividends on our common stock and have no
current intention of paying cash dividends on our common stock in the future.
THE RECAPITALIZATION DOCUMENTS
The following is a summary of the material terms of the principal documents
relating to the recapitalization, which include:
- amended and restated certificate of incorporation;
- omnibus agreement;
- standstill agreement;
- amendment to the master alliance agreement;
- Series B preferred stock certificate of designations; and
- reoffer purchase agreement.
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
The proposed amended and restated certificate of incorporation for
Continental will:
- reclassify each share of Class A common stock into 1.32 shares of Class B
common stock;
- eliminate all references to Class A common stock and Class D common
stock;
- provide that we will have the authority to issue a total of 210 million
shares as opposed to 310 million shares under the existing certificate of
incorporation;
47
<PAGE> 51
- eliminate all special rights and privileges of Air Partners, L.P.;
- provide that until the Series B preferred stock becomes redeemable in
accordance with its terms, we will not amend the rights agreement or
redeem the preferred purchase rights pursuant to the rights agreement
without the approval of the holder of the share of Series B preferred
stock. However, the approval of the holder of the share of Series B
preferred stock will not be required if:
- in the case of an amendment to the rights agreement, the amendment (1)
does not permit a person that is a major air carrier or one of its
affiliates to enter into a particular transaction where, except for such
amendment, the person would have become an acquiring person in the
transaction; (2) does not mitigate in any material respects the adverse
consequences to a person as a result of the person becoming an acquiring
person under the rights agreement; (3) does not amend in any material
respect the provision of the rights agreement relating to supplements
and amendments; (4) does not alter the provision of the rights agreement
relating to the redemption of the preferred stock purchase rights; and
(5) does not extend the time during which the rights may be redeemed.
- in the case of a redemption of the preferred stock purchase rights, the
redemption is in connection with a bona fide transaction including one
or more persons, none of which is a major air carrier or one of its
affiliates, which person or persons would otherwise become an acquiring
person in the transaction and the transaction would be reasonably likely
to result in a going-private transaction described in paragraph
(a)(3)(ii) of Rule 13e-3 and Continental does not need to adopt a new
rights agreement after the redemption except as set forth in the
following sentence. In the case of any redemption described above or in
a situation where a rights agreement is not in effect with rights having
been issued, Continental shall, as applicable, (1) reissue the preferred
stock purchase rights or (2) issue preferred stock purchase rights
pursuant to an agreement with provisions identical in all material
respects to those in the existing rights agreement as promptly as
possible in the event any class of common stock of Continental is
registered under the Securities Exchange Act of 1934;
- provide that until the Series B preferred stock becomes redeemable, we
will take all necessary action to have in effect a rights agreement with
terms and conditions identical in all material respects to the terms and
conditions of our amended and restated rights agreement and to issue the
rights created under that agreement.
The full text of the proposed amended and restated certificate of
incorporation is attached as Annex A to this proxy statement.
THE OMNIBUS AGREEMENT
GENERAL. On November 15, 2000, we entered into the omnibus agreement with
Northwest and its affiliates Northwest Airlines Holdings Corporation, Northwest
Airlines and Air Partners, L.P. The omnibus agreement provides for our
repurchase of shares of the Class A common stock from Northwest and one of its
affiliates and sets forth the other components of the recapitalization.
SALE AND PURCHASE OF CLASS A COMMON SHARES. We will purchase a total of
6,685,279 shares of Class A common stock, 6,100,294 shares of which will be
purchased from Northwest Airlines Holdings Corporation and 584,985 shares of
which will be purchased from Northwest for $450 million in cash. If the closing
occurs after February 7, 2001, the purchase price will include interest at 7%
per annum from February 8, 2001.
ISSUANCE OF SERIES B PREFERRED SHARE. Continental and Northwest Airlines
have agreed to extend their existing commercial alliance through the end of 2025
and to make certain other amendments to it. In connection with transactions
contemplated by the omnibus agreement, including this amendment, we will issue
to Northwest Airlines one share of Series B preferred stock, as more fully
described below under "Series B Preferred Stock Certificate of Designations."
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CONDITIONS TO OUR OBLIGATION TO CLOSE. Our obligation to consummate the
transactions depends upon Northwest satisfying the following conditions:
- the representations and warranties made by Northwest being true and
correct in all material respects as of the date of closing and as of any
other date provided in the agreement;
- Northwest complying with and performing in all material respects all of
its obligations under the agreement; and
- Northwest having amended the investment agreement pursuant to which it
originally acquired the shares of Class A common stock from affiliates of
Air Partners to terminate Northwest's limited proxy over certain shares
of Continental stock held by those affiliates.
CONDITIONS TO NORTHWEST'S OBLIGATION TO CLOSE. Northwest's obligation to
consummate the transaction depends upon our satisfying the following conditions:
- the representations and warranties made by us being true and correct in
all material respects as of the date of closing and as of any other date
provided in the agreement;
- our complying with and performing in all material respects all of our
obligations under the agreement;
- the shares of Class B common stock being issued in the recapitalization
having been approved for listing on the New York Stock Exchange; and
- our having amended and restated our rights plan.
CONDITIONS TO EACH PARTY'S OBLIGATION TO CLOSE. Our obligation and
Northwest's obligation are also subject to the following:
- our stockholders having approved the amended and restated certificate of
incorporation;
- each party to the reoffer purchase agreement (pursuant to which we will
purchase 1992 Air, Inc.'s right of first offer over Northwest's shares of
Class A common stock) having performed in all material respects its
obligations under the agreement;
- there being no injunction or court order in effect that prevents the
consummation of any of the transactions; and
- the U.S. Department of Transportation having not taken any material
adverse action during their review period of our amendment of the
alliance agreement. The Department of Transportation's review period
terminated December 17, 2000, without any material adverse action having
been taken.
OUR REPRESENTATIONS AND WARRANTIES TO NORTHWEST. In the agreement, we make
certain customary representations and warranties to Northwest with respect to
the following:
- our organization and qualification;
- our authorizations to proceed with the recapitalization;
- the approvals required to consummate the recapitalization;
- that the recapitalization will not violate laws or contracts;
- the validity of the share of Series B preferred stock to be issued;
- the validity of the shares of Class B common stock to be issued; and
- the lack of involvement of brokers or investment bankers, other than UBS
Warburg LLC and Credit Suisse First Boston.
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NORTHWEST'S REPRESENTATIONS AND WARRANTIES TO US. In the agreement,
Northwest makes certain representations and warranties to us with respect to the
following:
- their organization and qualification;
- their authorizations to proceed with the recapitalization;
- the approvals required to consummate the recapitalization;
- that the recapitalization will not violate laws or contracts;
- their ownership of Class A common stock; and
- the lack of involvement of brokers or investment bankers.
OUR COVENANTS. We have agreed to perform a number of covenants prior to
the closing, including the following:
- not to pay any dividends or make any distributions with respect to our
capital stock; and
- to use our reasonable best efforts to obtain an adjournment of and,
following the closing, a dismissal of the Department of Justice's lawsuit
pending against Northwest and us. If the lawsuit is not dismissed, we
agree to take all reasonable steps to ensure that we fulfill all the
transactions with Northwest and to the extent permitted by law to
cooperate reasonably with Northwest in defending the lawsuit.
COVENANTS OF NORTHWEST. Northwest has agreed to perform a number of
covenants prior to the closing, including the following:
- vote all of the equity securities of Continental owned by Northwest and
its affiliates in favor of the adoption of the amended and restated
certificate of incorporation, including any stock that has been deposited
in a voting trust;
- not to assign, transfer or encumber any shares of Class A common stock or
to exercise any right to convert its Class A common stock into any other
class of stock; and
- use its reasonable best efforts to obtain an adjournment of and,
following the closing, a dismissal of the Department of Justice's lawsuit
pending against Northwest and us. If the lawsuit is not dismissed,
Northwest agrees to take all reasonable steps to ensure that it fulfills
all the transactions with our company and to cooperate reasonably with us
in defending the lawsuit.
INDEMNIFICATION. We have agreed to indemnify Northwest and its directors,
officers, stockholders, partners, employees, and other entities or individuals
from certain expenses, including those paid to third parties, with respect to
settlements or judgments, including reasonable legal fees, resulting from claims
made by our stockholders, former stockholders, beneficial stockholders and
former beneficial stockholders, other than Northwest, 1992 Air, Inc. and their
respective affiliates, that are based upon or in connection with the omnibus
agreement and the transactions contemplated by that agreement. We will not
indemnify Northwest to the extent that it or any of its affiliates breaches the
omnibus agreement or any other agreement made in connection with our
transactions with Northwest.
TERMINATION. The omnibus agreement may be terminated prior to closing:
- by mutual consent;
- by us, if Northwest materially breaches a representation, warranty,
covenant or agreement and that breach has a material adverse effect upon
the ability of Northwest to consummate the transactions contemplated by
the agreement;
- by Northwest, if we materially breach any representation, warranty,
covenant or agreement and that breach has a material adverse effect upon
our ability to consummate the transactions contemplated by the agreement;
or
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- by either us or Northwest, if we have not closed on or before March 31,
2001; provided that any party causing a delay by failing to fulfill any
of its obligations may not terminate the omnibus agreement.
GOVERNING LAW. The omnibus agreement is governed by the laws of Delaware.
STANDSTILL AGREEMENT
GENERAL. Simultaneously with the omnibus agreement, we entered into a
standstill agreement with Northwest Airlines Holdings Corporation, Northwest and
Northwest Airlines, in which Northwest and its affiliates agreed not to
beneficially own any of our stock in addition to the percentage of our stock
they will own after the recapitalization. The percentage of our stock that
Northwest will be permitted to beneficially own will decrease to reflect any
sales or other transfers of our stock by Northwest and will increase to reflect
any decrease in the number of outstanding shares of our voting stock or the
distribution or exercisability of the rights Northwest holds under the rights
agreement.
The standstill agreement will be in force until the earlier of:
- the termination of the alliance agreement between us and Northwest; or
- our public announcement that we are seeking, or that we have entered into
an agreement with, a person to acquire a majority of our outstanding
voting securities, whether by merger, tender offer or otherwise, or to
acquire all or substantially all of our airline assets.
VOTING AGREEMENT. Northwest has agreed to vote all of its Continental
stock in the same proportion as the votes of all other stockholders other than
with respect to the election of directors, except that in the event of a vote
with respect to a change of control of our company, Northwest Airlines Holdings
Corporation will have discretion over its vote.
With respect to the election of directors, Northwest will either:
- vote its stock as recommended by our board of directors; or
- vote in the same proportion as the votes cast by all other holders of
voting securities.
FURTHER RESTRICTIONS ON CONDUCT. Except in connection with the performance
of the alliance agreement and with the exercise of rights granted to the holder
of Series B preferred stock, Northwest has also agreed not to:
- seek to affect or influence our board of directors, the control of our
management or to seek representation on our board of directors or on the
board of directors of any of our affiliates or seek to affect or
influence our business, operations, affairs, financial matters or
policies, except that this covenant will not prohibit:
- Northwest engaging in ordinary course business activities with us; or
- non-public lawful communications with our directors, officers and
employees regarding ordinary course business activities, with the
understanding that these matters will not include matters that under
antitrust laws could not lawfully be discussed among competitors;
- deposit any of our common stock or Series B preferred stock into a voting
trust;
- subject any of our common stock or Series B preferred stock to a proxy or
any other agreement which would affect the voting of any of our stock
owned by Northwest;
- initiate, propose or encourage, either directly or indirectly, the
solicitation of proxies or to become a participant in any solicitation,
as that term is defined in Regulation 14A of the Exchange Act, or
otherwise seek to influence any person regarding the voting of any of
that person's stock, with respect to the election or removal of any
director or in opposition to the recommendation of the majority of our
board of directors with respect to any other matter;
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- join a partnership, limited partnership, syndicate or other group or
person to acquire, hold, vote or dispose of our common stock or Series B
preferred stock; and
- induce, attempt to induce or encourage any proposal or tender or exchange
offer for voting stock or change of control of our company.
These restrictions will not apply to Northwest Airlines Holdings
Corporation and to Northwest with respect to:
- a change of control of our company as described in the certificate of
designations for the Series B preferred stock; and
- Northwest Airlines acting as our alliance partner under the alliance
agreement.
SERIES B PREFERRED STOCK CERTIFICATE OF DESIGNATIONS
GENERAL. Pursuant to the omnibus agreement described above under "--The
Omnibus Agreement," and in connection with the amendment to the master alliance
agreement described under "Amendment to Master Alliance Agreement," in
connection with the recapitalization, we will issue to Northwest Airlines one
share of a new series of preferred stock designated as Series B preferred stock.
Only one share of Series B preferred stock will be authorized for issuance. Our
Series B preferred stock will not be convertible into any other securities. We
will not be obligated to redeem or retire the Series B preferred stock, but we
will have the option to redeem the Series B preferred stock upon the occurrence
of certain events described below under "-- Redemption."
RANKING. The Series B preferred stock will rank junior to all classes of
our capital stock other than the Class B common stock upon liquidation,
dissolution or winding up of our company.
DIVIDENDS. No dividends will be payable on our Series B preferred stock.
REDEMPTION. The share of Series B preferred stock will be redeemable by us
at our option only upon the occurrence of any of the following events:
- the Series B preferred stock or any beneficial or voting interest in the
Series B preferred stock is sold, transferred, assigned, pledged or
otherwise disposed of to any other person (other than to a successor in
interest by operation of law that owns all or substantially all of the
airline assets owned by Northwest) or encumbered by the Northwest parties
or their respective successors;
- the Northwest parties means Northwest Airlines, Northwest Airlines
Holdings Corporation, Northwest and Air Partners, L.P.
- a change of control of Northwest occurs unless Continental previously
notifies Northwest in writing that a change of control of Northwest will
not be deemed to occur by virtue of the relevant event.
A change of control of Northwest would occur upon:
- a merger, reorganization, share exchange, consolidation, tender or
exchange offer, private purchase, business combination, recapitalization
or similar transaction as a result of which (1) a major air carrier or a
holding company of a major air carrier and a Northwest affected company
are legally combined, (2) a major air carrier, any of its affiliates or
any combination thereof acquires beneficial ownership of 25% or more of
the capital stock or voting power of a Northwest affected company, or
(3) a Northwest affected company acquires beneficial ownership of 25% or
more of the capital stock or voting power of a major air carrier;
oa Northwest affected company means (a) Northwest, Northwest Airlines
and their respective successors, (b) any holding company of Northwest
Airlines Corporation or Northwest Airlines or (c) any subsidiary of
Northwest Airlines Corporation, Northwest Airlines or their respective
successors or of any holding company or their respective successors,
that in any such case owns, directly or indirectly, all or
substantially all of the airline assets of Northwest, Northwest
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Airlines or their respective successors, such holding companies of
Northwest, Northwest Airlines and such subsidiaries, taken as a whole.
- the liquidation or dissolution of Northwest Airlines or its successor in
connection with which Northwest Airlines or its successor ceases
operations as an air carrier;
- the sale, transfer or other disposition of all or substantially all of
the airline assets of Northwest (or its successor) and its subsidiaries
on a consolidated basis to a major air carrier, any affiliate of a major
air carrier or any combination thereof, whether in a single transaction
or a series of related transactions;
- the sale, transfer or other disposition of all or substantially all of
the transpacific route network of Northwest Airlines or its successor
other than to an affiliate of Northwest Airlines;
- the acquisition by a major air carrier, any of its affiliates or any
combination thereof, of beneficial ownership of 25% or more of the
capital stock or voting power of a Northwest affected company;
- the acquisition by a Northwest affected company of airline assets and
associated employees, which airline assets on a stand alone basis would
have pro forma annual passenger revenues for the most recently completed
four fiscal quarters for which financial statements can be reasonably
prepared in excess of $1,000,000,000, subject to adjustments; or
- the execution by a Northwest affected company of bona fide definitive
agreements, the consummation of the transactions contemplated by which
would result in a transaction described in the immediately preceding six
subclauses.
However, (1) in no event will a commercial cooperation agreement (such as
the Northwest-KLM trans-Atlantic joint venture), which involves a major air
carrier or any of its affiliates and a Northwest affected company, which
consists of code sharing, a joint venture or similar arrangement and which does
not involve a sale, transfer or acquisition of airline assets, be deemed to be a
Northwest change of control, and (2) any such commercial cooperation agreement,
which involves a major air carrier or any of its affiliates and a Northwest
affected company, which consists of code sharing, a joint venture or similar
arrangement but which does involve a sale, transfer, or acquisition of airline
assets, will be deemed to be a Northwest change of control only if such
transaction is otherwise within the scope of one or more of the preceding seven
subclauses.
- any of Northwest or certain of its affiliates takes action which has the
effect or result of Northwest or certain of its affiliates becoming, or
otherwise causes Northwest or certain of its affiliates to become, an
acquiring person under the amended and restated rights agreement as
described below under "Description of Continental Capital
Stock--Preferred Stock Purchase Rights;"
- any of Northwest or certain of its affiliates inadvertently breach
certain specified provisions of the standstill agreement and the breach
is not cured within 15 days of receipt by Northwest Airlines of notice
of the breach from Continental or any material breach of certain
specified provisions of the standstill agreement; or
- the master alliance agreement terminates or expires, other than due to
our breach or wrongful termination.
The redemption price is $100 per share. After (1) the occurrence of any of
the redemption events described above, (2) notice of redemption having been duly
given and (3) the redemption price having been paid or irrevocably set aside for
payment, the Series B Preferred share will no longer be, or be deemed to be,
outstanding.
VOTING RIGHTS. Except as required by law, the holder of the share of
Series B preferred stock will not have any voting rights except that the
affirmative vote or written consent of the holder of the share of the
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Series B preferred stock, voting separately as a class, given in person or by
proxy, will be necessary for authorizing, approving, effecting or validating:
- the increase or decrease in the number of authorized shares of the Series
B preferred stock or as otherwise required by law;
- the amendment, alteration or repeal of any of the provisions of the
certificate of incorporation, including the Series B preferred stock
certificate of designations, by way of merger, consolidation or
otherwise, that would adversely affect the powers, designations,
preferences and other rights of the share of the Series B preferred
stock;
- any amendment, alteration or repeal of, or adoption of any provision
inconsistent with, any of the provisions of article seven of our
certificate of incorporation (which relates, in general, to the approval
of the Series B preferred stock being required to amend the rights
agreement) whether by merger, consolidation or otherwise;
- any change of control of our company with respect to which our
stockholders are entitled to vote. A change of control of Continental
would occur upon:
- a merger, reorganization, share exchange, consolidation, tender or
exchange offer, private purchase, business combination, recapitalization
or similar transaction as a result of which (1) a major air carrier or a
holding company of a major air carrier and a Continental affected
company are legally combined, (2) a major air carrier, any of its
affiliates, or any combination thereof acquires beneficial ownership of
25% or more of the capital stock or voting power of a Continental
affected company, or (3) a Continental affected company acquires
beneficial ownership of 25% or more of the capital stock or voting power
of a major air carrier;
o a Continental affected company means (a) Continental Airlines, Inc.
and its successor, (b) any holding company of Continental Airlines,
Inc., (c) any subsidiary of Continental Airlines, Inc. or its
successor or of any holding company of Continental Airlines, Inc.,
that in any such case owns all or substantially all of the airline
assets of Continental Airlines, Inc. or its successor, such holding
companies of Continental Airlines, Inc. and such subsidiaries, taken
as a whole;
- the liquidation or dissolution of Continental or its successor in
connection with which Continental or its successor ceases operations as
an air carrier;
- the sale, transfer or other disposition of all or substantially all of
the airline assets of Continental (or its successor) and its
subsidiaries on a consolidated basis to a major air carrier, any
affiliate of a major air carrier or any combination thereof, whether in
a single transaction or a series of related transactions;
- the sale, transfer or other disposition of all or substantially all of
the trans-Atlantic route network or the Latin American route network of
Continental or its successor other than to an affiliate of Continental;
- the direct or indirect acquisition by a major air carrier, any of its
affiliates or any combination thereof of beneficial ownership of 25% or
more of the capital stock or voting power of a Continental affected
company;
- the direct or indirect acquisition, whether in a single transaction or a
series of related transactions, by a Continental affected company of
airline assets and associated employees, which airline assets on a stand
alone basis would have pro forma annual passenger revenues for the most
recently completed four fiscal quarters for which financial statements
can be reasonably prepared in excess of $1,000,000,000, subject to
adjustments; or
- the execution by a Continental affected company of bona fide definitive
agreements, the consummation of the transactions contemplated by which
would result in a transaction described in the immediately preceding six
subclauses.
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However, (1) in no event will a commercial cooperation agreement (such as
the Northwest-KLM trans-Atlantic joint venture), which involves a major
air carrier or any of its affiliates and a Continental affected company,
which consists of code sharing, a joint venture or similar arrangement and
which does not involve a sale, transfer, or acquisition of airline assets,
be deemed to be a change of control of Continental, and (2) any commercial
cooperation agreement, which involves a major air carrier or any of its
affiliates and a Continental affected company, which consists of code
sharing, a joint venture or similar arrangement but which does involve a
sale, transfer, or acquisition of airline assets, will be deemed to be a
change of control of Continental only if such transaction is otherwise
within the scope of one or more of the preceding seven subclauses.
- any dividend or distribution of all or substantially all of our airline
assets, including a dividend or distribution that includes the shares of
any subsidiary holding all or substantially all of the airline assets, of
Continental or its successor and its subsidiaries, taken as a whole,
whether as part of a single dividend or distribution or a related series;
- any sale, transfer or other disposition by our company of all or
substantially all of our airline assets to one or more of our affiliates
in one or a series of related transactions. However, this vote will not
be required if
- each transferee of assets issues to Northwest or its successor, for a
purchase price of $100, a share of preferred stock of each transferee
having powers, designations, preferences, and relative, participating or
other rights, and restrictions and limitations thereof, with respect to
each transferee that are identical to the powers, designations,
preferences and relative, participating or other rights, and
restrictions and limitations thereof, of the Series B preferred stock
with respect to us. However, the newly issued share of preferred stock
may differ from the share of Series B preferred stock as may reasonably
be necessary in order to reflect that the new entity and not Continental
is the issuer of the share or may have any non-material changes that do
not adversely affect the rights of the holder of the share;
- a rights plan with terms and conditions identical in all material
respects to those under our rights agreement, with certain specified
exceptions, is established at each transferee that has outstanding
capital stock registered under the Securities Exchange Act of 1934, as
amended and provided that the initial exercise price is established at a
level based upon reasonable and customary valuation practices
substantially consistent with those used in establishing the exercise
price in the predecessor agreement to our rights agreement;
- the certificate of incorporation of the entity issuing the share of
preferred stock contains provisions in form and substance identical to
article seven of Continental's amended and restated certificate of
incorporation (which relates, in general, to the approval of the Series
B preferred stock being required to amend the rights agreement) subject
to appropriate modifications.
- any reorganization or restructuring of, or any other transaction
involving, us and our successor and any of our subsidiaries that would
have the effect of creating a new holding company other than a
transaction described in the next bullet point. However, no vote shall be
required if:
- the holding company is not a major air carrier or an affiliate of a
major air carrier and each of its subsidiaries owning airline assets
issue to Northwest or its successor, for a purchase price of $100, a
share of a series of preferred stock of each such company having powers,
designations, preferences and relative, participating or other rights,
restrictions or limitations thereof with respect to each such company
that are identical to the powers, designations, preferences and
relative, participating or other rights, restrictions or limitations of
the Series B preferred stock with respect to us. However, the newly
issued share of preferred stock may differ from the share of Series B
preferred stock as may be reasonably necessary in order to reflect that
the new entity and not Continental is the issuer of the share or may
have non-material changes that do not adversely affect the rights of the
holder of the share;
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- a rights plan having terms and conditions identical in all material
respects to those under our rights agreement, with certain specified
exceptions, is established at the holding company and each subsidiary
that has outstanding capital stock registered under the Securities
Exchange Act of 1934, as amended and provided that the initial exercise
price is established at a level based upon reasonable and customary
valuation practices substantially consistent with those used in
establishing the exercise price in the predecessor agreement to our
rights agreement;
- the certificate of incorporation of the entity issuing the share of
preferred stock contains provisions in form and substance identical to
article seven of Continental's amended and restated certificate of
incorporation (which relates, in general, to the approval of the Series
B preferred stock being required to amend the rights agreement) subject
to appropriate modifications.
- a transaction involving the establishment of a new holding company,
whether as a result of a reorganization or restructuring, which new
holding company does not and will not upon consummation of the
transaction have any outstanding capital stock registered under the
Securities Exchange Act of 1934, as amended, or any transaction involving
Continental or its successor that has a reasonable likelihood or a
purpose of producing a going private transaction. However, the vote of
the Series B preferred share will not be required if:
- no later than the consummation of the going private transaction or the
consummation of the transaction resulting in a new holding company each
remaining holder of common stock of Continental or its successor upon
consummation of the going private transaction or each holder of
outstanding capital stock of such new holding company, as applicable,
executes and delivers to Northwest or its successor a certain transfer
restriction agreement described below. Additionally, until Continental
or the holding company, as applicable, has outstanding capital stock
registered under the Securities Exchange Act of 1934, as amended,
Continental or such holding company agrees to require any person
acquiring capital stock from Continental or such holding company to
execute and deliver to Northwest a similar transfer restriction
agreement;
- each of the share certificates representing common stock of Continental
or capital stock of the holding company, as applicable, bears an
appropriate legend with respect to the transfer restriction agreement;
and
- the certificate of incorporation of the new holding company contains
provisions in form and substance identical to article seven of
Continental's amended and restated certificate of incorporation which
provision relates, in general, to the approval of the series B preferred
stock of any amendment to the rights agreement.
The voting rights summarized in the second, third, fourth, fifth, sixth and
seventh bullet points above will automatically terminate if the share of the
Series B preferred stock becomes redeemable.
TRANSFER RESTRICTION AGREEMENT. Pursuant to the transfer restriction
agreement referred to in the last bullet point immediately above, the holder of
the Series B preferred stock would agree to the following:
- not to transfer, sell or dispose of (1) common stock of Continental, in
the case of a going private transaction or (2) capital stock of a holding
company, in the case of the establishment of a new holding company, to a
prohibited transferee;
- A prohibited transferee means any major air carrier or affiliate who
would have upon the occurrence of such transfer, sale or disposition,
beneficial ownership of 25% or more of the capital stock or voting power
of Continental upon completion of such transfer, sale or disposition;
- prior to transferring, selling or disposing of (1) common stock of
Continental, in the case of a going private transaction, or (2) capital
stock of a holding company, in the case of the establishment of a new
holding company, to a transferee that is not a prohibited transferee, the
permitted transferee will execute an agreement with Northwest identical
in all material respects to the transfer restriction agreement.
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The full text of the proposed Series B preferred stock certificate of
designations is attached as Annex B to this proxy statement.
REOFFER PURCHASE AGREEMENT
In connection with the proposed recapitalization, at the effective time of
the consummation of the recapitalization, Continental will purchase from 1992
Air, Inc., an affiliate of David Bonderman, one of our directors, certain rights
of offer and reoffer with respect to the shares of Class A common stock held by
affiliates of Northwest. The rights of offer and reoffer will terminate
immediately after the closing of the recapitalization.
PURCHASE PRICE. The purchase price for the rights of offer and reoffer is
$10 million in cash, or, at Continental's election, the number of shares of
Class B common stock of Continental equal to (a) $11 million divided by (b) the
average of the closing prices of the Class B common stock on the New York Stock
Exchange for the 20 trading days immediately preceding the third business day
prior to the closing of the transactions contemplated by the recapitalization.
If the closing of the recapitalization transactions occurs later than
February 15, 2001, then the $10 million in cash to be paid by us or the $11
million in Class B common stock, whichever we elect to pay as the purchase price
for the rights of offer and reoffer, will be increased by 7% per year of those
amounts, respectively, from and including February 16, 2001 through but
excluding the closing date of the recapitalization transactions.
WAIVER OF RIGHTS OF OFFER AND REOFFER. 1992 Air, Inc., Northwest and
certain affiliates of Northwest have agreed to waive all of the rights,
obligations and time periods that are part of the rights of offer and reoffer
which would be implicated as a result of the transactions contemplated by the
proposed recapitalization. This waiver will terminate upon the earliest to occur
of (a) any breach of the reoffer purchase agreement by us or Northwest and
certain of its affiliates or (b) upon termination of the reoffer purchase
agreement.
REGISTRATION RIGHTS. If we elect to pay the purchase price in Class B
common stock, then 1992 Air, Inc. or 1992 Air, Inc.'s designees will be granted
registration rights with respect to such Class B common stock.
INDEMNIFICATION. We have agreed to indemnify 1992 Air, Inc. and its
directors, officers, stockholders, partners, employees, and other entities or
individuals from certain expenses, including amounts paid to third parties, with
respect to settlements or judgments, including reasonable legal fees, resulting
from claims that are based upon or in connection with claims made by holders,
former holders, beneficial owners or former beneficial owners of equity
securities of Continental, as such term is defined in the omnibus agreement
(other than Northwest, certain of its affiliates and 1992 Air, Inc.) or by or on
behalf of Continental based upon or in connection with the reoffer purchase
agreement or the omnibus agreement and the transactions contemplated by those
agreements. Continental will not have an obligation to indemnify any party under
the reoffer purchase agreement to the extent that the claim relates to a breach
by 1992 Air, Inc. or its affiliates of the reoffer purchase agreement or any
agreement to which 1992 Air, Inc. or its affiliates is a party.
AMENDMENT OF MASTER ALLIANCE AGREEMENT
In connection with the recapitalization and the issuance by us to Northwest
Airlines of one share of Series B preferred stock, the master alliance agreement
between us and Northwest, pursuant to which certain joint marketing activities
(such as code sharing, reciprocal frequent flyer programs and executive lounge
access) are undertaken, will be amended as follows.
EXTENSION OF TERM. The term of the master alliance agreement will be
extended until the end of the year 2025, with automatic five-year renewals
thereafter unless either party gives at least three years' advance notice of
non-renewal.
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TERMINATION. The master alliance agreement will be amended to add the
following additional termination rights:
- in the event of a Northwest change of control, each of Continental and
Northwest will have the right to terminate the master alliance agreement
upon six months' prior written notice, without liability or penalty to
the other party. However, (1) Northwest's right to terminate with respect
to a Northwest change of control will expire on the six month anniversary
of a Northwest change of control and (2) Continental's right to terminate
with respect to a Northwest change of control will expire on the six
month anniversary of Continental's receipt of written notice from
Northwest that a Northwest change of control has occurred.
- in the event of a Continental change of control, Northwest will have the
right to terminate the master alliance agreement upon six months' prior
written notice, without liability or penalty to Continental. However,
Northwest's right to terminate with respect to a Continental change of
control will expire on the six month anniversary of Northwest's receipt
of written notice from Continental that a Continental change of control
has occurred.
- in the event of a Continental change of control, and if (1) Northwest has
certain specified voting rights as holder of the Series B preferred stock
and given to it in the amended and restated certificate of incorporation
and has voted its blocking right held under its share of Series B
preferred stock in favor of the Continental change of control (or has
approved the amendment to the rights agreement or the redemption of
outstanding preferred purchase rights under the rights agreement to
permit the Continental change of control), (2) the Series B preferred
stock has become redeemable or acquired by Continental other than as a
result of a final, non-appealable court order or (3) the Series B
preferred stock has become redeemable as a result of a final,
non-appealable court order and the Series B preferred stock has become
redeemable or acquired by Continental pursuant to the Series B preferred
stock certificate of designations, then Continental will have the right
to terminate the alliance agreement on six months' prior written notice,
without liability or penalty to Northwest. However, this right to
terminate with respect to a Continental change of control will expire on
the six month anniversary of the Continental change of control.
- in the event Continental has the right to redeem the Series B preferred
stock pursuant to specified provisions of the Series B preferred stock
certificate of designations, then Continental will have the right to
terminate the alliance agreement on six months' prior written notice,
without liability or penalty to Northwest. However, this right to
terminate with respect to a particular right to redeem will expire on the
six month anniversary of the date on which Continental first becomes
aware of such right to redeem.
A Continental change of control is described above under "Series B
Preferred Stock Certificate of Designations--Voting Rights" and a Northwest
change of control is described above under "Series B Preferred Stock Certificate
of Designations--Redemption."
GOVERNMENTAL APPROVALS. The amendment provides that each carrier shall use
its best efforts to obtain necessary approvals from all U.S. governmental
entities.
DESCRIPTION OF CONTINENTAL CAPITAL STOCK
This section contains a description of our capital stock as it exists today
prior to the proposed recapitalization. This description includes our common
stock, currently designated as Class A, Class B and Class D common stock, as
well as our preferred stock, the terms of which may affect the common stock. The
following summary of the terms of our capital stock is not meant to be complete
and is qualified by reference to our certificate of incorporation, bylaws and
the agreement we describe in this section. For more information, you should read
"Where You Can Find More Information."
As used in this section, except as otherwise stated or required by context,
each reference to Air Partners, L.P., a Texas limited partnership, includes any
successor by merger, consolidation or similar
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transaction and any wholly owned subsidiary of such entity or such successor.
Air Partners is currently an affiliate of Northwest.
Our authorized capital stock currently consists of 50,000,000 shares of
Class A common stock, $.01 par value, 200,000,000 shares of Class B common
stock, $.01 par value, 50,000,000 shares of Class D common stock, $.01 par
value, and 10,000,000 shares of preferred stock, $.01 par value. As of December
18, 2000, we had outstanding 10,963,538 shares of Class A common stock and
47,475,133 shares of Class B common stock. We did not have any outstanding
shares of Class D common stock or preferred stock.
However, we are undertaking a recapitalization that will result in our
- repurchasing some of our Class A common stock;
- converting our remaining Class A common stock into Class B common stock
at an exchange ratio of 1.32 shares of Class B common stock per share of
Class A common stock; and
- removing from our charter all references to Class A and Class D common
stock and eliminating all special rights of Air Partners.
For more information, you should read "The Recapitalization."
COMMON STOCK--ALL CLASSES
RIGHTS TO DIVIDENDS AND ON LIQUIDATION, DISSOLUTION OR WINDING UP. Common
stockholders of all classes participate ratably in any dividends or
distributions on the common stock, except that dividends payable in shares of
common stock, or securities to acquire common stock, are paid in common stock,
or securities to acquire common stock, of the same class as that upon which the
dividend or distribution is being paid.
In the event of any liquidation, dissolution or winding up of our company,
common stockholders of all outstanding classes are entitled to share ratably in
our assets available for distribution to the stockholders, subject to the prior
rights of holders of any outstanding preferred stock.
PREEMPTIVE AND OTHER SUBSCRIPTION RIGHTS. Common stockholders do not have
preemptive, subscription, conversion or redemption rights (other than the
conversion rights of holders of Class A common stock (which will no longer be
outstanding after the recapitalization) described under "--Class B Common Stock
and Class A Common Stock" and the anti-dilution rights described under
"--Corporate Governance and Control"), and are not subject to further calls or
assessments.
NON-CUMULATIVE VOTING RIGHTS. Common stockholders do not have the right to
cumulate their votes in the election of directors. All classes of common stock
vote together as a single class, subject to the right to a separate class vote
in certain instances required by law and to the rights of stockholders of Class
D common stock to vote separately as a class to elect directors as described
under "--Special Class of Common Stock."
CLASS B COMMON STOCK AND CLASS A COMMON STOCK
VOTING. Stockholders of Class B common stock are entitled to one vote per
share, and the stockholders of Class A common stock (which will no longer be
outstanding after the recapitalization) are entitled to ten votes per share, on
all matters submitted to a vote of stockholders, except that voting rights of
non-U.S. citizens are limited as described under "--Limitation on Voting by
Foreign Owners" and no holder of Class D common stock (which will no longer be
outstanding after the recapitalization) can vote any of its Class B common stock
for the election of directors (see "--Special Classes of Common Stock").
SHARES HELD BY NORTHWEST. As of December 18, 2000, Northwest beneficially
owned 8,661,224 shares of Class A common stock and held a limited proxy to vote
an additional 695,894 shares of Class A common stock under certain
circumstances, which represented approximately 85.3% of the voting power of the
Class A common stock voting separately (79.0% excluding the proxy shares) and
approximately 59.6% of the voting power of the Class A common stock and Class B
common stock voting together as a single class (55.1% excluding the proxy
shares). Northwest has agreed to instruct the trustee of the voting trust in
which
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Northwest's shares are held to vote all of Northwest's 8,661,224 Class A common
stock in favor of the recapitalization proposal. Accordingly, approval of the
recapitalization proposal is assured.
CONVERSION OF CLASS A COMMON STOCK. Shares of Class A common stock may
currently be freely converted into an equal number of shares of Class B common
stock. Because the Class A common stock has ten votes per share and the Class B
common stock has one vote per share, conversion effectively increases the
relative voting power of those Class A stockholders who do not convert. (In the
recapitalization, each share of Class A common stock will be reclassified into
1.32 shares of Class B common stock.)
LIMITATION ON VOTING BY FOREIGN OWNERS. Our certificate of incorporation
provides that shares of capital stock may not be voted by or at the direction of
persons who are not citizens of the United States unless the shares are
registered on a separate stock record. Applicable restrictions currently require
that no more than 25% of our voting stock be owned or controlled, directly or
indirectly, by persons who are not U.S. citizens, and that our president and at
least two-thirds of its directors or other managing officers be U.S. citizens.
For purposes of the certificate of incorporation, "U.S. citizen" means:
- an individual who is a citizen of the U.S.;
- a partnership each of whose partners is an individual who is a citizen of
the United States; or
- a corporation or association organized under the laws of the United
States or a State, the District of Columbia, or a territory or possession
of the United States, of which the president and at least two-thirds of
the board of directors and other managing officers are citizens of the
United States, and in which at least 75% of the voting interest is owned
or controlled by persons that are citizens of the United States.
Our bylaws provide that no shares will be registered on the foreign stock
record if the amount so registered would exceed the restrictions described above
or adversely affect our operating certificates or authorities. Registration on
the foreign stock record is made in chronological order based on the date we
receive a written request for registration, except that, until the consummation
of the recapitalization, certain shares acquired by Air Partners in connection
with its original investment in our company that are subsequently transferred to
any foreigner are entitled to be registered prior to, and to the exclusion of,
other shares. An affiliate of AXA Financial, Inc. has requested that all shares
beneficially owned by AXA Financial, Inc. and its affiliates be included on our
foreign stock record. See "The Company--Principal Stockholders." Although we
have not to date limited the registration of any shares on this record,
subsequent to the recapitalization, and subject to the factors set forth under
"The Company--Principal Stockholders," the registration of the shares
beneficially owned by AXA Financial, Inc. will preclude the registration, and
thus the voting of, any shares owned by any other Continental stockholders that
are not U.S. citizens.
PREFERRED STOCK PURCHASE RIGHTS
GENERAL. One preferred stock purchase right is currently associated with
each outstanding share of our common stock. Each of these preferred stock
purchase rights entitles the registered holder to purchase from us one
one-thousandth of a share of our Series A Junior preferred stock, par value $.01
per share, at a purchase price of $200 per one one-thousandth of a share,
subject to adjustment.
The preferred stock purchase rights will have anti-takeover effects. The
preferred stock purchase rights could cause substantial dilution to a person or
group that attempts to acquire us and effect a change in the composition of our
board of directors on terms not approved by our board of directors, including by
means of a tender offer at a premium to the market price. The preferred stock
purchase rights should not interfere with any merger or business combination
approved by our board of directors because we may redeem the preferred stock
purchase rights at the redemption price prior to the time that a person has
become an acquiring person or amend the preferred stock purchase rights to make
them inapplicable to the approved transaction.
The following summary of the material terms of the preferred stock purchase
rights is not meant to be complete and is qualified by reference to the rights
agreement. See "Where You Can Find More Information."
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EVIDENCE AND TRANSFERABILITY OF PREFERRED STOCK PURCHASE RIGHTS. The
preferred stock purchase rights will be evidenced by the certificates
representing shares of common stock until the earlier to occur of:
- ten days following a public announcement made by us or an acquiring
person that a person or group of affiliated or associated persons has
become an acquiring person, which occurs when that person or group has
acquired beneficial ownership of common stock representing 15% or more of
the total number of votes entitled to be cast by the holders of common
stock; and
- ten business days, or a later date established by our board of directors
before the time any person or group becomes an acquiring person,
following the commencement of, or the first public announcement of an
intention of any person or group to make, a tender offer or exchange
offer that, if completed, would result in the beneficial ownership by a
person or group of shares of common stock representing 15% or more of
such number of votes.
The preferred stock purchase rights will be distributed on the date upon
which one of the events described above occurs. Until the rights distribution
date or the earlier redemption or expiration of the preferred stock purchase
rights:
- the preferred stock purchase rights will only be transferred with the
transfer of shares of common stock;
- certificates representing shares of common stock will contain a notation
incorporating the terms of the preferred stock purchase rights by
reference; and
- the surrender for transfer of any certificate representing shares of
common stock will also constitute the transfer of the preferred stock
purchase rights associated with the shares of common stock represented by
that certificate.
As soon as practicable following the rights distribution date, separate
certificates evidencing the preferred stock purchase rights will be mailed to
holders of record of the shares of common stock as of the close of business on
the rights distribution date and those separate preferred stock purchase rights
certificates alone will evidence the rights.
EXEMPT PERSONS. We and certain persons affiliated with us, Northwest and
its affiliates including Air Partners, and certain other persons, have been
exempt from the definition of acquiring person. However, following the proposed
recapitalization, the exemptions for affiliates of Northwest and Air Partners
will be terminated. See "The Recapitalization Documents."
EXERCISABILITY OF RIGHTS. The preferred stock purchase rights are not
exercisable until the preferred stock purchase rights distribution date. The
preferred stock purchase rights will expire on November 20, 2008, unless the
expiration date is extended or unless the preferred stock purchase rights are
earlier redeemed or exchanged by us, in each case, as described below.
If any person becomes an acquiring person, each holder of a preferred stock
purchase right (other than preferred stock purchase rights beneficially owned by
the acquiring person, which will be void) will after the date that any person
became an acquiring person have the right to receive upon exercise of those
preferred stock purchase rights at the then current exercise price that number
of shares of Class B common stock, or cash or other securities or assets in
certain circumstances, having a market value of two times the exercise price of
the preferred stock purchase right. If, at any time on or after the date that
any person has become an acquiring person, we are acquired in a merger or other
business combination transaction or 50% or more of our consolidated assets or
earning power are sold, each holder of a preferred stock purchase right will
after the date of that transaction have the right to receive, upon the exercise
of those preferred stock purchase rights at the then current exercise price of
the preferred stock purchase right, that number of shares of common stock of the
acquiring company which at the time of that transaction will have a market value
of two times the exercise price of the preferred stock purchase right.
The purchase price payable, and the number of shares of junior preferred
stock or other securities or property issuable, upon exercise of the preferred
stock purchase rights are subject to adjustment from time to time to prevent
dilution in some circumstances.
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Until a preferred stock purchase right is exercised, the holder of a
preferred stock purchase right will have no rights as a stockholder of our
company, including the right to vote or to receive dividends.
From and after the occurrence of an event described in Section 11(a)(ii) of
the rights agreement, if rights are or were at any time on or after the earlier
of (1) the date of such event and (2) the distribution date acquired or
beneficially owned by an acquiring person or an associate or affiliate of an
acquiring person, such rights shall become void, and any holder of such rights
shall thereafter have no right to exercise such rights.
TERMS OF JUNIOR PREFERRED STOCK. Shares of junior preferred stock, which
may be purchased upon exercise of the preferred stock purchase rights, will not
be redeemable. Each share of junior preferred stock will be entitled to receive
when, as and if declared by the board of directors out of funds legally
available for the purpose, an amount per share equal to 1,000 times the cash or
non-cash dividend declared per share of common stock. In the event of
liquidation, the holders of the junior preferred stock will be entitled to
receive an aggregate payment equal to 1,000 times the payment made per share of
common stock. Each share of junior preferred stock will have 1,000 votes,
together with the common stock. Finally, in the event of any merger,
consolidation or other transaction in which the common stock is exchanged, each
share of junior preferred stock will be entitled to receive an amount equal to
1,000 times the amount received per share of common stock. The rights are
protected by customary antidilution provisions.
EXCHANGE OR REDEMPTION. At any time after any person becomes an acquiring
person, and prior to the acquisition by any person or group of a majority of the
voting power, our board of directors may exchange the rights (other than rights
owned by such acquiring person which have become void), in whole or in part, at
an exchange ratio of one share of Class B common stock per right (subject to
adjustment). We may, at our option, substitute preferred shares or common stock
equivalents for Class B common stock, at the rate of one one-thousandth of a
preferred share for each share of Class B common stock (subject to adjustment).
No fractional share of Class B common stock will be issued and in lieu thereof,
an adjustment in cash will be made based on the market price of the share of
Class B common stock on the last trading day prior to the date of exchange.
At any time prior to any person becoming an acquiring person, our board of
directors, by the required board vote, may redeem the rights in whole, but not
in part, at a redemption price of $.001 per right. The redemption of the rights
may be made effective at the time, on any basis and subject to the conditions
which our board of directors may establish. Immediately upon any redemption of
the rights (or upon a later date specified by our board of directors in the
resolution approving a redemption), the right to exercise the rights will
terminate and the only right of the holders of rights will be to receive the
redemption price.
The terms of the rights may be amended by our board of directors, by the
required board vote, without the consent of the holders of the rights, except
that from the time any person becomes an acquiring person no amendment may
adversely affect the interests of the holders of the rights (other than the
acquiring person and its affiliates and associates).
AMENDMENT OF THE RIGHTS AGREEMENT. We adopted a rights agreement amendment
on February 8, 2000. The rights agreement amendment provides for an exception to
the definition of acquiring person in the rights agreement that permits an
institutional investor to be or become the beneficial owner of our common stock
representing less than 20% of the voting power of the common stock then
outstanding without becoming an acquiring person, as long as the institutional
investor continues to be an institutional investor. Generally, an institutional
investor is a person who, as of January 31, 2000:
- beneficially owned more than 14% of the voting power of our common stock
then outstanding;
- had a Schedule 13G on file with the SEC with respect to its holdings;
- is principally engaged in the business of managing investment funds for
unaffiliated securities investors;
- acquires the common stock pursuant to trading activities undertaken in
the ordinary course of such person's business not with the purpose or
effect of exercising or influencing control over us; and
- is not obligated to and does not file a Schedule 13D with respect to our
securities.
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If our board of directors determines that a person is no longer an
institutional investor, then this person will be required to as promptly as
practicable divest itself of a sufficient number of shares of common stock so
that this person beneficially owns less than 15% of the voting power of our
common stock then outstanding.
If our board of directors determines that this person does not divest
itself of common shares as required, then this person will be or become an
acquiring person under the rights agreement.
We are adopting an amended and restated rights agreement to make certain
changes in connection with the recapitalization. See "The
Recapitalization--General--Amendment of the Rights Agreement."
CORPORATE GOVERNANCE AND CONTROL
BOARD OF DIRECTORS. The certificate of incorporation provides that our
board of directors will consist of a number of directors as may be determined
from time to time by the board of directors in accordance with the bylaws. Our
board of directors currently consists of 13 directors elected by common
stockholders, subject to the rights of preferred stockholders to elect
additional directors as set forth in any preferred stock designations.
CORPORATE GOVERNANCE AGREEMENT AND SUPPLEMENTAL AGREEMENT. We have a
corporate governance agreement with certain parties who are affiliates of
Northwest designed to assure the independence of our board of directors and
management during the six-year term of the governance agreement through November
20, 2004. Under the governance agreement, the Northwest parties have agreed not
to beneficially own our voting securities in excess of 50.1% of the fully
diluted voting power of our voting securities, subject to some exceptions,
including:
- third-party acquisitions; or
- tender offers for 15% or more of the voting power of our voting
securities; and
- increases in voting power caused by repurchases of common stock by us.
The Northwest parties have deposited all our voting securities beneficially
owned by them (other than the shares for which they hold only a limited proxy)
in a voting trust with an independent voting trustee requiring that such
securities be voted
- on all matters other than the election of directors, in the same
proportion as the votes cast by other holders of voting securities; and
- in the election of directors, for the election of independent directors
(who must constitute a majority of our board) nominated by our board of
directors.
However, in the event of an extraordinary transaction, including a merger
or similar business combination or a recapitalization, liquidation or similar
transaction, a sale of all or substantially all of our assets, an issuance of
voting securities that would represent more than 20% of our voting power prior
to issuance, or any amendment of our charter or bylaws that would materially and
adversely affect Northwest, the shares may be voted as directed by the Northwest
party owning those shares, and if a third party is soliciting proxies in an
election of directors, the shares may be voted at the option of that Northwest
party either as recommended by our board of directors or in the same proportion
as the votes cast by the other holders of voting securities.
The Northwest parties have also agreed to certain restrictions on the
transfer of voting securities owned by them, have agreed not to seek to affect
or influence our board of directors or the control of our management or our
business, operations, affairs, financial matters or policies or to take certain
other actions, and have agreed to take all actions necessary to cause
independent directors to at all times constitute at least a majority of our
board of directors. We have granted preemptive rights to a Northwest party with
respect to issuances of Class A common stock and certain issuances of Class B
common stock. The Northwest parties have agreed that some specified actions,
together with any material transactions between our company and Northwest or its
affiliates, including any modifications or waivers of the governance agreement
or our alliance agreement with Northwest, may not be taken without the prior
approval of a majority of the board of directors, including the affirmative vote
of a majority of the independent directors.
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The governance agreement also required us to adopt a shareholder rights
plan with reasonably customary terms and conditions, with an acquiring person
threshold of 15% of the outstanding voting power and with appropriate exceptions
for the Northwest parties for actions permitted by and taken in compliance with
the governance agreement. A rights plan meeting these requirements was adopted
effective November 20, 1998, and was subsequently amended to permit an acquiring
person threshold of 20% for an institutional investor. For a detailed
description of this plan, see "--Preferred Stock Purchase Rights."
In addition to the governance agreement, which is scheduled to expire on
November 20, 2004, or if earlier, upon the date that the Northwest parties cease
to beneficially own voting securities representing at least 10% of the fully
diluted voting power of our voting securities, we have a supplemental agreement
with the Northwest parties that extends the effect of a number of the provisions
of the governance agreement for an additional four years. For instance, the
Northwest parties must act to ensure that a majority of our board of directors
is comprised of independent directors, and certain specified actions, together
with material transactions between us and Northwest or its affiliates, including
any modifications or waivers of the supplemental agreement or the alliance
agreement, may not be taken without the prior approval of a majority of the
board of directors, including the affirmative vote of a majority of the
independent directors. The Northwest parties will continue to have the right to
vote our stock in their discretion on any extraordinary transaction during the
supplemental period, but also will be permitted to vote in their discretion on
other matters up to 20% of the outstanding voting power (their remaining votes
to be cast neutrally, except in a proxy contest, as contemplated in the
governance agreement), subject to their obligation described in the previous
sentence. If, during the term of the supplemental agreement, our rights plan
were amended to allow certain parties to acquire more shares than is currently
permitted, or if the rights issued thereunder were redeemed, the Northwest
parties could vote all of their shares in their discretion. Certain transfer
limitations are imposed on the Northwest parties during the supplemental period.
We have granted preemptive rights to a Northwest party with respect to issuances
of Class A common stock and certain issuances of Class B common stock that occur
during such period. We have agreed to certain limitations upon our ability to
amend our charter, bylaws, executive committee charter and rights plan during
the term of the supplemental agreement. Following the supplemental period, the
supplemental agreement requires the Northwest parties to take all actions
necessary to cause our board of directors to have at least five independent
directors, a majority of whom will be required to approve material transactions
between us and Northwest or its affiliates, including the amendment,
modification or waiver of any provisions of the supplemental agreement or the
alliance agreement.
Following the proposed recapitalization, the governance agreement and the
supplemental agreement will be terminated. See "The Recapitalization Documents."
In some circumstances, particularly in cases where a change of control of
our company could otherwise be caused by another party, Northwest could exercise
its voting power so as to delay, defer or prevent a change of control.
BUSINESS COMBINATIONS
Our certificate of incorporation provides that we are not governed by
Section 203 of the General Corporation Law of Delaware which, in the absence of
such provisions, would have imposed additional requirements regarding mergers
and other business combinations.
ANTI-DILUTION RIGHTS OF AIR PARTNERS
Our certificate of incorporation gives Air Partners the right to purchase
from us additional shares of Class B common stock to the extent necessary to
maintain its pro rata ownership of the outstanding Class B common stock. These
anti-dilution rights terminate as to Air Partners if the total voting power of
the common stock beneficially owned by it is less than 20% of the total voting
power of all of the outstanding common stock. Because Air Partners currently
does not own any Class B common stock, these anti-dilution rights are not
operative. Following the proposed recapitalization with Northwest, the
anti-dilution rights of Air Partners will terminate, as described under "The
Recapitalization Documents."
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PROCEDURAL MATTERS
Our bylaws require stockholders seeking to nominate directors or propose
other matters for action at a stockholders' meeting to give us notice within
specified periods in advance of the meeting and to follow certain other
specified procedures.
CHANGE OF CONTROL
The cumulative effect of the provisions of our certificate of incorporation
and bylaws referred to under this section "Description of Capital Stock" is to
maintain certain rights of Air Partners to elect directors and otherwise to
preserve its relative ownership and voting positions. These provisions may have
the effect of delaying, deferring or preventing a change of control of our
company. Following the proposed recapitalization, these rights of Air Partners
will terminate. However, we will issue to Northwest a new series of preferred
stock with a separate class vote in any required vote of our stockholders with
respect to some changes of control affecting us. Once the proposed
recapitalization is effected and the preferred stock issued, this may have the
effect of delaying, deferring or preventing a change of control of our company.
SPECIAL CLASS OF COMMON STOCK
Our certificate of incorporation authorizes Class D common stock as a
mechanism to provide, under certain circumstances, a specified level of board of
directors representation for Air Partners. No shares of Class D common stock are
currently outstanding, and they may only be issued in limited circumstances upon
conversion of Class A common stock held by Air Partners. Air Partners has the
option, which may be exercised only once, to convert all (but not less than all)
shares of Class A common stock held by it into an equal number of shares of
Class D common stock. This conversion right is further conditioned upon Air
Partners' holding common stock having at least 20% of the total voting power of
all classes of common stock.
After a conversion, Air Partners is entitled to elect one-third of the
number of directors determined by the board of directors pursuant to the bylaws
(rounded to the nearest whole number), voting as a separate class. When shares
of Class D common stock are outstanding, Air Partners may not vote any of its
shares of Class B common stock for the election of directors; and if Air
Partners becomes the beneficial owner of any additional shares of Class A common
stock during that time, those shares will automatically be converted into Class
D common stock. Each share of Class D common stock has 10 votes and, as to
matters other than the election of directors, votes together with all other
classes of common stock as a single class. In the event the voting power of all
common stock held by Air Partners represents less than 20% of the voting power
of all classes of common stock, all Class D common stock held by Air Partners
will automatically convert into an equal number of shares of Class A common
stock. Shares of Class D common stock also convert automatically into an equal
number of shares of Class A common stock upon the transfer of record or
beneficial ownership of such Class D common stock to any person other than
certain related parties of the original holder. Air Partners may also at any
time voluntarily convert all (but not less than all) shares of Class D common
stock held by it into an equal number of shares of Class A common stock. All
shares of Class D common stock surrendered by Air Partners for conversion into
Class A common stock will be canceled and may not be reissued.
If the recapitalization is consummated, all reference to and rights with
respect to Class D common stock will be deleted from our certificate of
incorporation, as described under "The Recapitalization Documents--Amended and
Restated Certificate of Incorporation."
LIMITATION OF DIRECTOR LIABILITY AND INDEMNIFICATION
Our certificate of incorporation provides, to the full extent permitted by
Delaware law, that directors will not be liable to us or our stockholders for
monetary damages for breach of fiduciary duty as a director. As
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required under current Delaware law, our certificate of incorporation and bylaws
currently provide that this waiver may not apply to liability
- for any breach of the director's duty of loyalty to us or our
stockholders,
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law,
- under Section 174 of the Delaware General Corporation Law (governing
distributions to stockholders), or
- for any transaction from which the director derived any improper personal
benefit.
However, in the event the Delaware General Corporation Law is amended to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of any of our directors will be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended. Our certificate of incorporation further
provides that we will indemnify each of our directors and officers to the full
extent permitted by Delaware law and may indemnify certain other persons as
authorized by the Delaware General Corporation Law. These provisions do not
eliminate any monetary liability of directors under the federal securities laws.
STOCKHOLDER PROPOSALS FOR 2001
Any stockholder who desires to present proposals at the 2001 annual meeting
of stockholders and to have such proposals set forth in the proxy statement and
form of proxy mailed in conjunction with such annual meeting must submit such
proposals in writing to our Secretary no later than December 5, 2000. Our
by-laws require that for nominations of persons for election to the board of
directors or the proposal of business to be considered by the stockholders at an
annual meeting, a stockholder must give timely written notice thereof. To be
timely for the 2001 annual meeting of stockholders, such notice must be
delivered to our Secretary at our principal executive offices not fewer than 70
days nor more than 90 days prior to May 23, 2001, provided, that if the 2001
annual meeting of stockholders is advanced by more than 20 days, or delayed by
more than 70 days, from May 23, 2001, such notice must be delivered not earlier
than the ninetieth day prior to the 2001 annual meeting and not later than the
close of business on the later of (a) the 70th day prior to the 2001 annual
meeting or (b) the 10th day following the day on which public announcement of
the date of the 2001 annual meeting is first made. The stockholder's notice must
contain and be accompanied by certain information as specified in our by-laws.
It is recommended that any stockholder desiring to make a nomination or submit a
proposal for consideration obtain a copy of our by-laws, which may be obtained
without charge from our Secretary upon written request addressed to our
Secretary at our principal executive offices.
OTHER MATTERS
We will not act on any matters at the special meeting other than the
adoption of an amended and restated certificate of incorporation in connection
with the recapitalization and procedural matters relating to the special
meeting.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC under the Securities Exchange Act of 1934. You may read
and copy this information at the following locations of the SEC:
<TABLE>
<S> <C> <C>
Citicorp Center
Judiciary Plaza Seven World Trade Center 500 West Madison Street
450 Fifth Street, N.W. 13th Floor Suite 1400
Washington, D.C. 20549 New York, New York 10048 Chicago, Illinois 60661
</TABLE>
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You may also obtain copies of this information by mail from the Public
Reference Room of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. You may obtain information on the operation of the Public
Reference Room by calling the SEC at (800) SEC-0330.
The SEC also maintains an internet world wide web site that contains
reports, proxy statements and other information about issuers, like us, who file
reports electronically with the SEC. The address of that site is
http://www.sec.gov.
You may also inspect reports, proxy statements and other information about
us at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New
York, New York 10005.
The SEC allows us to incorporate by reference information into this
document. This means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is considered to be part of this document, except for
any information that is superseded by subsequent incorporated documents or by
information that is included directly in this document.
This document includes by reference the documents listed below that we
previously have filed with the SEC and that are not delivered with this
document. They contain important information about our company and its financial
condition.
<TABLE>
<CAPTION>
CONTINENTAL SEC FILINGS
(FILE NO. 0-9781) DATE FILED
----------------------- ----------
<S> <C>
Annual Report on Form 10-K for the year ended December 31, February 11, 2000
1999
Quarterly Report on Form 10-Q for the quarter ended March April 20, 2000
31, 2000
Quarterly Report on Form 10-Q for the quarter ended June 30, July 18, 2000
2000
Amendment to Quarterly Report on Form 10-Q for the quarter July 25, 2000
ended
June 30, 2000
Quarterly Report on Form 10-Q for the quarter ended October 17, 2000
September 30, 2000
Amendment to Quarterly Report on Form 10-Q for the quarter November 13, 2000
dated September 30, 2000
Current Report on Form 8-K January 18, 2000
Current Report on Form 8-K February 8, 2000
Current Report on Form 8-K March 30, 2000
Current Report on Form 8-K March 31, 2000
Current Report on Form 8-K June 13, 2000
Current Report on Form 8-K September 21, 2000
Current Report on Form 8-K November 6, 2000
Current Report on Form 8-K November 6, 2000
Current Report on Form 8-K November 16, 2000
Current Report on Form 8-K December 13, 2000
</TABLE>
We are also incorporating by reference additional documents that we file
with the SEC after the date of this document and before the date of the special
meeting.
You may obtain any of these incorporated documents from us without charge,
excluding any exhibits to those documents unless the exhibit is specifically
incorporated by reference in such document. You may obtain documents
incorporated by reference in this document by requesting them from us in writing
or by telephone at the following address:
Continental Airlines, Inc.
1600 Smith Street, Dept. HQSEO
Houston, Texas 77002
Attention: Secretary (713) 324-2950
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If you would like to request documents, please do so promptly to receive
them before the special meeting. If you request any incorporated documents from
us, we will mail them to you by first class mail, or another equally prompt
means, within one business day after we receive your request.
WE HAVE NOT AUTHORIZED ANYONE TO GIVE YOU ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS ABOUT THE RECAPITALIZATION OF OUR COMPANY THAT DIFFERS FROM OR
ADDS TO THE INFORMATION CONTAINED IN THIS DOCUMENT OR IN THE DOCUMENTS OUR
COMPANY HAS PUBLICLY FILED WITH THE SEC. THEREFORE, IF ANYONE SHOULD GIVE YOU
ANY DIFFERENT OR ADDITIONAL INFORMATION, YOU SHOULD NOT RELY ON IT.
THE INFORMATION CONTAINED IN THIS DOCUMENT SPEAKS ONLY AS OF THE DATE
INDICATED ON THE COVER OF THIS DOCUMENT UNLESS THE INFORMATION SPECIFICALLY
INDICATES THAT ANOTHER DATE APPLIES.
FORWARD-LOOKING STATEMENTS
This document and the documents we incorporate by reference may contain
statements that constitute "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Forward-looking statements include any statements that
predict, forecast, indicate or imply future results, performance or
achievements, and may contain the words "believe," "anticipate," "expect,"
"estimate," "project," "will be," "will continue," "will result," or words or
phrases of similar meaning.
Any such forward-looking statements are not assurances of future
performance and involve risks and uncertainties. Actual results may vary
materially from anticipated results for a number of reasons, including those
stated in our SEC reports incorporated in this proxy statement by reference
under the caption "Risk Factors."
All forward-looking statements attributable to us are expressly qualified
in their entirety by the cautionary statements above.
By Order of the Board of Directors,
/s/ JEFFERY A. SMISEK
Jeffery A. Smisek
Secretary
December 18, 2000
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ANNEX A
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
CONTINENTAL AIRLINES, INC.
(ORIGINALLY INCORPORATED ON APRIL 7, 1980
UNDER THE NAME PEOPLE EXPRESS, INC.)
ONE: The name of this corporation is Continental Airlines, Inc. (the
"Corporation").
TWO: The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle.
The name of the Corporation's registered agent at such address is The
Corporation Trust Company.
THREE: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware ("GCL").
FOUR: The total number of shares of all classes of capital stock which the
Corporation shall have the authority to issue is 210 million shares, par value
$.01 per share, of which 10 million shall be Preferred Stock ("Preferred Stock")
and 200 million shall be Class B Common Stock ("Class B Common Stock"). The
powers, designations, preferences and relative, participating, optional or other
special rights, if any, and the qualifications, limitations or restrictions of
each class of stock shall be governed by the following provisions:
SECTION 1. Preferred Stock. The Preferred Stock may be issued from time to
time in one or more series. The Board of Directors is hereby authorized (i) to
provide by resolution or resolutions from time to time for the issuance of
shares of Preferred Stock in one or more series, (ii) to establish from time to
time the number of shares to be included in each such series, (iii) (to the
extent not expressly provided for herein) to fix the designations, powers,
preferences and relative, participating, optional or other special rights of the
shares of each such series and the qualifications, limitations or restrictions,
if any, thereof, by filing one or more certificates pursuant to the GCL
(hereinafter, referred to as a "Preferred Stock Designation"), and (iv) to
increase or decrease the number of shares of any such series to the extent
permitted by the GCL and the Preferred Stock Designation. The authority of the
Board of Directors with respect to each series shall include, but not be limited
to, determination of the following:
(i) The designation of the series, which may be by distinguishing the
number, letter or title of such series.
(ii) The number of shares of the series.
(iii) Whether dividends, if any, shall be paid in cash or in capital
stock or other securities, whether such dividends shall be cumulative (and,
if so, from which date or dates for each such series) or noncumulative, the
preference or relation which such dividends, if any, shall bear to the
dividends payable on any other class or classes or any other series of
capital stock, and the dividend rate, if any, of the series.
(iv) Conditions and dates upon which dividends, if any, shall be
payable.
(v) The redemption rights and redemption price or prices, if any, for
shares of the series.
(vi) The terms and amount of any sinking fund provided for the
purchase or redemption of shares of the series.
(vii) The amounts payable on and the preferences, if any, of shares of
the series in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation.
(viii) Whether the shares of the series shall be convertible into or
exchangeable for shares of any other class or series of capital stock, or
any other security, of the Corporation or any other corporation and, if so,
the specification of such other class or series or such other security, the
conversion or exchange price or prices or rate or rates, any adjustments
thereof, the date or dates at which such shares shall be
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convertible or exchangeable and all other terms and conditions upon which
such conversion or exchange may be made.
(ix) Restrictions on the issuance of shares of the same series or of
any other class or series.
(x) The voting rights, if any, of the holders of shares of the series,
whether as a class or otherwise, with respect to the election of directors
or otherwise.
(xi) The price or other consideration for which shares of the series
shall be issued and, if deemed desirable, the stated value or other
valuation of the shares constituting such series.
(xii) Any other relative rights, preferences and limitations of that
series. Notwithstanding anything to the contrary in this Amended and
Restated Certificate of Incorporation or in a Preferred Stock Designation,
the holders of Preferred Stock shall not be entitled to vote separately as
a class with respect to any amendment to this Amended and Restated
Certificate of Incorporation to increase the number of authorized shares of
Preferred Stock. Pursuant to the authority conferred by this Article Four,
the following series of Preferred Stock has been designated, such series
consisting of such number of shares, with such voting powers and with such
designations, preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions therefor as
are stated and expressed in the exhibit with respect to such series
attached hereto as specified below and incorporated herein by reference:
EXHIBIT A: Series A Junior Participating Preferred Stock
SECTION 2. Class B Common Stock. All shares of Class B Common Stock shall
be identical and will entitle the holders thereof to the same rights and
privileges, except as otherwise provided herein. Except as may be provided
herein or in a Preferred Stock Designation, the holders of shares of Class B
Common Stock shall be entitled to receive, when and if declared by the Board of
Directors, out of the assets of the Corporation which are by law available
therefor, dividends payable either in cash, in stock or otherwise.
(a) Voting Rights.
(i) Except as provided in Article Six, each registered holder of Class B
Common Stock shall be entitled to one vote for each share of such stock held by
such holder.
(ii) Except as otherwise provided in this Article Four or required by law,
(A) Class B Common Stock shall be entitled to elect directors of the
Corporation as provided for in Section 1 of Article Five; and
(B) Class B Common Stock shall be entitled to vote on all other
matters submitted to a vote of stockholders of the Corporation.
(b) Dividends. Any dividend or distribution on the Class B Common Stock
shall be payable on shares of Class B Common Stock ratably.
(c) Liquidation. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, after payment or provision for
payment of the debts and other liabilities of the Corporation, including the
liquidation preferences of any series of Preferred Stock, the holders of shares
of Class B Common Stock shall be entitled to share ratably in the remaining net
assets of the Corporation. Neither the merger or consolidation of the
Corporation, nor the sale, lease or conveyance of all or part of its assets,
shall be deemed to be a liquidation, dissolution or winding up of the
Corporation, either voluntarily or involuntarily, within the meaning of this
Section 2(c).
Upon the effectiveness of this Amended and Restated Certificate of Incorporation
(the "Effective Time"), each issued share of Class A Common Stock, par value
$.01 per share (the "Class A Common Stock"), of the Corporation shall be
reclassified, changed and converted into 1.32 shares of Class B Common Stock;
provided, however, in lieu of any fractional shares of Class B Common Stock to
which any holder of Class A Common Stock would otherwise be entitled pursuant
hereto (aggregating for this purpose all of the shares of Class A
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Common Stock owned of record by such stockholder), such stockholder shall be
entitled to receive a cash payment (the "Cash Payment") equal to the closing
price of the Class B Common Stock on the New York Stock Exchange on the date
this Amended and Restated Certificate of Incorporation becomes effective
multiplied by such fraction. Outstanding stock certificates registered in the
name of each record holder thereof that, prior to the Effective Time,
represented issued shares of Class A Common Stock shall, after the Effective
Time represent a number of whole shares of Class B Common Stock equal to 1.32
times the number of shares of Class A Common Stock such certificates represented
immediately prior to the Effective Time rounded down to the nearest whole share,
plus the right of the record holder thereof to receive the Cash Payment until
such certificates are presented to the Corporation or its transfer agent for
transfer or reissue in which event the Corporation or its transfer agent shall
issue stock certificates representing the appropriate number of shares of Class
B Common Stock plus the Cash Payment.
FIVE: The Board of Directors of the Corporation shall consist of such
number of directors as may be determined from time to time by the Board of
Directors in its sole discretion in accordance with Section 2.1 of the Bylaws of
the Corporation, subject to the rights of the holders of any class or series of
preferred stock of the Corporation, as set forth in a Preferred Stock
Designation, to elect additional Directors under specified circumstances, and
shall be subject to the following provisions:
SECTION 1: Election. Holders of Class B Common Stock shall elect all
directors of the Corporation (other than directors, if any, which holders of any
series of Preferred Stock are entitled to elect pursuant to the provisions of
the certificate of designations establishing such series).
Except as otherwise consistent with applicable statutory, regulatory and
interpretive restrictions regarding foreign ownership or control of U.S. air
carriers, all directors shall be U.S. Citizens (as defined in Article Six,
Section 1 hereof). The election of directors need not be by written ballot
except as may otherwise be provided in the Bylaws. In connection with each
annual election of directors of the Corporation, the Board of Directors shall
nominate the Chief Executive Officer of the Corporation for election as a
director.
SIX:
SECTION 1. Limitation of Voting Rights. Notwithstanding anything to the
contrary contained in this Amended and Restated Certificate of Incorporation, at
no time shall shares of capital stock of the Corporation be voted by, or at the
direction of, Persons ("Aliens") who are not "citizens of the United States" as
defined in 49 U.S.C. 40102(15), as now in effect or as it may hereafter from
time to time be amended ("U.S. Citizens"), unless such shares are registered on
the separate stock record maintained by the Corporation for the registration of
ownership of Voting Stock, as defined in the Bylaws, by Aliens. The Bylaws may
contain provisions to implement this provision.
SECTION 2. Bylaws, Etc.
(a) The Bylaws of the Corporation may make appropriate provisions to effect
the requirements of this Article Six.
(b) All certificates representing Class B Common Stock or any other Voting
Stock of the Corporation are subject to the restrictions set forth in this
Article Six.
(c) A majority of the directors of the Corporation shall have the exclusive
power to determine all matters necessary to determine compliance with this
Article Six; and the good faith determination of a majority of the directors on
such matters shall be conclusive and binding for all the purposes of this
Article Six.
SECTION 3. Beneficial Ownership Inquiry.
(a) The Corporation may by notice in writing (which may be included in the
form of proxy or ballot distributed to stockholders of the Corporation in
connection with the annual meeting (or any special meeting) of the stockholders
of the Corporation, or otherwise) require a Person that is a holder of record of
equity securities of the Corporation or that the Corporation knows to have, or
has reasonable cause to believe has, Beneficial Ownership of equity securities
of the Corporation to certify in such manner as the Corporation shall
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deem appropriate (including by way of execution of any form of proxy or ballot
by such Person) that, to the knowledge of such Person:
(i) all equity securities of the Corporation as to which such Person
has record ownership or Beneficial Ownership are owned and controlled only
by U.S. Citizens; or
(ii) the number and class or series of equity securities of the
Corporation owned of record or Beneficially Owned by such Person that are
owned or controlled by Aliens are as set forth in such certificate.
As used herein, "Beneficial Ownership," "Beneficially Owned," or "Owned
Beneficially" refers to beneficial ownership as defined in Rule 13d-3 (without
regard to the 60-day provision in paragraph (d)(1)(i) thereof) under the
Securities Exchange Act of 1934, as amended. As used herein, "Person" means any
person or entity of any nature whatsoever, specifically including an individual,
a firm, a company, a corporation, a partnership, a trust or other entity.
(b) With respect to any equity securities identified by such Person in
response to Section 3(a)(ii) of this Article Six, the Corporation may require
such Person to provide such further information as the Corporation may
reasonably require in order to implement the provisions of this Article Six.
(c) For purposes of applying the provisions of this Article Six with
respect to any equity securities of the Corporation, in the event of the failure
of any Person to provide the certificate or other information to which the
Corporation is entitled pursuant to this Section 3, the Corporation shall
presume that the equity securities in question are owned or controlled by
Aliens.
SEVEN: As permitted by the GCL, the approval of the holder of the share of
Series B Preferred Stock (the "Special Stock") of the Corporation that will be
issued to Northwest Airlines, Inc., a Minnesota corporation ("Northwest"),
pursuant to the Omnibus Agreement, dated as of November 15, 2000 (the "Omnibus
Agreement"), among the Corporation, Northwest, Northwest Airlines Holdings
Corporation, a Delaware corporation, Northwest Airlines Corporation, a Delaware
corporation, and Air Partners, L.P., a Texas limited partnership, given in
writing, shall, until such time as the Special Stock becomes redeemable in
accordance with its terms (or the earlier repurchase of the Special Stock by the
Corporation), be necessary to authorize, approve, effect or validate (a) any
amendment to the Amended and Restated Rights Agreement by and between the
Corporation and ChaseMellon Shareholder Services, LLC, a New Jersey limited
liability company, as rights agent, or any successor thereto, as in effect
immediately following the closing of the transactions contemplated by the
Omnibus Agreement (the "Rights Agreement") or any successor rights agreement, or
the Preferred Shares (as defined in the Rights Agreement) or (b) the redemption
of the Rights (as that term is defined in the Rights Agreement) pursuant to
Section 23 of the Rights Agreement or any corresponding provision or provisions
of a successor rights agreement. Notwithstanding the foregoing, no such approval
shall be required if (i) in the case of an amendment to the Rights Agreement,
such amendment (taking into account the effect of such amendment and all other
amendments adopted subsequent to the closing of the transactions under the
Omnibus Agreement) (A) does not permit a Person that is a Major Carrier (as
defined in the Certificate of Designations for the Special Stock) or an
Affiliate (as defined in the Rights Agreement) of a Major Carrier to enter into
a particular transaction without becoming an Acquiring Person (as defined in the
Rights Agreement) in such transaction where, but for such amendment, such Person
would have otherwise become an Acquiring Person in such transaction (provided,
any amendment to the Rights Agreement that designates a Person as an Exempt
Person or otherwise exempts a Person from the definition of Acquiring Person
shall provide that such Person's status as an Exempt Person (or such Person's
exemption from the definition of Acquiring Person) shall remain effective only
for so long as such Person is not a Major Carrier or an Affiliate of a Major
Carrier), (B) does not mitigate in any material respect the adverse consequences
to a Person as a result of its becoming an Acquiring Person, (C) does not amend
in any material respect Section 27 of the Rights Agreement, (D) does not alter
the provisions of Section 23(a) relating to the redemption of the Rights, and
(E) does not extend the time during which the rights may be redeemed; or (ii) in
the case of a redemption of the Rights, such redemption is in connection with a
bona fide transaction involving one or more Persons, none of which is, or is an
Affiliate of, a Major Carrier, which Person
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or Persons would otherwise become an Acquiring Person in such transaction and
which transaction has either a reasonable likelihood or a purpose of producing,
either directly or indirectly, any of the effects described in paragraph
(a)(3)(ii) of Rule 13e-3 (as in effect on November 15, 2000) promulgated under
the Securities Exchange Act of 1934, as amended, and the Corporation need not
adopt a new rights agreement after such redemption except to the extent required
by the following proviso; provided, that in the case of any such redemption or
other state of affairs in which a rights agreement in the form of the Rights
Agreement (subject to any amendments that may be made without the approval of
the holder of the Special Stock (as described in this Article Seven)) is not in
effect with rights having been issued thereunder, the Corporation shall, as
applicable, (i) reissue the Rights, or (ii) issue rights pursuant to a rights
agreement with provisions identical in all material respects as those contained
in the Rights Agreement (subject to amendments that may be made without the
approval of the holder of the Special Stock as described above), in each case as
promptly as practicable in the event any class of common stock of the
Corporation becomes registered under Section 12(b) or Section 12(g) of the
Securities Exchange Act of 1934, as amended. Except as otherwise expressly
provided above and unless the Special Stock becomes redeemable in accordance
with its terms or is repurchased by the Corporation, the Corporation shall take
all necessary action to have in effect a rights agreement with terms and
conditions identical in all material respects to the terms and conditions of the
Rights Agreement (subject to amendments that may be made without the approval of
the holder of the Special Stock as described above) and to issue the rights
created thereunder in accordance with such rights agreement. Notwithstanding the
foregoing, the definition of Acquiring Person in the Rights Agreement may be
amended by changing all or some of the references therein to 15% to any
percentage less than 25%.
EIGHT: Except as otherwise expressly provided herein, the Board of
Directors is expressly authorized to adopt, amend or repeal the Bylaws of the
Corporation.
NINE: Effective as of the Consummation Date (as defined in the Investment
Agreement, dated November 9, 1992, among Air Canada, a Canadian corporation, Air
Partners, L.P., a Texas limited partnership, the Corporation and Continental
Airlines Holdings, Inc., as amended), the Corporation elects not to be governed
by Section 203 of the General Corporation Law of the State of Delaware.
TEN: No Director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability (i) for any breach of the Director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the GCL, or (iv) for any
transaction from which the Director derived any improper personal benefit. If
the GCL is amended after the date of the filing of this Amended and Restated
Certificate of Incorporation to authorize corporate action further eliminating
or limiting the personal liability of directors, then the liability of a
Director of the Corporation shall be eliminated or limited to the fullest extent
permitted by the GCL, as so amended. No amendment to or repeal of this Article
Ten shall affect in a manner adverse to any such Director the liability or
alleged liability of such Director for or with respect to any acts or omissions
of such Director or member occurring prior to such amendment or repeal.
ELEVEN: The Corporation shall indemnify, to the full extent permitted by
the laws of the State of Delaware as from time to time in effect, each Director
and officer of the Corporation, and may indemnify each employee and agent of the
Corporation, and all other persons whom the Corporation is authorized to
indemnify under the provisions of the GCL.
TWELVE: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation, and any other provisions authorized by the laws of the State of
Delaware at the time in force may be added or inserted, in the manner now or
hereafter prescribed by law and this Amended and Restated Certificate of
Incorporation and subject to the rights, preferences and powers of any series of
Preferred Stock as set forth in a Preferred Stock Designation; and all rights,
preferences and privileges of whatsoever nature and conferred upon stockholders,
directors or any other Persons whomsoever by and pursuant to this Amended and
Restated Certificate of Incorporation in its present form or as hereafter
amended are granted subject to the right reserved in this Article Twelve.
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IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation,
which restates and integrates and further amends the provisions of the Amended
and Restated Certificate of Incorporation of this Corporation, and which has
been duly adopted in accordance with Sections 242 and 245 of the Delaware
General Corporation Law, has been executed by its duly authorized officer this
day of , 2001.
CONTINENTAL AIRLINES, INC.
By:
----------------------------------
Jeffery A. Smisek
Executive Vice President,
General Counsel and Secretary
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EXHIBIT A
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
SECTION 1. Designation and Amount. The shares of this series shall be
designated as "Series A Junior Participating Preferred Stock" (the "Series A
Preferred Stock") and the number of shares constituting the Series A Preferred
Stock shall be 100,000. Such number of shares may be increased or decreased by
resolution of the Board of Directors; provided, that no decrease shall reduce
the number of shares of Series A Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Corporation
convertible into Series A Preferred Stock.
SECTION 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any series of
Preferred Stock (or any other stock) ranking prior and superior to the Series A
Preferred Stock with respect to dividends, the holders of shares of Series A
Preferred Stock shall be entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available for the purpose, quarterly
dividends payable in cash on the last day of March, June, September and December
in each year (each such date being referred to herein as a "Quarterly Dividend
Payment Date"), commencing on the first Quarterly Dividend Payment Date after
the first issuance of a share or fraction of a share of Series A Preferred
Stock, in an amount (if any) per share (rounded to the nearest cent), subject to
the provision for adjustment hereinafter set forth, equal to 1000 times the
aggregate per share amount of all cash dividends, and 1000 times the aggregate
per share amount (payable in kind) of all non-cash dividends or other
distributions, other than a dividend payable in shares of Class A Common Stock,
par value $.01 per share (the "Class A Common Stock"), Class B Common Stock, par
value $.01 per share (the "Class B Common Stock") or Class D Common Stock, par
value $.01 per share (the "Class D Common Stock" and, together with the Class A
Common Stock and the Class B Common Stock, the "Common Stock"), of the
Corporation or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series A Preferred Stock. In the event the Corporation
shall at any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or consolidation
of the outstanding shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the amount to which
holders of shares of Series A Preferred Stock were entitled immediately prior to
such event under the preceding sentence shall be adjusted by multiplying such
amount by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
(B) The Corporation shall declare a dividend or distribution on the Series
A Preferred Stock as provided in paragraph (A) of this Section immediately after
it declares a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock).
(C) Dividends due pursuant to paragraph (A) of this Section shall begin to
accrue and be cumulative on outstanding shares of Series A Preferred Stock from
the Quarterly Dividend Payment Date next preceding the date of issue of such
shares, unless the date of issue of such shares is prior to the record date for
the first Quarterly Dividend Payment Date, in which case dividends on such
shares shall begin to accrue from the date of issue of such shares, or unless
the date of issue is a Quarterly Dividend Payment Date or is a date after the
record date for the determination of holders of shares of Series A Preferred
Stock entitled to receive a quarterly dividend and before such Quarterly
Dividend Payment Date, in either of which events such dividends shall begin to
accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but
unpaid dividends shall not bear interest. Dividends paid on the shares of Series
A Preferred Stock in an amount less than the total amount of such dividends at
the time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board of
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Directors may fix a record date for the determination of holders of shares of
Series A Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be not more than 60 days
prior to the date fixed for the payment thereof.
SECTION 3. Voting Rights. The holders of shares of Series A Preferred
Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Preferred Stock shall entitle the holder thereof to
1000 votes on all matters submitted to a vote of the stockholders of the
Corporation. In the event the Corporation shall at any time declare or pay
any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by payment of
a dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the number of votes per
share to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying such
number by a fraction, the numerator of which is the number of votes
entitled to be cast by the holders of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
votes entitled to be cast by the holders of shares of Common Stock that
were outstanding immediately prior to such event.
(B) Except as otherwise provided in the Amended and Restated
Certificate of Incorporation, including any other Certificate of
Designation creating a series of Preferred Stock or any similar stock, or
by law, the holders of shares of Series A Preferred Stock and the holders
of shares of Common Stock and any other capital stock of the Corporation
having general voting rights shall vote together as one class on all
matters submitted to a vote of stockholders of the Corporation.
(C) Except as set forth herein, or as otherwise required by law,
holders of Series A Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled
to vote with holders of Common Stock as set forth herein) for taking any
corporate action.
SECTION 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series A Preferred Stock outstanding shall have
been paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other distributions, on any
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock;
(ii) declare or pay dividends, or make any other distributions, on any
shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
except dividends paid ratably on the Series A Preferred Stock and all such
parity stock on which dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such shares are then
entitled; or
(iii) redeem or purchase or otherwise acquire for consideration shares
of any stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock; provided that
the Corporation may at any time redeem, purchase or otherwise acquire
shares of any such junior stock in exchange for shares of any stock of the
Corporation ranking junior (as to dividends and upon dissolution,
liquidation or winding up) to the Series A Preferred Stock.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
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SECTION 5. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. The
Corporation shall take all such actions as are necessary to cause all such
shares to become authorized but unissued shares of Preferred Stock that may be
reissued as part of a new series of Preferred Stock subject to the conditions
and restrictions on issuance set forth herein or in the Restated Certificate of
Incorporation, including any Certificate of Designation creating a series of
Preferred Stock or any similar stock, or as otherwise required by law.
SECTION 6. Liquidation, Dissolution or Winding Up. Upon any liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series A
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 1000
times the aggregate amount to be distributed per share to holders of shares of
Common Stock plus an amount equal to any accrued and unpaid dividends. In the
event the Corporation shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the aggregate amount to which holders of shares of Series A Preferred
Stock were entitled immediately prior to such event under the preceding sentence
shall be adjusted by multiplying such amount by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
SECTION 7. Consolidation, Merger, etc. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of
Series A Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 1000 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
SECTION 8. Amendment. The Restated Certificate of Incorporation shall not
be amended in any manner, including in a merger or consolidation, which would
alter, change, or repeal the powers, preferences or special rights of the Series
A Preferred Stock so as to affect them adversely without the affirmative vote of
the holders of at least two-thirds of the outstanding shares of Series A
Preferred Stock, voting together as a single class.
SECTION 9. Rank. The Series A Preferred Stock shall rank, with respect to
the payment of dividends and upon liquidation, dissolution and winding up,
junior to all series of Preferred Stock.
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ANNEX B
CERTIFICATE OF DESIGNATIONS
OF
SERIES B PREFERRED STOCK
(PAR VALUE $0.01)
OF
CONTINENTAL AIRLINES, INC.
---------------------
PURSUANT TO SECTION 151 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
---------------------
Continental Airlines, Inc., a Delaware corporation, acting in accordance
with Section 151 of the General Corporation Law of the State of Delaware, does
hereby submit the following Certificate of Designations of its Series B
Preferred Stock.
FIRST: The name of the corporation is Continental Airlines, Inc. (the
"CORPORATION").
SECOND: On November 15, 2000, and in accordance with authority conferred
upon the Board of Directors of the Corporation (the "BOARD") by the Amended and
Restated Certificate of Incorporation of the Corporation (as the same may be
amended or modified from time to time, the "CERTIFICATE OF INCORPORATION"), the
Board adopted the following resolutions:
WHEREAS, the Certificate of Incorporation authorizes 10,000,000 shares of
preferred stock, par value $.01 per share (the "PREFERRED STOCK"), issuable from
time to time in one or more series;
WHEREAS, the Board is authorized, subject to certain limitations prescribed
by law and certain provisions of the Certificate of Incorporation, to establish
and fix the number of shares to be included in any series of Preferred Stock and
the designations, rights, preferences, powers, restrictions and limitations of
the shares of such series;
WHEREAS, the Board deems it advisable to establish a series of Preferred
Stock, designated as Series B Preferred Stock, par value $.01 per share; and
WHEREAS, the sole share of such series is to be issued to Northwest
Airlines, Inc. ("NORTHWEST"), at the closing of the transactions contemplated
by, and as an inducement to the Northwest Parties (as defined below) to enter
into, the Omnibus Agreement, dated as of November 15, 2000 (the "OMNIBUS
AGREEMENT"), among Northwest, Northwest Airlines Holdings Corporation, Northwest
Airlines Corporation, Air Partners, L.P. (together, the "NORTHWEST PARTIES") and
the Corporation, and in connection with the amendment to the Master Alliance
Agreement dated as of January 25, 1998 between Northwest and the Corporation
(the "MASTER ALLIANCE AGREEMENT"), which amendment is being entered into
pursuant to, and will be effective at the Effective Time as defined in, the
Omnibus Agreement;
NOW, THEREFORE, BE IT RESOLVED, that the series of Preferred Stock
designated as Series B Preferred Stock, is hereby authorized and established;
and
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FURTHER, RESOLVED, that the Board does hereby fix and determine the
designations, rights, preferences, powers, restrictions and limitations of the
Series B Preferred Stock as follows:
SECTION 1. Number of Shares and Designation.
The designation of the series of Preferred Stock created by this resolution
shall be "Series B Preferred Stock" (hereinafter called this "SERIES"), and the
number of shares constituting this Series shall be one (the "Share"). The Share
shall have a stated value of $100 and a liquidation preference of $100 (the
"LIQUIDATION PREFERENCE"), as described herein. The number of authorized shares
of this Series shall not be increased or reduced without the affirmative vote or
written consent of the holder of the Share, voting separately as a class.
SECTION 2. Dividends.
No dividends shall be payable in respect of the Share.
SECTION 3. Redemption.
(1) The Share shall not be redeemable by the Corporation except that it may
be redeemed, at the option of the Corporation, for an amount equal to the
Liquidation Preference upon or following the occurrence of any one of following
(each, a "REDEMPTION EVENT"):
(A) the sale, transfer, assignment, pledge, option or other
disposition of the Share or any of the beneficial or voting interest
therein (other than a voting interest that does not constitute an
Encumbrance (as defined below), including any security derivative of such
interest, by any of the Northwest Parties or their respective successors to
any other Person, other than to a successor in interest to Northwest by
operation of law that owns directly all or substantially all of the Airline
Assets owned by Northwest, or the Encumbrance of the Share by any of the
Northwest Parties or their respective successors;
(B) a NW Change of Control, unless the Corporation shall have
previously notified Northwest in writing that a NW Change of Control will
not be deemed to occur by virtue of the relevant event;
(C) any of the Northwest Parties committing (i) an inadvertent breach
of any provision of Section 1.01, Section 1.03(a) or Section 1.04 of the
Standstill Agreement being entered into by the Corporation and certain of
the Northwest Parties in accordance with the Omnibus Agreement that is not
cured within fifteen days of receipt by Northwest of notice from the
Corporation of such breach or (ii) any other breach in any material respect
of Section 1.01, 1.03(a) or 1.04 or any breach in any material respect of
Section 1.02, 1.03(b), 1.03(c), 1.03(d), 1.03(e), 1.03(f) or 1.03(g) (but
only to the extent that the actions covered by Section 1.03(g) relate to
Section 1.03(b), 1.03(c), 1.03(d), 1.03(e) or 1.03(f)) of the Standstill
Agreement;
(D) the taking of any action by any of the Northwest Parties which has
the effect or result of, or any of the Northwest Parties otherwise causing,
any of them to become an "Acquiring Person" under the Amended and Restated
Rights Agreement (as defined in the Omnibus Agreement), as amended from
time to time (the "RIGHTS AGREEMENT"), or any successor agreement; or
(E) the Master Alliance Agreement, as amended from time to time, being
terminated or expiring, other than as a result of a breach or wrongful
termination thereof by the Corporation or its successor thereunder.
(2) Notice of redemption of the Series B Preferred Stock shall be sent by
or on behalf of the Corporation, by first class mail, postage prepaid, to
Northwest at its address as it shall appear on the records of the Corporation,
(i) notifying Northwest of the redemption of the Share and (ii) stating the
place at which the certificate evidencing the Share shall be surrendered. The
Corporation shall act as the transfer agent for the Series B Preferred Stock.
(3) From and after the notice of redemption having been duly given, and the
redemption price having been paid or irrevocably set aside for payment, the
Share shall no longer be, or be deemed to be, outstanding for any purpose, and
all rights, preference and powers (including voting rights and powers) of the
holder of the
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Share shall automatically cease and terminate, except the right of Northwest,
upon surrender of the certificate for the Share, to receive the redemption
price.
SECTION 4. Voting.
Neither the Share nor its holder (in respect of the Share) shall have any
voting rights or powers either general or special, except:
(1) As required by law;
(2) The affirmative vote or written consent of the holder of the Share,
voting separately as a class, given in person or by proxy, shall be necessary
for authorizing, approving, effecting or validating:
(A) the amendment, alteration or repeal of any of the provisions of
the Certificate of Incorporation or any certificate amendatory thereto or
supplemental thereto (including this Certificate of Designations), whether
by merger, consolidation or otherwise, that would adversely affect the
powers, designations, preferences and relative, participating or other
rights of the Share;
(B) any amendment, alteration or repeal of, or the adoption of any
provision inconsistent with, any of the provisions of Article SEVEN of the
Certificate of Incorporation, whether by merger, consolidation or
otherwise;
(C) any CO Change of Control (as defined below), with respect to which
the stockholders of Continental or its successor are entitled to vote,
whether pursuant to applicable law or the rules of the national securities
exchange or market system on which the common stock of the Corporation or
its successor is principally traded;
(D) any dividend or distribution of all or substantially all of the
Airline Assets (as defined below), including a dividend or distribution
that includes the shares of any Subsidiary holding, directly or indirectly,
all or substantially all of the Airline Assets, of the Corporation or its
successor and its Subsidiaries, taken as a whole, (other than a dividend or
distribution to a Holding Company the creation of which was previously
subject to clause (F) below), whether as part of a single dividend or
distribution or a related series thereof;
(E) any sale, transfer or other disposition, directly or indirectly,
by the Corporation or its successor of all or substantially all of its
Airline Assets to one or more of its Affiliates in one or a series of
related transactions, provided that no such vote shall be required if (x)
each such transferee of assets issues to Northwest or its successor, for a
purchase price of $100, a share of preferred stock of such transferee
having powers, designations, preferences and relative, participating or
other rights, and restrictions and limitations thereof, with respect to
such transferee that are identical to the powers, designations, preferences
and relative, participating or other rights, and restrictions and
limitations thereof, of this Series with respect to the Corporation,
provided, that such newly issued share may differ from the Share as may be
reasonably necessary and appropriate to reflect that such new entity and
not the Corporation is the issuer thereof or any other non-material changes
that do not adversely affect the rights of the holder thereof, (y) a rights
plan with terms and conditions identical in all material respects to those
provided under the Rights Agreement (except that any Person that would
otherwise be an Acquiring Person (as defined in the Rights Agreement) as a
result of or in connection with any transaction may be designated as an
"Exempt Person" thereunder to the extent that, and only for so long as,
such Acquiring Person is not a Major Carrier or an Affiliate of a Major
Carrier, and other terms and conditions may be changed if such changes
would be permitted under Article SEVEN of the Certificate of Incorporation)
is established at each such transferee that has outstanding capital stock
registered under Section 12(b) or 12(g) under the Securities Exchange Act
of 1934, as amended, and provided, that the initial exercise price
established therein is established at a level based upon reasonable and
customary valuation practices substantially consistent with those used in
establishing the exercise price in the predecessor agreement to the Rights
Agreement, and (z) the certificate of incorporation of each such entity
issuing a share of preferred stock in accordance with clause (x) of this
paragraph contains provisions in form and substance
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identical to Article SEVEN of the Certificate of Incorporation, subject to
appropriate modifications, if applicable, as may be necessary to reflect
that a rights plan may not yet be required to be put into effect;
(F) any reorganization or restructuring of, or any other transaction
involving, the Corporation or its successor and any of its Subsidiaries the
effect of which is to create a new Holding Company (as defined below) other
than a transaction subject to Section 4(2)(G), provided that no such vote
shall be required if (x) such Holding Company is not a Major Carrier or an
Affiliate of a Major Carrier, and it and each of its Subsidiaries owning
Airline Assets issue to Northwest or its successor, for a purchase price of
$100, a share of a series of preferred stock of each such company having
powers, designations, preferences and relative, participating or other
rights, and restrictions and limitations thereof, with respect to each such
company that are identical to the powers, designations, preferences and
relative, participating or other rights, and restrictions and limitations
thereof, of this Series with respect to the Corporation, provided, that
such newly issued share may differ from the Share as may be reasonably
necessary and appropriate to reflect that such new entity and not the
Corporation is the issuer thereof or any other non-material changes that do
not adversely affect the rights of the holder thereof, (y) a rights plan
with identical terms and conditions in all material respects to those
provided under the Rights Agreement (except that any Person that would
otherwise be an Acquiring Person (as defined in the Rights Agreement) as a
result of or in connection with any transaction may be designated as an
"Exempt Person" thereunder to the extent that, and only for so long as,
such Acquiring Person is not a Major Carrier or an Affiliate of a Major
Carrier, and other terms and conditions may be changed if such changes
would be permitted under Article SEVEN of the Certificate of Incorporation)
is established at such new Holding Company and each such Subsidiary that
has outstanding capital stock registered under Section 12(b) or 12(g) under
the Securities Exchange Act of 1934, as amended, and provided, that the
initial exercise price established therein is established at a level based
upon reasonable and customary valuation practices substantially consistent
with those used in establishing the exercise price in the predecessor
agreement to the Rights Agreement, and (z) the certificate of incorporation
of each such entity issuing a share of preferred stock in accordance with
clause (x) of this paragraph contains provisions in form and substance
identical to Article SEVEN of the Certificate of Incorporation, subject to
appropriate modifications, if applicable, as may be necessary to reflect
that a rights plan may not yet be required to be put into effect; or
(G) any transaction involving the establishment of a new Holding
Company, whether as a result of a reorganization, restructuring or
otherwise, which new Holding Company does not and will not upon
consummation of such transaction have any outstanding Capital Stock
registered under Section 12(b) or 12(g) under the Securities Exchange Act
of 1934, as amended, or any transaction involving the Corporation or its
successor that has either a reasonable likelihood or a purpose of
producing, either directly or indirectly, any of the effects described in
paragraph (a)(3)(ii) of Rule 13e-3 (as in effect on the date of issuance of
the Share) promulgated under the Securities Exchange Act of 1934, as
amended (a "GOING PRIVATE TRANSACTION"), provided that no such vote shall
be required if (1) no later than the consummation of such Going Private
Transaction or the consummation of the transaction resulting in such new
Holding Company, as applicable, each remaining holder of the common stock
of Continental or its successor upon consummation of such Going Private
Transaction, or each holder of outstanding Capital Stock of such new
Holding Company (other than, in the case of a Holding Company that is a
limited partnership, limited partners thereof that are not Affiliates of
any general partner thereof), as applicable, executes and delivers a
transfer restriction agreement to Northwest or its successor in the form of
Exhibit 12 to the Omnibus Agreement, and until Continental or such Holding
Company, as applicable, has outstanding Capital Stock registered under
Section 12(b) or 12(g) under the Securities Exchange Act of 1934, as
amended, Continental or such Holding Company, as applicable, agrees to
require any Person acquiring Capital Stock from Continental or such Holding
Company, as applicable, subject to the preceding parenthetical, likewise to
execute and deliver such agreement to Northwest, (2) each of the share
certificates representing common stock of Continental or Capital Stock of
such Holding Company, as applicable, bears an appropriate legend in
accordance with applicable law as to the agreement described in clause (1),
and (3) the certificate of incorporation of such new Holding Company
contains provisions in form and substance identical to Article SEVEN of the
Certificate of
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Incorporation, subject to appropriate modifications as may be necessary to
reflect that a rights plan is not yet required to be put into effect.
(3) The voting rights and powers set forth in Sections 4(2)(B), 4(2)(C),
4(2)(D), 4(2)(E), 4(2)(F) and 4(2)(G) shall automatically terminate if the Share
becomes redeemable in accordance with Section 3 hereof.
SECTION 5. Liquidation Rights.
(1) Upon the dissolution, liquidation or winding up of the Corporation, the
holder of the Share shall be entitled to receive and to be paid out of the
assets of the Corporation available for distribution to its stockholders, before
any payment or distribution shall be made on the common stock of the Corporation
or on any other class of stock ranking junior to the Preferred Stock upon
liquidation, the amount of $100, and no more.
(2) Neither the sale of all or substantially all of the assets or capital
stock of the Corporation, nor the merger or consolidation of the Corporation
into or with any other corporation or the merger or consolidation of any other
corporation into or with the Corporation, shall be deemed to be a dissolution,
liquidation or winding up, voluntary or involuntary, for the purposes of this
Section 5.
(3) After the payment to the holder of the Share of the full preferential
amount provided for in this Section 5, the holder of the Share as such shall
have no right or claim to any of the remaining assets of the Corporation.
SECTION 6. Ranking.
For purposes of this resolution, any stock of any class or classes of the
Corporation, other than the Class B Common Stock of the Corporation (as the same
may be reclassified, changed or amended from time to time), shall be deemed to
rank prior to the Share upon liquidation, dissolution or winding up.
SECTION 7. No Additional Rights.
Except as required by law and except as provided in the Certificate of
Incorporation, neither the Series B Preferred Stock nor the holder of the Share,
in respect of the Share, shall be entitled to any rights, powers or preferences
other than those set forth in this resolution.
SECTION 8. Definitions.
Capitalized terms not otherwise defined in this Certificate of Designation
shall have the following meanings in this Certificate of Designation:
"AFFILIATE" means, as applied to a Person, any other Person directly or
indirectly controlling, controlled by, or under common control with, that
Person. For purposes of this definition "CONTROL" (including, with correlative
meanings, the terms "CONTROLLING," "CONTROLLED BY" and "UNDER COMMON CONTROL
WITH"), as applied to any Person, means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
that Person, whether through the ownership of voting securities, by contract or
otherwise.
"AIRLINE ASSETS" means those assets used, as of the date of determination,
in the relevant Person's operation as an air carrier.
"BENEFICIAL OWNERSHIP" has the meaning given such term in Rules 13d-3 and
13d-5 under the Securities Exchange Act of 1934, as amended.
"CAPITAL STOCK" of any Person means any and all shares, interests, rights
to purchase, options, warrants, participation or other equivalents of or
interests in (however designated) the equity of such Person, including any
preferred stock.
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"CO CHANGE OF CONTROL" means:
(i) a merger, reorganization, share exchange, consolidation, tender or
exchange offer, private purchase, business combination, recapitalization or
similar transaction as a result of which (A) a Major Carrier or a Holding
Company of a Major Carrier and a Continental Affected Company are legally
combined, (B) a Major Carrier, any of its Affiliates, or any combination
thereof acquires, directly or indirectly, Beneficial Ownership of 25% or
more of the Capital Stock or Voting Power of a Continental Affected
Company, or (C) a Continental Affected Company acquires, directly or
indirectly, Beneficial Ownership of 25% or more of the Capital Stock or
Voting Power of a Major Carrier;
(ii) the liquidation or dissolution of the Corporation or its
successor in connection with which the Corporation or such successor ceases
operations as an air carrier;
(iii) the sale, transfer or other disposition of all or substantially
all of the Airline Assets of Continental (or its successor) and its
Subsidiaries on a consolidated basis directly or indirectly to a Major
Carrier, any Affiliate of a Major Carrier or any combination thereof,
whether in a single transaction or a series of related transactions;
(iv) the sale, transfer or other disposition of all or substantially
all of the trans-Atlantic route network or the Latin American route network
of the Corporation or its successor other than to an Affiliate of the
Corporation;
(v) the direct or indirect acquisition by a Major Carrier, any of its
Affiliates or any combination thereof of Beneficial Ownership of 25% or
more of the Capital Stock or Voting Power of a Continental Affected
Company;
(vi) the direct or indirect acquisition, whether in a single
transaction or a series of related transactions, by a Continental Affected
Company of Airline Assets and associated employees, which Airline Assets on
a stand alone basis would have pro forma annual passenger revenues for the
most recently completed four fiscal quarters for which financial statements
can be reasonably prepared in excess of the Revenue Threshold; or
(vii) the execution by a Continental Affected Company of bona fide
definitive agreements, the consummation of the transactions contemplated by
which would result in a transaction described in the immediately preceding
clauses (i), (ii), (iii), (iv), (v) or (vi).
Notwithstanding the foregoing, (A) in no event shall a commercial cooperation
agreement (such as the Northwest-KLM trans-Atlantic joint venture), which
involves a Major Carrier or any of its Affiliates and a Continental Affected
Party, which consists of code sharing, a joint venture or similar arrangement
and which does not involve a sale, transfer, or acquisition of Airline Assets,
be deemed to be a CO Change of Control, and (B) any such commercial cooperation
agreement, which involves a Major Carrier or any of its Affiliates and a
Continental Affected Party, which consists of code sharing, a joint venture or
similar arrangement but which does involve a sale, transfer, or acquisition of
Airline Assets, shall be deemed to be a CO Change of Control only if such
transaction is otherwise within the scope of one or more of the preceding
clauses (i) through (vii).
"CONTINENTAL AFFECTED COMPANY" means (a) the Corporation and its successor,
(b) any Holding Company of the Corporation, or (c) any Subsidiary of the
Corporation or its successor or of any Holding Company of the Corporation, that
in any such case owns, directly or indirectly, all or substantially all of the
Airline Assets of the Corporation or its successor, such Holding Companies of
the Corporation and such Subsidiaries, taken as a whole.
"ENCUMBRANCE" means the direct or indirect grant by any Northwest Party or
its successor to any other Person of the sole or shared power or right to vote
or consent, or direct the voting or consenting of, the Share in any respect,
whether by proxy, voting agreement, arrangement, or understanding (written or
otherwise) voting trust, or otherwise (other than a revocable proxy granted to
any director, officer or employee of a Northwest Party or the Corporation, or
any counsel for any Northwest Party, or any corporate trust officer
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of Wilmington Trust Company or a national trust company solely for the limited
purpose of voting the Share, the instructions for which are given solely by the
relevant Northwest Party), or by joining a partnership, limited partnership,
syndicate or other voting group or otherwise acting in concert with another
Person (other than a revocable proxy referred to above) for the purpose or with
the effect of voting or directing the vote of the Share.
"HOLDING COMPANY" means, as applied to a Person, any other Person of whom
such Person is, directly or indirectly, a Subsidiary.
"INSTITUTIONAL INVESTOR" shall mean an institutional or other passive
investor who, with respect to the securities relating to Voting Power that are
the subject of the definition of Subsidiary herein, would be entitled to file a
Statement on Schedule 13G (and not required to file a Statement on Schedule 13D)
with respect to such securities under the rules promulgated under the Securities
Exchange Act of 1934, as amended, in effect on November 15, 2000, but only so
long as such investor would not be required to file a Statement on Schedule 13D
with respect to such securities.
"MAJOR CARRIER" means an air carrier (other than the Corporation and its
successors and any Subsidiary thereof or Northwest Airlines Corporation and its
successors and any Subsidiary thereof), the annual passenger revenues of which
(including its Subsidiaries' predecessor entities) for the most recently
completed fiscal year for which audited financial statements are available are
in excess of the Revenue Threshold as of the date of determination (or the U.S.
dollar equivalent thereof).
"NORTHWEST AFFECTED COMPANY" means (a) Northwest Airlines Corporation,
Northwest and their respective successors, (b) any Holding Company of Northwest
Airlines Corporation or Northwest, or (c) any Subsidiary of Northwest Airlines
Corporation, Northwest or their respective successors or of any Holding Company
or their respective successors, that in any such case owns, directly or
indirectly, all or substantially all of the Airline Assets of Northwest Airlines
Corporation, Northwest or their respective successors, such Holding Companies of
Northwest Airlines Corporation, Northwest and such Subsidiaries, taken as a
whole.
"NW CHANGE OF CONTROL" means:
(i) a merger, reorganization, share exchange, consolidation, tender or
exchange offer, private purchase, business combination, recapitalization or
similar transaction as a result of which (A) a Major Carrier or a Holding
Company of a Major Carrier and a Northwest Affected Company are legally
combined, (B) a Major Carrier, any of its Affiliates or any combination
thereof acquires, directly or indirectly, Beneficial Ownership of 25% or
more of the Capital Stock or Voting Power of a Northwest Affected Company,
or (C) a Northwest Affected Company acquires, directly or indirectly,
Beneficial Ownership of 25% or more of the Capital Stock or Voting Power of
a Major Carrier;
(ii) the liquidation or dissolution of Northwest or its successor in
connection with which Northwest or such successor ceases operations as an
air carrier;
(iii) the sale, transfer or other disposition of all or substantially
all of the Airline Assets of Northwest Airlines Corporation (or its
successor) and its Subsidiaries on a consolidated basis directly or
indirectly to a Major Carrier, any Affiliate of a Major Carrier or any
combination thereof, whether in a single transaction or a series of related
transactions;
(iv) the sale, transfer or other disposition of all or substantially
all of the transpacific route network of Northwest or its successor other
than to an Affiliate of Northwest;
(v) the direct or indirect acquisition by a Major Carrier, any of its
Affiliates or any combination thereof of Beneficial Ownership of 25% or
more of the Capital Stock or Voting Power of a Northwest Affected Company;
(vi) the direct or indirect acquisition, whether in a single
transaction or a series of related transactions, by a Northwest Affected
Company of Airline Assets and associated employees, which Airline Assets on
a stand alone basis would have pro forma annual passenger revenues for the
most
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recently completed four fiscal quarters for which financial statements can
be reasonably prepared in excess of the Revenue Threshold; or
(vii) the execution by a Northwest Affected Company of bona fide
definitive agreements, the consummation of the transactions contemplated by
which would result in a transaction described in the immediately preceding
clauses (i), (ii), (iii), (iv), (v) or (vi).
Notwithstanding the foregoing, (A) in no event shall a commercial cooperation
agreement (such as the Northwest-KLM trans-Atlantic joint venture), which
involves a Major Carrier or any of its Affiliates and a Northwest Affected
Party, which consists of code sharing, a joint venture or similar arrangement
and which does not involve a sale, transfer, or acquisition of Airline Assets,
be deemed to be a NW Change of Control, and (B) any such commercial cooperation
agreement, which involves a Major Carrier or any of its Affiliates and a
Northwest Affected Party, which consists of code sharing, a joint venture or
similar arrangement but which does involve a sale, transfer, or acquisition of
Airline Assets, shall be deemed to be a NW Change of Control only if such
transaction is otherwise within the scope of one or more of the preceding
clauses (i) through (vii).
"REVENUE THRESHOLD" means one billion dollars ($1,000,000,000), as such
amount may be increased based on the amount by which, for any date of
determination, the most recently published Consumer Price Index for all-urban
consumers published by the Department of Labor (the "CPI") has increased to such
date above the CPI for calendar year 2000. For purposes hereof, the CPI for
calendar year 2000 is the monthly average of the CPI for the 12 months ending on
December 31, 2000.
"PERSON" means an individual, partnership, corporation, business trust,
joint stock company, limited liability company, unincorporated association,
joint venture or other entity of whatever nature.
"SUBSIDIARY" (i) of any Person (other than an Institutional Investor) means
any corporation, association, partnership, joint venture, limited liability
company or other business entity of which more than 40% of the total Voting
Power thereof or the Capital Stock thereof is at the time owned or controlled,
directly or indirectly, by (1) such Person, (2) such Person and one or more
Subsidiaries of such Person, or (3) one or more Subsidiaries of such Person and
(ii) of any Institutional Investor means any corporation, association,
partnership, joint venture, limited liability company or other business entity
of which more than 50% of the total Voting Power thereof is at the time owned or
controlled, directly, by such Institutional Investor.
"VOTING POWER" means, as of the date of determination, the voting power in
the general election of directors, managers or trustees, as applicable.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation to be signed by its duly authorized officer this day of
, 2000.
CONTINENTAL AIRLINES, INC.
By:
----------------------------------
Name:
Title:
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<PAGE> 89
ANNEX C
[UBS WARBURG LETTERHEAD]
November 15, 2000
Board of Directors
Continental Airlines, Inc.
1600 Smith Street
Houston, Texas 77002
Members of the Board of Directors:
We understand that Continental Airlines, Inc., a Delaware corporation
("Continental" or the "Company"), is considering a transaction whereby the
Company will purchase from affiliates of Northwest Airlines, Inc., a Delaware
corporation (Northwest Airlines, Inc., together with its affiliates, being
referred to herein as "Northwest"), 6,685,279 shares (the "Repurchase Shares")
of the Class A common stock, par value $.01 per share (the "Class A Common
Stock"), of the Company, and will reclassify the remaining outstanding shares of
Class A Common Stock (the "Reclassification") into shares of Class B common
stock, par value $.01 per share (the "Class B Common Stock"), of the Company.
Pursuant to the terms of an Omnibus Agreement, dated as of November 15, 2000
(the "Omnibus Agreement"), by and between Continental and Northwest, an Amended
and Restated Certificate of Incorporation of the Company relating to the
Reclassification to be submitted to a vote of the Company's stockholders at a
special meeting of stockholders (the "Charter Amendment"), and the Reoffer
Purchase Agreement, dated as of November 15, 2000 (the "Reoffer Purchase
Agreement"), by and among Continental, Northwest and 1992 Air, Inc. ("1992
Air"), pursuant to which 1992 Air has agreed to sell to Continental 1992 Air's
rights of first offer and re-offer/option with respect to the shares of Class A
Common Stock owned by Northwest, (i) Continental will purchase from Northwest
the Repurchase Shares, and (ii) each issued and outstanding share of Class A
Common Stock will be reclassified into 1.32 shares of Class B Common Stock (the
events described in clauses (i) and (ii) above being collectively referred to
herein as the "Transaction"). The consideration to be paid by Continental in the
Transaction (the "Transaction Consideration") consists solely of (A) $450
million in cash to be paid to Northwest, (B) the shares of Class B Common Stock
to be issued in the Reclassification and (C) the payment or delivery, as the
case may be, to 1992 Air of, at Continental's election pursuant to the terms of
the Reoffer Purchase Agreement, either (x) $10 million in cash or (y) shares of
Class B Common Stock with a market value (as described below) equal to $11
million. The terms and conditions of the Transaction are more fully set forth in
the Omnibus Agreement, the Charter Amendment and the Reoffer Purchase Agreement.
You have requested our opinion as to the fairness to the holders of Class B
Common Stock from a financial point of view of the Transaction Consideration to
be paid by Continental in the Transaction.
UBS Warburg LLC ("UBSW") has acted as financial advisor to the Board of
Directors of Continental in connection with the Transaction. UBSW will receive a
fee from Continental, the majority of which is payable upon the consummation of
the Transaction. In the past, UBSW and its predecessors have provided investment
banking services to Continental and Northwest and received customary
compensation for the rendering of such services. In addition, in November 2000,
UBSW acted as a placement agent for a private placement of convertible preferred
securities issued by a special purpose trust affiliated with Continental and
convertible into Class B Common Stock, the proceeds of which private placement
are expected to be used to finance, in part, the payment of the cash portion of
the Transaction Consideration. In the ordinary course of business, UBSW, its
successors and affiliates may trade or have traded securities of Continental and
Northwest for their own accounts and, accordingly, may at any time hold a long
or short position in such securities.
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<PAGE> 90
Our opinion does not address Continental's underlying business decision to
effect the Transaction or constitute a recommendation to any stockholder of
Continental as to how such stockholder should vote with respect to the Charter
Amendment or any other matter. We have not been asked to, nor do we, offer any
opinion as to the material terms of the Omnibus Agreement, the Charter Amendment
and the Reoffer Purchase Agreement or the form of the Transaction. In addition,
at your direction, UBSW is not expressing any opinion as to the financing of the
purchase price for the Repurchase Shares, the terms of the Master Alliance
Agreement (and any changes thereto) between Continental and Northwest and the
Company's related Series B Preferred Stock, or the prices at which the Class B
Common Stock will trade subsequent to the Transaction. Furthermore, at your
direction, we are not opining or providing any advice with respect to the impact
of the Transaction and the related financing on the solvency, viability or the
financial condition of the Company or its ability to satisfy its obligations as
they become due. In performing the financial and comparative analyses in
connection with the rendering of this opinion, UBSW considered the amount being
paid by Continental for the Repurchase Shares to include the payment to 1992 Air
under the Reoffer Purchase Agreement to purchase 1992 Air's rights of offer and
re-offer/option with respect to the shares of Class A Common Stock owned by
Northwest, such payment being, at Continental's election, either (i) $10 million
in cash or (ii) shares of Class B Common Stock with a 20-day trailing weighted
average market value of $11 million. In rendering this opinion, we have assumed,
with your consent, that Continental, Northwest and 1992 Air will comply with all
the material terms of the Omnibus Agreement, the Charter Amendment and the
Reoffer Purchase Agreement, as applicable, and that the Transaction will be
consummated in accordance with the terms of such agreements.
In arriving at our opinion, we have, among other things: (i) reviewed
certain publicly available business and historical financial information
relating to the Company, (ii) reviewed the reported prices and trading activity
for the Class A Common Stock and the Class B Common Stock, (iii) reviewed
certain internal financial information and other data relating to the business
and financial prospects of the Company, including estimates and financial
forecasts prepared by the management of the Company, that were provided to us by
the Company, (iv) conducted discussions with members of the senior management of
the Company, (v) reviewed publicly available financial and stock market data
with respect to certain other companies in lines of business we believe to be
generally comparable to those of Continental, (vi) compared the financial terms
of the Transaction with the publicly available financial terms of certain other
transactions which we believe to be generally relevant, (vii) considered certain
pro forma effects of the Transaction on the Company's financial statements,
(viii) reviewed the Omnibus Agreement, the Charter Amendment and the Reoffer
Purchase Agreement, and (ix) conducted such other financial studies, analyses,
and investigations, and considered such other information as we deemed necessary
or appropriate.
In connection with our review, at your direction, we have not assumed any
responsibility for independent verification for any of the information reviewed
by us for the purpose of this opinion and have, at your direction, relied on its
being complete and accurate in all material respects. In addition, at your
direction, we have not made any independent evaluation or appraisal of any of
the assets or liabilities (contingent or otherwise) of Continental, nor have we
been furnished with any such evaluation or appraisal. With respect to the
financial forecasts, estimates and pro forma effects referred to above, we have
assumed, at the direction of the Company, that they have been reasonably
prepared on a basis reflecting the best currently available estimates and
judgments of the management of the Company as to the future performance of the
Company. In addition, we have assumed with the approval of the Company that the
future financial results referred to above will be achieved at the times and in
the amounts projected by management. Our opinion is necessarily based on
economic, monetary, market and other conditions as in effect on, and the
information made available to us as of, the date hereof.
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<PAGE> 91
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Transaction Consideration to be paid by the Company in the
Transaction is fair, from a financial point of view, to the holders of the Class
B Common Stock.
Very truly yours,
/s/ UBS Warburg, LLC
UBS WARBURG LLC
C-3
<PAGE> 92
ANNEX D
[CREDIT SUISSE FIRST BOSTON LETTERHEAD]
November 15, 2000
Board of Directors
Continental Airlines, Inc.
1600 Smith Street, Department HQSEO
Houston, TX 77002
Members of the Board:
You have asked us to advise you with respect to the fairness from a
financial point of view to the holders (other than Northwest Airlines, Inc. and
its affiliates (collectively, "Northwest") and 1992 Air, Inc. and its affiliates
(collectively, "Air")) of Class A Common Stock, par value $0.01 per share
("Class A Common Stock"), of Continental Airlines, Inc. (the "Company") of the
Exchange Ratio (as defined below). Pursuant to the Amended and Restated Articles
of Incorporation of the Company (the "Amended and Restated Articles of
Incorporation") contemplated by the Omnibus Agreement (the "Omnibus Agreement"),
dated as of November 15, 2000, among the Company, Northwest Airlines Corporation
("NW Parent"), Northwest Airlines Holdings Corporation, Northwest Airlines, Inc.
("NAI") and Air Partners, L.P., the Company will, among other things, effect a
recapitalization (the "Recapitalization") pursuant to which each outstanding
share of Class A Common Stock will be reclassified into 1.32 shares (the
"Exchange Ratio") of Class B Common Stock, par value $0.01 per share ("Class B
Common Stock"), of the Company. You have advised us that the Omnibus Agreement
contemplates that, among other things, the Company will (i) immediately prior to
the Recapitalization, purchase 6,685,279 shares of Class A Common Stock from NW
Parent and certain of its affiliates for $450 million in cash, (ii) amend the
Master Alliance Agreement with NAI to extend its term and provide for certain
additional termination rights, (iii) issue one share of Series B Preferred Stock
of the Company to NAI and (iv) purchase certain rights from Air in exchange for
$10 million in cash or, at the option of the Company, $11 million of Class B
Common Stock (collectively, the "Other Transactions" and, together with the
Recapitalization, the "Transactions").
In arriving at our opinion, we have reviewed certain publicly available
business and financial information relating to the Company, as well as the
Omnibus Agreement (including a draft of the Amended and Restated Certificate of
Incorporation) and certain related documents. We have also reviewed certain
other information, including financial forecasts, provided to or discussed with
us by the Company, and have discussed the business and prospects of the Company
with the Company's management.
We have also considered certain financial and stock market data of the
Company, and we have compared those data with similar data for other publicly
held companies in businesses similar to those of the Company. We also considered
such other information, financial studies, analyses and investigations and
financial, economic and market criteria which we deemed relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. With respect to the
financial forecasts, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
Company's management as to the future financial performance of the Company. You
have informed us, and we have assumed, that (i) the Recapitalization will be
treated as a tax-free reorganization for federal income tax purposes and (ii)
the shares of Class A Common Stock currently owned by Northwest represent the
right to cast a majority of the total votes that may be cast on matters
submitted to a vote of all stockholders of the Company. You also have informed
us, and we have
D-1
<PAGE> 93
assumed, that NW Parent has agreed to vote or cause to be voted all of the
shares of Class A Common Stock owned by Northwest in favor of the
Recapitalization and that such vote shall be sufficient to approve the
Recapitalization regardless of the votes cast by any other stockholders of the
Company. We have also assumed, with your consent, that the Recapitalization will
occur in the manner contemplated in the Omnibus Agreement. In addition, we have
not been requested to make, and have not made, an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of the Company,
nor have we been furnished with any such evaluations or appraisals. Our opinion
is necessarily based upon financial, economic, market and other conditions as
they exist and can be evaluated on the date hereof. We are not expressing any
opinion as to the actual value of the Class B Common Stock when issued to the
Company's stockholders pursuant to the Recapitalization or the prices at which
such Class B Common Stock will trade subsequent to the Recapitalization. Our
opinion does not address any differences in the amount and type of consideration
to be received by Northwest, Air and the other holders of Class A Common Stock
pursuant to the Transactions.
We have been engaged by the Company solely to provide an opinion with
respect to the fairness from a financial point of view to the holders of Class A
Common Stock (other than Northwest and Air) of the Exchange Ratio and did not
participate in any negotiations or discussions relating to the Omnibus Agreement
or the Recapitalization.
We have in the past provided, and expect in the future to provide, certain
financial and investment banking services for the Company and its affiliates
unrelated to the Recapitalization and have received compensation for such
services. We shall also receive a fee in connection with the delivery of this
opinion.
In the ordinary course of our business, we and our affiliates may actively
trade the debt and equity securities of both the Company, Northwest and
affiliates of Air for our and such affiliates' own accounts and for the accounts
of customers and, accordingly, may at any time hold a long or short position in
such securities.
It is understood that this letter is for the information of the Board of
Directors of the Company in connection with its consideration of the
Recapitalization and does not constitute a recommendation as to how any
stockholder should vote or act on any matter relating to the Recapitalization.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Exchange Ratio is fair from a financial point of view to the
holders of Class A Common Stock of the Company (other than Northwest and Air).
Very truly yours,
CREDIT SUISSE FIRST BOSTON CORPORATION
D-2
<PAGE> 94
FORM OF PROXY CARD
CONTINENTAL AIRLINES INC.
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
JANUARY 22, 2001
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. The
undersigned hereby authorizes Gordon M. Bethune, Jeffery A. Smisek and Scott R.
Peterson, and each of them, with full power of substitution, to represent and
vote the stock of the undersigned in Continental Airlines, Inc. as directed and,
in their sole discretion, on all other matters that may properly come before the
Special Meeting of Stockholders to be held on January 22, 2001, and at any
adjournment or adjournments thereof, as if the undersigned were present and
voting thereat. The undersigned acknowledges receipt of the notice of special
meeting and proxy statement with respect to such Special Meeting and certifies
that, to the knowledge of the undersigned, all equity securities of Continental
Airlines, Inc. owned of record or beneficially by the undersigned are owned and
controlled only by U.S. citizens (as defined in the proxy statement), except as
indicated on the reverse side hereof.
Whether or not you expect to attend the Special Meeting, please execute
and return this proxy, which may be revoked at any time prior to its use.
This proxy when properly executed, will be voted in the manner directed
by the undersigned stockholder(s). IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED "FOR" THE PROPOSAL.
The Board of Directors recommends a vote "FOR" the proposal.
THIS FORM OF PROXY RELATES TO BOTH CLASS A COMMON STOCK AND CLASS B
COMMON STOCK. IF YOU RECEIVED TWO PROXY CARDS, PLEASE EXECUTE AND RETURN BOTH.
(CONTINUED AND TO BE SIGNED ON OTHER SIDE)
FOLD AND DETACH HERE
CONTINENTAL AIRLINES, INC.
Please mark vote in oval in the following
manner using dark ink only. [ ]
FOR AGAINST ABSTAIN
--- ------- -------
Proposal to approve and adopt the amended [ ] [ ] [ ]
and restated certificate of incorporation
of Continental in connection with the
recapitalization.
Please mark this box ONLY if Class A common [ ]
stock and Class B common stock owned of
record or beneficially by you is owned or
controlled by persons who are not U.S.
citizens (as defined in the Proxy Statement)
and indicate the number and class so owned or
controlled by persons who are not U.S.
citizens.
Class A
-----------------------
Class B
-----------------------
--------------------------------- --------------------------- ---------
Signature of Stockholder(s) Title (if applicable) Date
<PAGE> 95
Note: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such.
FOLD AND DETACH HERE
VOTE BY TELEPHONE OR INTERNET
QUICK *** EASY *** IMMEDIATE
YOUR VOTE IS IMPORTANT! -- YOU CAN VOTE IN ONE OF THREE WAYS:
1. VOTE BY INTERNET: Follow the instructions at our Website Address:
http://www.eproxy.com/cal
OR
2. TO VOTE BY PHONE: Call toll-free 1-800-840-1208 on a touch tone
telephone 24 HOURS A DAY-7 DAYS A WEEK
There is NO CHARGE to you for this call. -- Have your proxy card in hand.
You will be asked to enter a Control Number, which is located in the box in the
lower right hand corner of this form.
To vote FOR, press 1; AGAINST, press 9; ABSTAIN, press 0.
WHEN ASKED, PLEASE CONFIRM BY PRESSING 1.
Telephone voting is not available for
shares held by non-U.S. citizens
as defined in the proxy statement.
OR
3. VOTE BY PROXY: Mark, sign and date your proxy card and return
promptly in the enclosed envelope.
NOTE: If you vote by internet or telephone, THERE IS NO NEED TO MAIL BACK
your Proxy Card.
THANK YOU FOR VOTING.
