SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
0-9781
(Commission File Number)
CONTINENTAL AIRLINES, INC.
(Exact name of registrant as specified in its charter)
Delaware 74-2099724
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1600 Smith Street, Dept. HQSEO, Houston, Texas 77002
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 713-324-2950
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
Class A Common Stock, New York Stock Exchange
par value $.01 per share
Class B Common Stock, New York Stock Exchange
par value $.01 per share
Series A Junior Participating New York Stock Exchange
Preferred Stock Purchase Rights
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting and non-voting common
equity stock held by non-affiliates (including shares held in a
voting trust) of the registrant was $2.2 billion as of January 21,
2000.
_______________
As of January 21, 2000, 11,265,349 shares of Class A Common
Stock and 52,996,832 shares of Class B Common Stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for Annual Meeting
of Stockholders to be held on May 23, 2000: PART III
PART I
ITEM 1. BUSINESS.
Continental Airlines, Inc. (the "Company" or "Continental") is a
major United States air carrier engaged in the business of
transporting passengers, cargo and mail. Continental is the fifth
largest United States airline (as measured by 1999 revenue
passenger miles) and, together with its wholly owned subsidiaries,
Continental Express, Inc. ("Express") and Continental Micronesia,
Inc. ("CMI"), each a Delaware corporation, serves 219 airports
worldwide at February 1, 2000. As of February 1, 2000, Continental
flies to 132 domestic and 87 international destinations and offers
additional connecting service through alliances with domestic and
foreign carriers. Continental directly serves 16 European cities,
eight South American cities, Tel Aviv and Tokyo and is one of the
leading airlines providing service to Mexico and Central America,
serving more destinations there than any other United States
airline. Through its Guam hub, CMI provides extensive service in
the western Pacific, including service to more Japanese cities than
any other United States carrier.
As used in this Form 10-K, the terms "Continental" and "Company"
refer to Continental Airlines, Inc. and its subsidiaries, unless
the context indicates otherwise. This Form 10-K may contain
forward-looking statements. In connection therewith, please see
the cautionary statements contained in Item 1. "Business - Risk
Factors Relating to the Company" and "Business - Risk Factors
Relating to the Airline Industry" which identify important factors
that could cause actual results to differ materially from those in
the forward-looking statements.
Business Strategy
In 1995, Continental implemented the "Go Forward Plan", a "back to
basics" strategic plan focused on improving profitability and
financial condition, delivering a consistent, reliable, quality
product to customers and improving employee morale and working
conditions. The Company's 2000 strategic plan, as discussed below,
retains the four basic components of the Go Forward Plan: Fly to
Win, Fund the Future, Make Reliability a Reality and Working
Together, with initiatives intended to build upon Continental's
operational and strategic strengths.
Fly to Win
The Company's 2000 Fly to Win initiatives center around two
principal themes: Grow Electronic Commerce and Focus on Hub
Operations.
Grow Electronic Commerce
During 1999, Continental reached several E-commerce milestones.
See "Competition and Marketing" below. The Company's goals in 2000
include developing key internet sites and implementing interline e-
ticketing with its alliance partners as well as some of the other
top ten U.S. carriers. In addition, the Company will focus on
reducing distribution expenses through electronic commerce.
Focus on Hub Operations. In 2000, Continental will continue to add
select flights and refine its flight schedules to maximize the
potential of its hubs. Management believes that by further
refining the efficiency of the Company's hub operations,
Continental will continue to capture additional flow traffic
through its hubs and attract a larger share of higher-yielding
business travelers.
Recently, industry capacity and growth in the transatlantic markets
have resulted in lower yields and revenue per available seat mile
in those markets, which trend is expected to continue in 2000. As
a result, Continental will continue to critically review its growth
plans and will adjust or redeploy resources as necessary.
Fund the Future
Having achieved its 1995 goals of building the Company's overall
liquidity and improving its financial condition, management shifted
its financial focus in 1996 and 1997 to the Company's interest and
lease expenses. In 1998 and 1999, the Company concentrated on
securing favorable financing for new aircraft and other assets as
well as buying back common stock.
In 1999, the Company completed a number of transactions intended to
strengthen its long-term financial position and enhance earnings.
In February 1999, the Company completed an offering of $806 million
of pass-through certificates used to finance (either through
leveraged leases or secured debt financings) the debt portion of
the acquisition cost of 22 aircraft delivered in 1999.
In March 1999, the Company completed a $160 million credit
facility, with a maturity date of March 2001, to finance pre-
delivery deposits for certain new Boeing aircraft to be delivered
between March 1999 and March 2002.
In April 1999, the Company exercised its right and called for
redemption in May 1999, all $230 million of its 6-3/4% Convertible
Subordinated Notes due 2006. The notes were converted into 7.6
million shares of Class B common stock during May 1999.
Also, in June 1999, the Company completed an offering of $742
million of pass-through certificates used to finance (either
through leveraged leases or secured debt financings) the debt
portion of the acquisition cost of 21 new Boeing aircraft delivered
in 1999.
In October 1999, Continental sold its interest in AMADEUS Global
Travel Distribution, S.A. ("AMADEUS") for $409 million, including
a special dividend.
During 1999, the Company's Board of Directors increased the size of
its common stock repurchase program by $900 million, bringing the
total size of the program to $1.2 billion. As of January 21, 2000,
the Company has repurchased 18,853,600 Class B common shares for
$804 million since the inception of the repurchase program in March
1998.
The focus in 2000 is to maintain cash balances of at least $1
billion while continuing to secure financing for aircraft
deliveries in 2000 and beyond and, under appropriate circumstances,
buy back common stock. The Company expects to continue to
eliminate excess interest and lease expenses through refinancings
and other initiatives.
Continental desires to simplify its equity capital structure and is
committed to continuing to repurchase outstanding equity. In
connection with its stock repurchase program, the Company has held
preliminary discussions with Northwest Airlines, Inc. ("Northwest")
concerning the acquisition by Continental of all the Class A common
stock of Continental held by Northwest in a voting trust (8.7
million shares). The alliance between Continental and Northwest is
beneficial to both carriers, and any transaction would be designed
to preserve and strengthen the benefits of the alliance. There can
be no assurance as to whether a transaction between Continental and
Northwest will be agreed to or consummated, nor can Continental
predict the structure, form or amount of consideration or other
elements of any such transaction.
Make Reliability a Reality
Customer service continues to be a principal focus in 2000.
Management believes Continental's on-time performance record is
crucial to its other operational objectives and, together with its
initiatives to improve baggage handling and customer satisfaction
and appropriately manage involuntary denied boardings, is an
important tool to attract higher-margin business travelers.
Continental's goal for 2000 is to be ranked monthly by the
Department of Transportation ("DOT") among the top half of major
air carriers in on-time performance, baggage handling, customer
satisfaction and avoidance of involuntary denied boarding. For
1999, Continental ranked fifth in on-time performance, third in
baggage handling, fourth in fewest customer complaints and second
in fewest involuntary denied boardings. In 1999, bonuses of $65
were paid to substantially all employees for each month that
Continental ranked second or third or achieved 80% or above (for
arrivals within 14 minutes) in domestic on-time performance, and
bonuses of $100 were paid for each month that Continental ranked
first among the top 10 U.S. air carriers (excluding those airlines
that do not report electronically) in domestic on-time performance.
For 1999, a total of $26 million of on-time bonuses was paid. This
successful on-time performance bonus program continues in 2000.
In addition to programs intended to improve Continental's standings
in DOT performance data, the Company has taken action in other
areas to enhance its attractiveness to business travelers.
Specifically, Continental implemented various initiatives designed
to offer travelers cleaner and more attractive aircraft interiors,
consistent interior and exterior decor, first class seating on all
jet aircraft (other than regional jets), better meals and greater
benefits under its award-winning frequent flyer program.
Continental continues to make product improvements, such as new and
refurbished Presidents Clubs with specialty bars, and on-board
specialty coffees and microbrewery beer, among others. Continental
Airlines' jets now have reliable air-to-ground telephone service
for customers, and its new long-range jets have state-of-the-art
video equipment.
Continental's TransContinental service provides passengers
traveling coast-to-coast from Newark International Airport
("Newark") enhancements on their flights, including check-in
options at nine Continental ticket offices in New York, upgraded
meal service and audio/video entertainment. Continental currently
flies one of the youngest jet fleets in the industry and plans to
integrate the Boeing 767 aircraft into its fleet in 2000. The
Company has also continued to refine its award-winning
BusinessFirst service.
Working Together
Management believes that Continental's employees are its greatest
asset and the cornerstones of improved reliability and customer
service. Management has introduced a variety of programs to
increase employee participation and foster a sense of shared
community. These initiatives include significant efforts to
communicate openly and honestly with all employees through daily
news bulletins, weekly voicemail updates from the Company's Chief
Executive Officer, monthly and quarterly Continental publications,
videotapes mailed to employees reporting on the Company's growth
and progress, Go Forward Plan bulletin boards in over 600 locations
system-wide, and daily news electronic display signs in many
Continental employee locations world-wide. In addition, regularly
scheduled visits to airports throughout the route system are made
by the senior executives of the Company (each of whom is assigned
an airport for this purpose). Monthly meetings open to all
employees, as well as other periodic on-site visits by management,
are designed to encourage employee participation, knowledge and
cooperation. Continental was recently named among the best
companies to work for in America, finishing 23rd in Fortune
Magazine's 1999 "100 Best Companies to Work for in America" list,
up from 40th where it debuted in 1998. Continental has also
reached long-term agreements with a majority of its employee
workgroups regarding wages, benefits and other workplace matters.
Continental's goals for 2000 include (i) being ranked among the top
three major air carriers in employee measures such as turnover,
lost time, productivity and on-the-job injury claims, (ii)
continuing to work with all employee groups in a way that is fair
to the employees and fair to the Company, (iii) continuing to
improve work environment safety, and (iv) maintaining Continental
as one of the 100 best companies to work for in America.
In September 1997, Continental announced that it intended to bring
all employees to industry standard wages over a three-year period.
This goal will be achieved in 2000. The Company is in the process
of formulating a plan to bring all employees to industry standard
benefits over a multi-year period. See "Employees" below.
Domestic Operations
Continental operates its domestic route system primarily through
its hubs at Newark, George Bush Intercontinental Airport ("Bush
Intercontinental") in Houston and Hopkins International Airport
("Hopkins International") in Cleveland. The Company's hub system
allows it to transport passengers between a large number of
destinations with substantially more frequent service than if each
route were served directly. The hub system also allows Continental
to add service to a new destination from a large number of cities
using only one or a limited number of aircraft. Each of
Continental's domestic hubs is located in a large business and
population center, contributing to a high volume of "origin and
destination" traffic.
Newark. As of February 1, 2000, Continental operated 54% (233
departures) of the average daily jet departures (excluding regional
jets) and, together with Express, 58% (323 departures) of all
average daily departures (jet, regional jet and turboprop) from
Newark. Considering the three major airports serving New York City
(Newark, LaGuardia and John F. Kennedy), Continental and Express
accounted for 22% of all daily departures, while the next largest
carrier, American Airlines, Inc. ("American"), and its commuter
affiliate accounted for 17% of all daily departures.
Houston. As of February 1, 2000, Continental operated 77%
(325 departures) of the average daily jet departures (excluding
regional jets) and, together with Express, 82% (483 departures) of
all average daily departures from Bush Intercontinental. Southwest
Airlines Co. ("Southwest") also has a significant share of the
Houston market through Hobby Airport. Considering both Bush
Intercontinental and Hobby Airport, Continental operated 56% and
Southwest operated 25% of the daily jet departures (excluding
regional jets) from Houston.
Cleveland. As of February 1, 2000, Continental operated 52% (85
departures) of the average daily jet departures (excluding regional
jets) and, together with Express, 65% (254 departures) of all
average daily departures from Hopkins International. The next
largest carrier, US Airways, Inc. ("US Airways"), accounted for 6%
of all daily jet departures.
Continental Express. Continental Airlines' jet service at each of
its domestic hub cities is coordinated with Express, which operates
new-generation regional jets and turboprop aircraft under the name
"Continental Express". The regional jets average one year of age
and seat either 37 or 50 passengers while the turboprop aircraft
average approximately eight years of age and seat 64 or fewer
passengers.
As of February 1, 2000, Express served 32 destinations from Newark
(23 by regional jet), 47 destinations from Bush Intercontinental
(29 by regional jet) and 55 destinations from Hopkins International
(29 by regional jet). In addition, commuter feed traffic is
currently provided to Continental by other code-sharing partners.
See "Domestic Carrier Alliances" below.
Management believes Express's regional jet and turboprop operations
complement Continental's jet operations by allowing more frequent
service to small cities than could be provided economically with
conventional jet aircraft and by carrying traffic that connects
onto Continental's jets. In many cases, Express (and Continental)
compete for connecting traffic with commuter airlines owned by or
affiliated with other major airlines operating out of the same or
other cities. Continental believes that Express's new regional
jets provide greater comfort and enjoy better customer acceptance
than turboprop aircraft. Express is in the process of developing
a plan to convert to an all regional jet fleet over a multi-year
period. The regional jets also allow Express to serve certain
routes that cannot be served by its turboprop aircraft.
Domestic Carrier Alliances. Pursuant to the Company's Fly to Win
initiative under the Go Forward Plan, Continental has entered into
and continues to develop alliances with domestic carriers:
- - In 1998, the Company entered into a long-term global alliance
with Northwest (the "Northwest Alliance"). The Northwest
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. Significant other
joint marketing activities are being undertaken, while preserving
the separate identities of the carriers. Continental has also
entered into agreements to code-share with certain Northwest
regional affiliates. See "Risk Factors Relating to the Company -
Risks Regarding Continental/Northwest Alliance".
- - Continental has a series of agreements with America West
Airlines, Inc. ("America West"), including agreements related to
code-sharing and ground handling, which have created substantial
benefits for both airlines. These code-sharing agreements cover
141 city-pairs at February 1, 2000, and allow Continental to link
additional destinations to its route network and derive
additional traffic from America West's distribution strength in
cities where Continental has less sales presence. The sharing of
facilities and employees by Continental and America West in their
respective key markets has resulted in significant cost savings.
- - Continental began a code-sharing agreement with Gulfstream
International Airlines, Inc. ("Gulfstream") in April 1997.
Gulfstream serves as a connection for Continental passengers
throughout Florida as well as eight destinations in the
Caribbean. Continental recently purchased 28% of the equity of
Gulfstream.
- - Continental implemented a code-sharing agreement with Mesaba
Aviation, Inc. ("Mesaba"), operating as a Northwest affiliate,
commencing in January 1999. Mesaba serves as a connection for
Continental passengers through Detroit and Minneapolis/St. Paul.
- - Continental and CMI entered into a cooperative marketing
agreement with Hawaiian Airlines, Inc. ("Hawaiian") that began in
October 1997 on flights connecting in Honolulu. The relationship
expanded in 1999 to include code-sharing. Hawaiian connects
Continental passengers through Honolulu to six additional
Hawaiian cities.
- - In February 1999, Continental announced its code-sharing
agreement with Alaska Airlines, Inc. ("Alaska Air") and its
affiliate, Horizon Airlines, Inc. ("Horizon"). Alaska Air and
Horizon serve as connections for Continental passengers to 35
destinations throughout the Pacific Northwest.
International Operations
International Operations. Continental directly serves destinations
throughout Europe, Canada, Mexico, Central and South America, and
the Caribbean, as well as Tokyo and Tel Aviv, and has extensive
operations in the western Pacific conducted by CMI. As measured by
1999 available seat miles, approximately 36.2% of Continental's jet
operations, including CMI, were dedicated to international traffic,
compared with 33.8% in 1998. Continental anticipates that a
majority of its capacity growth in 2000 will be in Europe due to
the full year impact of new markets and increased capacity added in
1999. Continental does not intend to add any new European
destinations during 2000. As of February 1, 2000, the Company
offered 146 weekly departures to 16 European cities and marketed
service to 32 other cities through code-sharing agreements.
Continental is one of the leading airlines providing service to
Mexico and Central America, serving more destinations there than
any other U.S. airline.
The Company's Newark hub is a significant international gateway.
From Newark at February 1, 2000, the Company served 16 European
cities, five Canadian cities, three Mexican cities, four Central
American cities, six South American cities, seven Caribbean
destinations, Tel Aviv and Tokyo and markets numerous other
destinations through code-sharing arrangements with foreign
carriers. The Company recently announced the addition of two South
American destinations, one of which will also connect to Houston,
and one Caribbean destination for 2000, subject to government
approval.
The Company's Houston hub is the focus of its operations in Mexico
and Central America. As of February 1, 2000, Continental flew from
Houston to 13 cities in Mexico, every country in Central America,
six cities in South America, two Caribbean destinations, three
cities in Canada, two cities in Europe and Tokyo. Express also
serviced three additional cities in Mexico by regional jets and
plans to add four more cities in 2000, subject to government
approval.
Continental also flies to London, Montreal, Toronto, San Juan and
Cancun from its hub in Cleveland.
Continental Micronesia. CMI is a United States-certificated air
carrier transporting passengers, cargo and mail in the western
Pacific. From its hub operations based on the island of Guam, CMI
provides service to eight cities in Japan, more than any other
United States carrier, as well as other Pacific rim destinations,
including Taiwan, the Philippines, Hong Kong, Australia and
Indonesia. Service to these Japanese cities and certain other
Pacific Rim destinations is subject to a variety of regulatory
restrictions limiting the ability of other carriers to service
these markets.
CMI is the principal air carrier in the Micronesian Islands, where
it pioneered scheduled air service in 1968. CMI's route system is
linked to the United States market through Tokyo and Honolulu, each
of which CMI serves non-stop from Guam. CMI and Continental also
maintain a code-sharing agreement and coordinate schedules on
certain flights from the west coast of the United States to
Honolulu, and from Honolulu to Guam, to facilitate travel from the
United States into CMI's route system.
Foreign Carrier Alliances. Over the last decade, major United
States airlines have developed and expanded alliances with foreign
air carriers, generally involving adjacent terminal operations,
coordinated flights, code-sharing and other joint marketing
activities. Continental is the only major United States air
carrier operating a hub in the New York City area. Consequently,
Continental believes it is uniquely situated to attract alliance
partners from Europe, the Far East and South America and has
aggressively pursued such alliances. The Company believes that the
Northwest Alliance enhances its ability to attract foreign alliance
partners. See "Risk Factors Relating to the Company - Risks
Regarding Continental/Northwest Alliance".
Continental believes that continuing to develop a network of
international alliance partners will better leverage its hub assets
by attracting high-yield flow traffic and strengthening its
position in large, local (non-connecting) markets and will result
in improved returns to the Company. Additionally, Continental can
enlarge its scope of service more rapidly and enter additional
markets with lower capital and start-up costs through formation of
alliances with partners as compared with entering markets
independently of other carriers.
Continental seeks to develop alliance relationships that complement
the Company's own flying and permit expanded service through Newark
and Houston to major international destinations. Route authorities
necessary for the Company's own service to certain of these
destinations are not currently available to the Company.
Continental has implemented international code-sharing agreements
with Alitalia Linee Aeree Italiane, S.P.A. ("Alitalia"), CSA Czech
Airlines, British Midland, EVA Airways Corporation, an airline
based in Taiwan, Virgin Atlantic Airways ("Virgin"), Viacao Aerea
Sao Paulo ("VASP"), Societe Air France ("Air France") and Compania
Panamena de Aviacion, S.A. ("COPA"), 49% of the common equity of
which is owned by Continental. Upon receipt of government
approval, Continental will commence code-sharing arrangements with
Aeroservicios Carabobo S.A., a Venezuelan carrier, Avant Airlines,
a Chilean carrier, Air Aruba and Air China. In addition,
Continental and KLM Royal Dutch Airlines ("KLM") have signed a
memorandum of understanding and anticipate finalizing and
implementing a comprehensive cooperative marketing agreement by the
second quarter of 2000. The joint marketing initiative is to
include through check-in of passengers and baggage, reciprocal
frequent flyer program participation, reciprocal airport lounge
access, and, subject to government approval, codesharing on
selected routes. Continental has entered into joint marketing
agreements with Aerolineas Centrales de Colombia ("ACES"), for
which government approval has not yet been sought.
Certain of Continental's code-sharing agreements involve block-
space arrangements (pursuant to which carriers agree to share
capacity and bear economic risk for blocks of seats on certain
routes). Alitalia has agreed to purchase blocks of seats on
Continental flights between Newark and Rome and Milan. Continental
and Air France purchase blocks of seats on each other's flights
between Houston and Newark and Paris. Continental and Virgin
exchange blocks of seats on each other's flights between Newark and
London, and Continental purchases blocks of seats on eight other
routes flown by Virgin between the United Kingdom and the United
States.
The Company is negotiating an early termination of its alliance
with Air France as a result of Air France's announcement of an
alliance with Delta Air Lines, Inc. ("Delta").
The Company might enter into other code-sharing, joint marketing
and block-space agreements in 2000, which could include the
Company's financial commitment to purchase seats from other
carriers.
Employees
As of December 31, 1999, the Company had approximately 51,275
employees (46,550 full-time equivalent employees, including
approximately 20,150 customer service agents, reservations agents,
ramp and other airport personnel, 8,650 flight attendants, 7,450
management and clerical employees, 6,350 pilots, 3,800 mechanics
and 150 dispatchers). Labor costs are a significant component of
the Company's expenses and can substantially impact airline
results. In 1999, labor costs (including employee incentives)
constituted 31.5% of the Company's total operating expenses
(excluding fleet disposition/impairment loss). While there can be
no assurance that the Company's generally good labor relations and
high labor productivity will continue, management has established
as a significant component of its business strategy the
preservation of good relations with the Company's employees,
approximately 42% of whom are represented by unions. In September
1997, the Company announced a plan to bring all employees to
industry standard wages no later than the end of the year 2000.
Wage increases began in 1997, and will continue to be phased in
through 2000. The Company is in the process of formulating a plan
to bring all employees to industry standard benefits over a multi-
year period.
The following is a table of the Company's, Express's and CMI's
principal collective bargaining agreements, and their respective
amendable dates:
<TABLE>
<CAPTION>
Approximate
Number of
Full-time Contract
Employee Equivalent Representing Amendable
Group Employees Union Date
<S> <C> <C> <C>
Continental Pilots 5,000 Independent October 2002
Association
of Continental
Pilots ("IACP")
Express Pilots 1,350 IACP October 2002
Dispatchers 150 Transport Workers October 2003
Union of America
Continental 3,300 International January 2002
Mechanics Brotherhood of
Teamsters
("Teamsters")
Express Mechanics 350 Teamsters January 2003
CMI Mechanics 150 Teamsters March 2001
Continental 7,800 International (Negotiations
Flight Attendants Association of for amended
Machinists and contract
Aerospace Workers ongoing)
("IAM")
Express 500 IAM (Negotiations
Flight Attendants for amended
contract
ongoing)
CMI 350 IAM June 2000
Flight Attendants
CMI Fleet and 475 Teamsters March 2001
Passenger Service
Employees
</TABLE>
In February 2000, the Company announced a 54-month tentative
collective bargaining agreement with its Continental Airlines
flight attendants. The agreement is subject to ratification by the
Continental Airlines flight attendants. In September 1999, Express
and the IAM began collective bargaining negotiations to amend the
Express flight attendants' contract (which became amendable in
November 1999). The Company believes that mutually acceptable
agreements can be reached with such employees, although the
ultimate outcome of the negotiations is unknown at this time.
The other employees of Continental, Express and CMI are not covered
by collective bargaining agreements.
Competition and Marketing
The airline industry is highly competitive and susceptible to price
discounting. The Company competes with other air carriers that
have substantially greater resources (and in certain cases, lower
cost structures) as well as smaller air carriers with low-cost
structures. Historically, industry profit margins have been low.
However, during 1995 through 1999, industry profit margins improved
substantially. See Item 1. "Business. Risk Factors Relating to
the Airline Industry" and Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
As with other carriers, most tickets for travel on Continental are
sold by travel agents. Travel agents generally receive commissions
measured by the price of tickets sold. Accordingly, airlines
compete not only with respect to the price of tickets sold but also
with respect to the amount of commissions paid. Airlines often pay
additional commissions in connection with special revenue programs.
E-Ticket. In 1999, Continental expanded its electronic ticketing
("E-Ticket") product to 95% of all of its own destinations. E-
Tickets result in lower distribution costs to the Company while
providing enhanced customer and revenue information. Continental
recorded over $3.9 billion in E-Ticket sales in 1999, representing
41% of total sales. During 1999, Continental announced interline
E-Ticketing with America West and replaced E-Ticket machines with
e-Service Centers. In 2000, the Company plans to implement
interline E-Ticketing with its alliance partners as well as some of
the other top ten U.S. carriers. The Company expects these
features to contribute to an increase in E-Ticket usage and a
further reduction in distribution costs.
Internet. Continental's award winning website, www.continental.com
("continental.com") recorded over $165 million in ticket sales in
1999. The site features computer graphics and navigational aids
that make it simpler and faster for travelers to purchase tickets
and retrieve travel-related information online. The Company
implemented its "featured fare" program for customers to make
travel plans around special fare offers. Continental online
("COOL") travel specials are available only to online users
offering reduced fares for immediate travel on specified dates.
During 1999, the Company announced an online promotion to provide
frequent flyer bonus miles for customers who use the
continental.com website for the first time to book a Continental
flight. Combined with online travel agents, the Company recorded
over $305 million in ticket sales through the internet during 1999.
Other. In 1999, Continental entered into an agreement with
priceline.com, Inc. ("Priceline") which allows customers to
purchase airline tickets at an offer price determined by the
customer. Continental decides on which routes it will allow seats
to be sold by Priceline and the related fare it is willing to
accept. Additionally, the Company announced an agreement among the
Company, Northwest, Delta and United Air Lines, Inc. to create a
new on-line travel web site. To date, 27 U.S. and foreign
carriers, including American and US Airways, have signed up to join
the web-based travel service. The new site, the first multi-
airline travel portal, is expected to provide customers with
convenient online access to airline, hotel, car rental and other
travel services in addition to internet offers. The site will
feature published fares from virtually all carriers worldwide and
will welcome the posting of internet fares from other carriers as
well.
Frequent Flyer Program
Each major airline has established a frequent flyer program
designed to encourage repeat travel on its system. Continental's
OnePass program currently allows passengers to earn mileage credits
by flying Continental and certain other carriers including
Northwest, America West, Alaska Air, Alitalia, Air France, COPA and
Gulfstream. The Company also sells mileage credits to credit card
companies, phone companies, hotels, car rental agencies and others
participating in the OnePass program.
Due to the structure of the program and the low level of
redemptions as a percentage of total travel, Continental believes
that displacement of revenue passengers by passengers using flight
awards has historically been minimal. The number of awards used on
Continental represented slightly less than 7% of Continental's
total revenue passenger miles in each of the years 1999 and 1998.
Industry Regulation and Airport Access
Continental and its subsidiaries operate under certificates of
public convenience and necessity issued by the DOT. Such
certificates may be altered, amended, modified or suspended by the
DOT if public convenience and necessity so require, or may be
revoked for intentional failure to comply with the terms and
conditions of a certificate.
The airlines are also regulated by the Federal Aviation
Administration ("FAA"), primarily in the areas of flight
operations, maintenance, ground facilities and other technical
matters. Pursuant to these regulations, Continental has
established, and the FAA has approved, a maintenance program for
each type of aircraft operated by the Company that provides for the
ongoing maintenance of such aircraft, ranging from frequent routine
inspections to major overhauls. Continental has retired all of its
Stage 2 aircraft in order to meet the FAA's noise compliance
requirements with the exception of five Boeing 727 aircraft
operated by CMI which are exempt since they are operated outside
the United States. The Company intends to retire these five
aircraft in 2000.
The DOT allows local airport authorities to implement procedures
designed to abate special noise problems, provided such procedures
do not unreasonably interfere with interstate or foreign commerce
or the national transportation system. Certain airports, including
the major airports at Boston, Washington, D.C., Chicago, Los
Angeles, San Diego, Orange County (California) and San Francisco,
have established airport restrictions to limit noise, including
restrictions on aircraft types to be used and limits on the number
of hourly or daily operations or the time of such operations. In
some instances, these restrictions have caused curtailments in
services or increases in operating costs, and such restrictions
could limit the ability of Continental to expand its operations at
the affected airports. Local authorities at other airports are
considering adopting similar noise regulations.
Airports from time to time seek to increase the rates charged to
airlines, and the ability of airlines to contest such increases has
been restricted by federal legislation, DOT regulations and
judicial decisions. In addition, some public airports generally
impose passenger facility charges ("PFC's") of up to $3 per segment
for a maximum of $12 per roundtrip. Legislation which would
increase the PFC to $6 per segment for a maximum of $24 per
roundtrip is being considered in a conference committee between the
House of Representatives and the Senate. With certain exceptions,
these charges are passed on to the customers.
The FAA has designated John F. Kennedy International Airport
("Kennedy") and LaGuardia Airport ("LaGuardia") in New York, O'Hare
International Airport in Chicago ("O'Hare") and Ronald Reagan
Washington National Airport in Washington, D.C. ("Reagan National")
as "high density traffic airports" and has limited the number of
departure and arrival slots at those airports. Currently, such
slots may be voluntarily sold or transferred between carriers.
Various amendments to the slot system proposed from time to time
could, if adopted, significantly affect operations at high density
traffic airports, significantly change the value of the slots,
grant slots to other carriers or for route or aircraft specific
usage, expand slots to other airports or eliminate slots entirely.
The DOT has in the past reallocated slots to other carriers and
reserves the right to withdraw slots. In addition, the DOT has
proposed the elimination of slot restrictions at high density
airports other than Reagan National. Legislation containing a
similar proposal, which could eliminate slots as early as 2002 at
O'Hare and 2007 at LaGuardia and Kennedy, has passed the full House
of Representatives and the full Senate and is currently being
considered by a conference committee. The Company cannot predict
whether any of these proposals will be adopted. However, if
legislation or regulation eliminating slots were adopted, the value
of such slots could be deemed to be permanently impaired, resulting
in a loss being charged to earnings for the relevant period.
Moreover, the elimination of slots could have an adverse effect
upon future results of operations of the Company. At December 31,
1999, the net book value of the Company's slots at O'Hare,
LaGuardia and Kennedy was $52 million, $12 million and $0,
respectively.
The availability of international routes to United States carriers
is regulated by treaties and related agreements between the United
States and foreign governments. The United States typically
follows the practice of encouraging foreign governments to accept
multiple carrier designation on foreign routes, although certain
countries have sought to limit the number of carriers. Foreign
route authorities may become less valuable to the extent that the
United States and other countries adopt "open skies" policies
liberalizing entry on international routes. Continental cannot
predict what laws and regulations will be adopted or their impact,
but the impact could be significant.
Many aspects of Continental's operations are subject to
increasingly stringent federal, state and local laws protecting the
environment. Future regulatory developments could adversely affect
operations and increase operating costs in the airline industry.
Risk Factors Relating to the Company
High Leverage and Significant Financing Needs. Continental has a
higher proportion of debt compared to its equity capital than some
of its principal competitors. In addition, a majority of
Continental's property and equipment is subject to liens securing
indebtedness. Accordingly, Continental may be less able than some
of its competitors to withstand a prolonged recession in the
airline industry or respond as flexibly to changing economic and
competitive conditions.
As of December 31, 1999, Continental had approximately $3.4 billion
(including current maturities) of long-term debt and capital lease
obligations and had approximately $1.6 billion of common
stockholders' equity. Also at December 31, 1999, Continental had
$1.6 billion in cash and cash equivalents and short-term
investments. Continental has lines of credit totaling $225
million.
Continental has substantial commitments for capital expenditures,
including for the acquisition of new aircraft. As of January 14,
2000, Continental had agreed to acquire a total of 74 Boeing jet
aircraft through 2005. The Company anticipates taking delivery of
28 Boeing jet aircraft in 2000. Continental also has options for
an additional 118 aircraft (exercisable subject to certain
conditions). The estimated aggregate cost of the Company's firm
commitments for Boeing aircraft is approximately $4 billion.
Continental currently plans to finance its new Boeing aircraft with
a combination of enhanced pass through trust certificates, lease
equity and other third-party financing, subject to availability and
market conditions. Continental has commitments or letters of
intent for backstop financing for approximately 18% of the
anticipated remaining acquisition cost of future Boeing deliveries.
In addition, at January 14, 2000, Continental has firm commitments
to purchase 34 spare engines related to the new Boeing aircraft for
approximately $219 million, which will be deliverable through March
2005.
As of January 14, 2000, Express had firm commitments for 43 Embraer
ERJ-145 ("ERJ-145") 50-seat regional jets and 19 Embraer ERJ-135
("ERJ-135") 37-seat regional jets, with options for an additional
100 ERJ-145 and 50 ERJ-135 aircraft exercisable through 2008.
Express anticipates taking delivery of 15 ERJ-145 and 12 ERJ-135
regional jets in 2000. Neither Express nor Continental will have
any obligation to take any of the firm ERJ-145 or ERJ-135 aircraft
that are not financed by a third party and leased to Continental.
For 1999, cash expenditures under operating leases relating to
aircraft approximated $758 million, compared to $702 million for
1998, and approximated $328 million relating to facilities and
other rentals compared to $263 million in 1998. Continental
expects that its operating lease expenses for 2000 will increase
over 1999 amounts.
Additional financing will be needed to satisfy the Company's
capital commitments. Continental cannot predict whether sufficient
financing will be available for capital expenditures not covered by
firm financing commitments.
Continental's Historical Operating Results. Continental has
recorded positive net income in each of the last five years.
However, Continental experienced significant operating losses in
the previous eight years. Historically, the financial results of
the U.S. airline industry have been cyclical. Continental cannot
predict whether current industry conditions will continue.
Significant Cost of Aircraft Fuel. Fuel costs constitute a
significant portion of Continental's operating expense. Fuel costs
were approximately 9.7% of operating expenses for the year ended
December 31, 1999 (excluding fleet disposition/impairment losses)
and 10.2% for the year ended December 31, 1998 (excluding fleet
disposition/ impairment losses). Recently, spot jet fuel prices
have increased dramatically, rising to 87.3 cents per gallon at
January 21, 2000 compared to 58.3 cents per gallon as recently as
October 31, 1999. Continental recently announced that if high fuel
costs continue without an improvement in the revenue environment,
the Company may not post a profit in the first quarter of 2000.
Fuel prices and supplies are influenced significantly by
international political and economic circumstances. Continental
enters into petroleum swap contracts, petroleum call option
contracts and/or jet fuel purchase commitments to provide some
short-term protection (generally three to six months) against a
sharp increase in jet fuel prices. The Company's fuel hedging
strategy could result in the Company not fully benefiting from
certain fuel price declines. If a fuel supply shortage were to
arise from OPEC production curtailments, a disruption of oil
imports or otherwise, higher fuel prices or reduction of scheduled
airline service could result. Significant changes in fuel costs or
continuation of high current jet fuel prices would materially
affect Continental's operating results.
Labor Costs. Labor costs constitute a significant percentage of
the Company's total operating costs, and the Company experiences
competitive pressure to increase wages and benefits. In September
1997, the Company announced a plan to bring all employees to
industry standard wages no later than the end of the year 2000.
Wage increases began in 1997, and will continue to be phased in
through 2000. The Company is currently formulating a plan to bring
employees to industry standard benefits over a multi-year period.
Certain Tax Matters. At December 31, 1999, Continental had
estimated net operating loss carryforwards ("NOLs") of $700 million
for federal income tax purposes that will expire through 2009 and
federal investment tax credit carryforwards of $45 million that
will expire through 2001. As a result of the change in ownership
of Continental on April 27, 1993, the ultimate utilization of
Continental's NOLs and investment tax credits may be limited.
Reflecting this limitation, Continental has a valuation allowance
of $263 million at December 31, 1999.
Continental had, as of December 31, 1999, deferred tax assets
aggregating $611 million, including $266 million of NOLs. The
Company has consummated several transactions which resulted in the
recognition of NOLs of the Company's predecessor. To the extent
the Company were to determine in the future that additional NOLs of
the Company's predecessor could be recognized in the accompanying
consolidated financial statements, such benefit would reduce the
value ascribed to routes, gates and slots.
As a result of NOLs, Continental will not pay United States federal
income taxes (other than alternative minimum tax) until it has
earned approximately an additional $700 million of taxable income
following December 31, 1999. Section 382 of the Internal Revenue
Code ("Section 382") imposes limitations on a corporation's ability
to utilize NOLs if it experiences an "ownership change." In
general terms, an ownership change may result from transactions
increasing the ownership of certain stockholders in the stock of a
corporation by more than 50 percentage points over a three-year
period. In the event that an ownership change should occur,
utilization of Continental's NOLs would be subject to an annual
limitation under Section 382 determined by multiplying the value of
Continental's stock at the time of the ownership change by the
applicable long-term tax-exempt rate (which was 5.72% for December
1999). Any unused annual limitation may be carried over to later
years, and the amount of the limitation may under certain
circumstances be increased by the built-in gains in assets held by
Continental at the time of the change that are recognized in the
five-year period after the change. Under current conditions, if an
ownership change were to occur, Continental's annual NOL
utilization would be limited to approximately $172 million per year
other than through the recognition of future built-in gain
transactions.
In November 1998, an affiliate of Northwest completed its
acquisition of certain equity of the Company previously held by Air
Partners, L.P. and its affiliates, together with certain Class A
common stock of the Company held by other investors, totaling
8,661,224 shares of the Class A common stock (the "Air Partners
Transaction"). The Company does not believe that the Air Partners
Transaction resulted in an ownership change for purposes of Section
382.
Continental Micronesia's Dependence on Japanese Economy and
Currency Risk. Because the majority of CMI's traffic originates in
Japan, its results of operations are substantially affected by the
Japanese economy and changes in the value of the yen as compared to
the dollar. To reduce the potential negative impact on CMI's
earnings, the Company has entered into forward contracts as a hedge
against a portion of its expected net yen cash flow position. As
of December 31, 1999, the Company had hedged approximately 95% of
2000 projected yen-denominated net cash flows at a rate of 102 yen
to $1 US.
Principal Stockholder. As of December 31, 1999, Northwest held
approximately 13.2% of the common equity interest and 49.1% of the
fully diluted voting power of the Company. In addition, Northwest
holds a limited proxy to vote certain additional shares of the
Company's common stock that would raise its voting power to
approximately 50.9% of the Company's fully diluted voting power.
In connection with the Air Partners Transaction, the Company
entered into a corporate governance agreement with certain
affiliates of Northwest (the "Northwest Parties") designed to
assure the independence of the Company's Board and management
during the six-year term of the governance agreement. Under the
governance agreement, as amended, the Northwest Parties agreed not
to beneficially own voting securities of the Company in excess of
50.1% of the fully diluted voting power of the Company's voting
securities, subject to certain exceptions, including third-party
acquisitions or tender offers for 15% or more of the voting power
of the Company's voting securities. The Northwest Parties deposited
all voting securities of the Company 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 (i) on all matters other than the election
of directors, in the same proportion as the votes cast by other
holders of voting securities, and (ii) in the election of
directors, for the election of independent directors (who must
constitute a majority of the Board) nominated by the Board of
Directors. However, in the event of a merger or similar business
combination or a recapitalization, liquidation or similar
transaction, a sale of all or substantially all of the Company's
assets, or an issuance of voting securities that would represent
more than 20% of the voting power of the Company prior to issuance,
or any amendment of the Company's charter or bylaws that would
materially and adversely affect Northwest (each, an "Extraordinary
Transaction"), the shares may be voted as directed by the Northwest
Party owning such shares, and if a third party is soliciting
proxies in an election of directors, the shares may be voted at the
option of such Northwest Party either as recommended by the
Company's Board of Directors or in the same proportion as the votes
cast by the other holders of voting securities.
The Northwest Parties also agreed to certain restrictions on the
transfer of voting securities owned by them, agreed not to seek to
affect or influence the Company's Board of Directors or the control
of the management of the Company or the business, operations,
affairs, financial matters or policies of the Company or to take
certain other actions, and agreed to take all actions necessary to
cause independent directors to at all times constitute at least a
majority of the Company's Board of Directors. The Company 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 agreed that certain specified actions,
together with any material transactions between the Company and
Northwest or its affiliates, including any modifications or waivers
of the governance 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 governance agreement also required the
Company to adopt a shareholder rights plan with reasonably
customary terms and conditions, with an acquiring person threshold
of 15% (20% in the case of an Institutional Investor) 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 amended effective February 8, 2000.
The governance agreement will 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 the Company's voting securities.
However, in response to concerns raised by the Department of
Justice ("DOJ") in its antitrust review of the Northwest Alliance,
the Air Partners Transaction and the related governance agreement
between the Company and the Northwest Parties (collectively, the
"Northwest Transaction"), a supplemental agreement was adopted in
November 1998, which extended 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 the Company's Board is comprised of independent
directors, and certain specified actions, together with material
transactions between the Company 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 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 set forth in the previous sentence.
If, during the term of the supplemental agreement, the Company's
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.
The Company has 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. The Company
has agreed to certain limitations upon its ability to amend its
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
Continental's Board to have at least five independent directors, a
majority of whom will be required to approve material transactions
between Continental and Northwest or its affiliates, including the
amendment, modification or waiver of any provisions of the
supplemental agreement or the alliance agreement.
In certain circumstances, particularly in cases where a change in
control of the Company could otherwise be caused by another party,
Northwest could exercise its voting power so as to delay, defer or
prevent a change in control of the Company.
Continental desires to simplify its equity capital structure and is
committed to continuing to repurchase outstanding equity. In
connection with its stock repurchase program, the Company has held
preliminary discussions with Northwest concerning the acquisition
by Continental of all the Class A common stock of Continental held
by Northwest in a voting trust (8.7 million shares). The Northwest
alliance is beneficial to both carriers, and any transaction would
be designed to preserve and strengthen the benefits of the
alliance. There can be no assurance as to whether a transaction
between Continental and Northwest will be agreed to or consummated,
nor can Continental predict the structure, form or amount of
consideration or other elements of any such transaction.
Risks Regarding Continental/Northwest Alliance. In November 1998,
the Company and Northwest began implementing a long-term global
alliance involving extensive code-sharing, frequent flyer
reciprocity, and other cooperative activities. Implementation of
the Northwest Alliance continued throughout 1999 and is continuing
in 2000.
Continental's ability to finalize implementation of the Northwest
Alliance and to achieve the anticipated benefits is subject to
certain risks and uncertainties, including (a) disapproval or delay
by regulatory authorities or adverse regulatory developments; (b)
competitive pressures, including developments with respect to
alliances among other air carriers; (c) customer reaction to the
alliance, including reaction to differences in products and
benefits provided by Continental and Northwest; (d) economic
conditions in the principal markets served by Continental and
Northwest; (e) increased costs or other implementation
difficulties, including those caused by employees; and (f)
Continental's ability to modify certain contracts that restrict
certain aspects of the alliance.
The alliance agreement provides that if after four years the
Company has not entered into a code share with KLM or is not
legally able (but for aeropolitical restrictions) to enter into a
new trans-Atlantic joint venture with KLM and Northwest and place
its airline code on certain Northwest flights, Northwest can elect
to (i) cause good faith negotiations among the Company, KLM and
Northwest as to the impact, if any, on the contribution to the
joint venture resulting from the absence of the code share, and the
Company will reimburse the joint venture for the amount of any loss
until it enters into a code share with KLM, or (ii) terminate
(subject to cure rights of the Company) after one year's notice any
or all of such alliance agreement and any or all of the agreements
contemplated thereunder.
On October 23, 1998, the DOJ filed a lawsuit against Northwest and
Continental challenging Northwest's acquisition of an interest in
Continental. The DOJ did not seek to preliminarily enjoin the
transaction before it closed on November 20, 1998, nor is the DOJ
challenging the Northwest Alliance at this time, although the DOJ
has informed the parties that it continues to investigate certain
specific aspects of the alliance. Continental continues to
implement its alliance with Northwest. While it is not possible to
predict the ultimate outcome of this litigation, management does
not believe that it will have a material adverse effect on
Continental.
The DOT has continuing jurisdiction to review changes in
Continental's ownership and joint venture agreements between major
U.S. airlines such as Continental and Northwest. In connection
with such reviews, the DOT exempted Continental and Northwest
through December 10, 1999, from regulatory approval requirements
which the DOT has interpreted to require approval for what it
considers de facto route transfers when one U.S. airline holding
international route authority acquires control of another U.S.
airline holding such authority. The exemption remains in effect
pursuant to the Administrative Procedure Act and a renewal
application has been submitted to the DOT by Continental and
Northwest pending possible further DOT review of the agreements
between them to consider whether, in the DOT's view, there has been
a de facto route transfer.
If the DOT were to conclude that a de facto route transfer of
Continental routes to Northwest were occurring, it would institute
a proceeding to determine whether such a transfer was in the public
interest. In the past, the DOT has approved numerous transfers,
but it has also concluded on occasion that certain overlapping
routes in limited-entry markets should not be transferred. In
those instances, the DOT has decided those routes should instead
become available to other airlines to enhance competition on
overlapping routes or between two countries. Continental and
Northwest operate overlapping flights on certain limited entry
routes and offer service between their primary U.S. hubs and
various other countries. If the DOT were to institute a route
transfer proceeding, it could consider whether certain of
Continental's international routes overlapping with Northwest's on
a point-to-point or country-to-country basis should be transferred
to Northwest or to another airline. Continental believes that
Northwest has not acquired control of Continental, and that there
is a significant question as to the DOT's authority to apply a de
facto route transfer theory to the current relationship between
Northwest and Continental. Continental would vigorously oppose any
attempt by the DOT to institute a route transfer proceeding which
would consider any reductions in Continental's route authorities.
Risks Factors Relating to the Airline Industry
Competition and Industry Conditions. The airline industry is
highly competitive and susceptible to price discounting. Carriers
have used discount fares to stimulate traffic during periods of
slack demand, to generate cash flow and to increase market share.
Some of Continental's competitors have substantially greater
financial resources or lower cost structures than Continental.
Airline profit levels are highly sensitive to changes in fuel
costs, fare levels and passenger demand. Passenger demand and fare
levels have in the past been influenced by, among other things, the
general state of the economy (both internationally and
domestically), international events, airline capacity and pricing
actions taken by carriers. Domestically, from 1990 to 1993, the
weak U.S. economy, turbulent international events and extensive
price discounting by carriers contributed to unprecedented losses
for U.S. airlines. In the last several years, the U.S. economy has
improved and excessive price discounting has abated. Recently,
industry capacity and growth in the transatlantic markets have
resulted in lower yields and revenue per available seat mile in
those markets. Continental cannot predict the extent to which
these industry conditions will continue.
In recent years, the major U.S. airlines have sought to form
marketing alliances with other U.S. and foreign air carriers. Such
alliances generally provide for "code-sharing", frequent flyer
reciprocity, coordinated scheduling of flights of each alliance
member to permit convenient connections and other joint marketing
activities. Such arrangements permit an airline to market flights
operated by other alliance members as its own. This increases the
destinations, connections and frequencies offered by the airline,
which provide an opportunity to increase traffic on its segment of
flights connecting with its alliance partners. The Northwest
Alliance is an example of such an arrangement, and Continental has
existing alliances with numerous other air carriers. Other major
U.S. airlines have alliances or planned alliances more extensive
than Continental's. Continental cannot predict the extent to which
it will benefit from its alliances or be disadvantaged by competing
alliances.
Regulatory Matters. Airlines are subject to extensive regulatory
and legal compliance requirements that engender significant costs.
In the last several years, the FAA has issued a number of
directives and other regulations relating to the maintenance and
operation of aircraft that have required significant expenditures.
Some FAA requirements cover, among other things, retirement of
older aircraft, security measures, collision avoidance systems,
airborne windshear avoidance systems, noise abatement, commuter
aircraft safety and increased inspections and maintenance
procedures to be conducted on older aircraft. Continental expects
to continue incurring expenses in complying with the FAA's
regulations.
Additional laws, regulations, taxes and airport rates and charges
have been proposed from time to time that could significantly
increase the cost of airline operations or reduce revenues. For
instance, "passenger bill of rights" legislation has been
introduced in Congress that would, among other things, require the
payment of compensation to passengers as a result of certain
delays, and limit the ability of carriers to prohibit or restrict
usage of certain tickets in manners currently prohibited or
restricted. The DOT has proposed rules that would significantly
limit major carriers' ability to compete with new entrant carriers.
If adopted, these measures could have the effect of raising ticket
prices, reducing revenue and increasing costs. Restrictions on the
ownership and transfer of airline routes and takeoff and landing
slots have also been proposed. See "Industry Regulation and
Airport Access" above. The ability of U.S. carriers to operate
international routes is subject to change because the applicable
arrangements between the United States and foreign governments may
be amended from time to time, or because appropriate slots or
facilities are not made available. Continental cannot provide
assurance that laws or regulations enacted in the future will not
adversely affect it.
Seasonal Nature of Airline Business; Other. Due to greater demand
for air travel during the summer months, revenue in the airline
industry in the second and third quarters of the year is generally
stronger than revenue in the first and fourth quarters of the year
for most U.S. air carriers. Continental's results of operations
generally reflect this seasonality, but have also been impacted by
numerous other factors that are not necessarily seasonal, including
the extent and nature of competition from other airlines, fare
wars, excise and similar taxes, changing levels of operations, fuel
prices, weather, air traffic control delays, foreign currency
exchange rates and general economic conditions.
ITEM 2. PROPERTIES.
Flight Equipment
As shown in the following table, Continental's (including CMI's)
jet aircraft fleet (excluding regional jets) consisted of 363 jets
at December 31, 1999.
<TABLE>
<CAPTION>
Seats
Total in Standard Average Age
Type Aircraft Owned Leased Configuration (In Years)
<S> <C> <C> <C> <C> <C>
Three Engine
DC-10-30 28 6 22 242 24.0
727-200 5 2 3 149 21.7
Two Engine
777-200 14 4 10 283 0.9
757-200 38 10 28 183 3.2
737-800 42 12 30 155 0.7
737-700 36 12 24 124 1.0
737-500 66 15 51 104 3.7
737-300 65 14 51 128 12.4
MD-80 69 17 52 141 15.0
363 92 271 8.4
</TABLE>
The table above excludes four all-cargo 727 CMI aircraft and one
A300, three 747, three DC-9-30, three DC-10-30 and two 727
Continental aircraft that have been removed from service.
A majority of the aircraft and engines owned by Continental are
subject to mortgages.
The FAA adopted rules pursuant to the Airport Noise and Capacity
Act of 1990 that required a scheduled phase-out of Stage 2 aircraft
during the 1990s. Aircraft operating outside the U.S. are exempt
from the phase-out. With the exception of five 727 aircraft
operated by CMI, Continental's jet fleet was composed of all Stage
3 aircraft at December 31, 1999.
During 1999, Continental put into service a total of 61 new Boeing
aircraft which consisted of 20 737-700 aircraft, 27 737-800
aircraft, six 757-200 aircraft and eight 777-200 aircraft. The
Company anticipates taking delivery of 28 new Boeing aircraft and
retiring 11 DC-10-30, five 727-200 and three MD-80 aircraft in
2000.
As of December 31, 1999, Express operated a fleet of 147 aircraft,
as follows:
<TABLE>
<CAPTION>
Seats
Total in Standard Average Age
Type Aircraft Owned Leased Configuration (In Years)
<S> <C> <C> <C> <C> <C>
Regional jets
ERJ-145 56 - 56 50 1.4
ERJ-135 6 - 6 37 0.3
Turboprop
ATR-72 2 2 - 64 6.1
ATR-42-500 6 - 6 48 3.3
ATR-42-320 31 4 27 46 9.8
EMB-120 21 11 10 30 10.0
Beech 1900-D 25 - 25 19 3.9
147 17 130 5.0
</TABLE>
The table above excludes one EMB-120 owned by the Company but
removed from service.
During 1999, Express took delivery of 21 ERJ-145 aircraft and six
ERJ-135 aircraft. Also, Express put into service one ATR 42-320
previously subleased. Express anticipates taking delivery of
another 15 ERJ-145 aircraft and 12 new ERJ-135 aircraft in 2000.
During December 1999, under a sale and leaseback agreement with
Gulfstream, Express sold 25 Beech 1900-D aircraft to Gulfstream in
exchange for Gulfstream's assumption of $81 million in debt.
Express is leasing these aircraft from Gulfstream for periods
ranging from eight to 23 months.
See Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital
Commitments" for a discussion of the Company's order for new firm
commitment aircraft and related financing arrangements.
Facilities
The Company's principal facilities are located at Newark, Bush
Intercontinental in Houston, Hopkins International in Cleveland and
A.B. Won Pat International Airport in Guam. All these facilities,
as well as substantially all of Continental's other facilities, are
leased on a long-term, net-rental basis, and Continental is
responsible for maintenance, taxes, insurance and other facility-
related expenses and services. In certain locations, Continental
owns hangars and other facilities on land leased on a long-term
basis, which facilities will become the property of the lessor on
termination of the lease. At each of its three domestic hub cities
and most other locations, Continental's passenger and baggage
handling space is leased directly from the airport authority on
varying terms dependent on prevailing practice at each airport.
In July 1996, the Company announced plans to expand its gates and
related facilities into Terminal B at Bush Intercontinental, as
well as planned improvements at Terminal C and the construction of
a new automated people mover system linking Terminal B and Terminal
C. The majority of the Company's expansion project has been
completed. In April 1997 and January 1999, the City of Houston
completed the offering of $190 million and $46 million,
respectively, aggregate principal amount of tax-exempt special
facilities revenue bonds (the "IAH Bonds") to finance such
expansion and improvements. The IAH Bonds are unconditionally
guaranteed by Continental. In connection therewith, the Company
has entered into long-term leases (or amendments to existing
leases) with the City of Houston providing for the Company to make
rental payments sufficient to service the related tax-exempt bonds,
which have a term no longer than 30 years.
Continental substantially completed the expansion of its facilities
at Hopkins International in the third quarter of 1999. The
expansion, which included a new jet concourse for the regional jet
service offered by Express, as well as other facility improvements,
cost approximately $156 million and was funded principally by a
combination of tax-exempt special facilities revenue bonds (issued
in March 1998) and general airport revenue bonds (issued in
December 1997) by the City of Cleveland, Ohio (the "City of
Cleveland"). Continental has unconditionally guaranteed the
special facilities revenue bonds and has entered into a long-term
lease with the City of Cleveland under which rental payments will
be sufficient to service the related bonds.
In September 1999, the City of Cleveland completed the issuance of
$71 million aggregate principal amount of tax-exempt bonds. The
bond proceeds were used to refinance $75 million aggregate
principal amount in bonds originally issued by the City of
Cleveland in 1990 for the purpose of constructing certain terminal
and other improvements at Hopkins International. Continental has
unconditionally guaranteed the bonds and has a long-term lease with
the City of Cleveland under which rental payments will be
sufficient to service the related bonds, which have a term of 20
years. Continental estimates that it will save approximately $44
million in debt service payments over the 20-year term as a result
of the refinancing.
Also in September 1999, the New Jersey Economic Development
Authority completed the offering of $730 million aggregate
principal amount of tax-exempt special facility revenue bonds to
finance a portion of Continental's Global Gateway Program at Newark
International Airport. Major construction began in the third
quarter of 1999 and is scheduled to be completed in 2002. The
program includes construction of a new concourse in Terminal C and
other facility improvements. Continental has unconditionally
guaranteed the bonds and has entered into a long-term lease with
the New Jersey Economic Development Authority under which rental
payments will be sufficient to service the related bonds, which
have a term of 30 years.
The Company has lease agreements with the City and County of Denver
covering several support facilities at Denver International
Airport. The facilities exceed Continental's needs at the airport
and the Company has subleased a portion of the space.
The Company has cargo facilities at Los Angeles International
Airport. In July 1996, the Company subleased such facilities to
another carrier. If such carrier fails to comply with its
obligations under the sublease, the Company would be required to
perform those obligations.
Continental also maintains administrative offices, airport and
terminal facilities, training facilities and other facilities
related to the airline business in the cities it serves.
Continental remains contingently liable until December 1, 2015, on
$202 million of long-term lease obligations of US Airways related
to the East End Terminal at LaGuardia. If US Airways defaulted on
these obligations, Continental could be required to cure the
default, at which time it would have the right to occupy the
terminal.
ITEM 3. LEGAL PROCEEDINGS.
Antitrust Litigation
United States of America v. Northwest Airlines Corp. & Continental
Airlines, Inc., in the United States District Court for the
Eastern District of Michigan, Southern Division. In this
litigation, the Antitrust Division of the DOJ is challenging under
Section 7 of the Clayton Act and Section 1 of the Sherman Act the
acquisition by Northwest of shares of Continental's Class A common
stock bearing, together with certain shares for which Northwest has
a limited proxy, more than 50% of the fully diluted voting power of
all Continental stock. The government's position is that,
notwithstanding various agreements that restrict Northwest's
ability to exercise voting control over Continental and are
designed to assure Continental's competitive independence,
Northwest's control of the Class A common stock will reduce actual
and potential competition in various ways and in a variety of
markets. The government seeks an order requiring Northwest to
divest all voting stock in Continental on terms and conditions as
may be agreed to by the government and the Court. No specific
relief is sought against Continental. Trial is currently set for
October 2000.
Environmental Proceedings
Under the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended (commonly known
as "Superfund") and similar state environment cleanup laws,
generators of waste disposed of at designated sites may, under
certain circumstances, be subject to joint and several liability
for investigation and remediation costs. The Company (including
its predecessors) has been identified as a potentially responsible
party at four federal and two state sites that are undergoing or
have undergone investigation or remediation. The Company has
entered into a settlement agreement with the Environmental
Protection Agency ("EPA") with respect to the four federal sites.
The settlement agreement provides for EPA to receive an allowed
unsecured claim of approximately $1.3 million under the Company's
Plan of Reorganization (subject to approval of the Bankruptcy
Court) and approximately $230,000 in cash, in full satisfaction of
any and all of the Company's liabilities relating to such sites.
With respect to the state sites, the Company believes that,
although applicable case law is evolving and some cases may be
interpreted to the contrary, some or all of any liability claims
associated with these sites were discharged by confirmation of the
Company's Plan of Reorganization, principally because the Company's
exposure is based on alleged offsite disposal known as of the date
of confirmation. Even if any such claims were not discharged, on
the basis of currently available information, the Company believes
that its potential liability for its allocable share of the cost to
remedy each site (to the extent the Company is found to have
liability) is not, in the aggregate, material; however, the Company
has not been designated a "de minimis" contributor at any of such
sites.
The Company is also and may from time to time become involved in
other environmental matters, including the investigation and/or
remediation of environmental conditions at properties used or
previously used by the Company. Although the Company is not
currently subject to any environmental cleanup orders imposed by
regulatory authorities, it is undertaking voluntary investigation
or remediation at certain properties in consultation with such
authorities. The full nature and extent of any contamination at
these properties and the parties responsible for such contamination
have not been determined, but based on currently available
information, the Company does not believe that any environmental
liability associated with such properties will have a material
adverse effect on the Company.
General
Various other claims and lawsuits against the Company are pending
that are of the type generally consistent with the Company's
business. The Company cannot at this time reasonably estimate the
possible loss or range of loss that could be experienced if any of
the claims were successful. Typically, such claims and lawsuits
are covered in whole or in part by insurance. The Company does not
believe that the foregoing matters will have a material adverse
effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Continental's common stock trades on the New York Stock Exchange.
The table below shows the high and low sales prices for the
Company's Class B common stock and Class A common stock as reported
on the New York Stock Exchange during 1998 and 1999.
<TABLE>
<CAPTION>
Class B Class A
Common Stock Common Stock
High Low High Low
<S> <C> <C> <C> <C>
1998 First Quarter . . . $62-1/16 $44 $64-1/4 $47-3/4
Second Quarter. . . $64 $54-1/16 $64-1/2 $55-3/4
Third Quarter . . . $65-1/8 $35-3/4 $64-3/4 $36-1/2
Fourth Quarter. . . $42-13/16 $28-7/8 $43-5/16 $30-7/8
1999 First Quarter . . . $41-11/16 $30 $44-15/16 $34-1/8
Second Quarter. . . $48 $36-7/16 $48 $36-13/16
Third Quarter . . . $44-9/16 $31-5/8 $44-3/8 $31-13/16
Fourth Quarter. . . $44-3/8 $32-3/8 $44-11/16 $32-3/16
</TABLE>
As of January 21, 2000, there were approximately 14,774 and 2,893
holders of record of Continental's Class B common stock and Class A
common stock, respectively.
The Company has paid no cash dividends on its common stock and has
no current intention of paying cash dividends on its common stock.
During 1999, the Company's Board of Directors increased the size
of its common stock repurchase program by $900 million, bringing
the total size of the program to $1.2 billion. In addition, the
Company's Board of Directors has also authorized the Company to use
up to one-half of its 2000 and later adjusted net income, and all
of the net proceeds of future sales of non-strategic assets, for
additional stock repurchases. As of January 21, 2000, the Company
has repurchased 18,853,600 Class B common shares for $804 million
since the inception of the repurchase program in March 1998.
Certain of the Company's credit agreements and indentures restrict
the ability of the Company and certain of its subsidiaries to pay
cash dividends or repurchase capital stock by imposing minimum
unrestricted cash requirements on the Company, limiting the amount
of such dividends and repurchases when aggregated with certain
other payments or distributions and requiring that the Company
comply with other covenants specified in such instruments.
The Company's Certificate of Incorporation provides that no shares
of capital stock may be voted by or at the direction of persons who
are not United States citizens unless such shares are registered on
a separate stock record. The Company's Bylaws further provide that
no shares will be registered on such separate stock record if the
amount so registered would exceed United States foreign ownership
restrictions. United States law currently requires that no more
than 25% of the voting stock of the Company (or any other domestic
airline) may be owned directly or indirectly by persons who are not
citizens of the United States.
ITEM 6. SELECTED FINANCIAL DATA.
The table on the following page sets forth certain consolidated
financial data of the Company at December 31, 1999, 1998, 1997,
1996 and 1995 and for each of the five years in the period ended
December 31, 1999.
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA (Continued)
(in millions, except per share data)
<CAPTION>
Year Ended December 31, (1)(2)
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Operating revenue (3). . . . $8,639 $7,927 $7,194 $6,347 $5,816
Operating income . . . . . . 600 701 716 525 385
Income before cumulative
effect of accounting
changes and extra-
ordinary charge. . . . . . 488 387 389 325 224
Net income . . . . . . . . . 455 383 385 319 224
Earnings per common share:
Income before cumulative
effect of accounting
changes and extra-
ordinary charge. . . . 7.02 6.40 6.72 5.87 4.07
Net income . . . . . . . 6.54 6.34 6.65 5.75 4.07
Earnings per common share
assuming dilution:
Income before cumulative
effect of accounting
changes and extra-
ordinary charge. . . . 6.64 5.06 5.03 4.25 3.37
Net income . . . . . . . 6.20 5.02 4.99 4.17 3.37
</TABLE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA (Continued)
(in millions, except per share data)
<CAPTION>
Year Ended December 31, (1)(2)
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Proforma Effect Assuming
Accounting Change-Sale
of Frequent Flyer Miles -
is Applied Retroactively:
Income before
Extraordinary Charge. . . $ 488 $ 382 $ 385 $ 319 $ 219
Earnings per Common Share. $ 7.02 $ 6.32 $ 6.65 $ 5.74 $ 3.97
Earnings per Common Share
Assuming Dilution . . . . $ 6.64 $ 5.00 $ 4.98 $ 4.16 $ 3.29
Net Income . . . . . . . . $ 482 $ 378 $ 381 $ 313 $ 219
Earnings per Common Share. $ 6.93 $ 6.26 $ 6.58 $ 5.63 $ 3.97
Earnings per Common Share
Assuming Dilution . . . . $ 6.57 $ 4.95 $ 4.93 $ 4.09 $ 3.29
</TABLE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA (Continued)
<CAPTION>
Year Ended December 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Total assets . . . . . . . . . . . $8,223 $7,086 $5,830 $5,206 $4,821
Long-term debt and capital lease
obligations. . . . . . . . . . . 3,055 2,480 1,568 1,624 1,658
Minority interest (4). . . . . . . - - - 15 27
Continental-Obligated Mandatorily
Redeemable Preferred Securities
of Subsidiary Trust holding
solely Convertible Subordinated
Debentures (5) . . . . . . . . . - 111 242 242 242
Redeemable preferred stock (6) . . - - - 46 41
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
(1) See Item 7. "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Results of Operations" for a discussion of significant transactions in
1999, 1998 and 1997. 1999 results include a $50 million fleet disposition/impairment
loss ($81 million pre-tax) resulting from the Company's decision to accelerate the
retirement of certain jet and turboprop aircraft. In addition, 1999 results include a
$182 million gain ($297 million pre-tax) related to the sale of the Company's interest
in AMADEUS and an $18 million net gain ($29 million pre-tax) related to other asset
sales, including a portion of the Company's interest in Equant N.V. 1999 results also
include the cumulative effect of accounting changes ($33 million, net of taxes) related
to the write-off of pilot training costs and a change in the method of accounting for
the sale of mileage credits under the Company's frequent flyer program. 1998 results
include a $122 million fleet disposition/impairment loss resulting from the Company's
decision to accelerate the retirement of certain jet and turboprop aircraft. 1996
results include a $128 million fleet disposition loss associated with the Company's
decision to accelerate the replacement of its DC-9-30, DC-10-10, 727-200, 737-100 and
737-200 aircraft. 1995 results include a $30 million gain ($108 million pre-tax) from
the System One transactions.
(2) No cash dividends were paid on common stock during the periods shown.
(3) Certain reclassifications have been made in the prior years' financial data to conform
to the current year presentation.
(4) Continental purchased the United Micronesia Development Association, Inc.'s 9% interest
in Air Micronesia, Inc. in 1997.
(5) The sole assets of the Continental-Obligated Mandatorily Redeemable Preferred Securities
of Subsidiary Trust ("Trust") were Convertible Subordinated Debentures. In 1998,
approximately $134 million principal amount of such Preferred Securities converted into
shares of Class B common stock, and in January 1999, the remainder of such Preferred
Securities converted into shares of Class B common stock.
(6) Continental redeemed for cash all of the outstanding shares of its Series A 12%
Cumulative Preferred Stock in 1997.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The following discussion may contain forward-looking statements.
In connection therewith, please see the cautionary statements
contained in Item 1. "Business - Risk Factors Relating to the
Company" and "Business - Risk Factors Relating to the Airline
Industry" which identify important factors that could cause actual
results to differ materially from those in the forward-looking
statements. Hereinafter, the terms "Continental" and the "Company"
refer to Continental Airlines, Inc. and its subsidiaries, unless
the context indicates otherwise.
Continental's results of operations are impacted by seasonality
(the second and third quarters are generally stronger than the
first and fourth quarters) as well as numerous other factors that
are not necessarily seasonal, including the extent and nature of
competition from other airlines, employee job actions (including at
other airlines), fare sale activities, excise and similar taxes,
changing levels of operations and capacity, fuel prices, weather,
air traffic control delays, foreign currency exchange rates,
changes in regulations and aviation treaties and general economic
conditions. Recently, jet fuel prices have increased dramatically.
If high fuel costs continue without an improvement in the revenue
environment, the Company may not post a profit in the first quarter
of 2000. In addition, industry capacity and growth in the
transatlantic markets (including block space arrangements where
Continental is obligated to purchase capacity at a fixed price)
have resulted in lower yields and revenue per available seat mile
in those markets, which trend is expected to continue in 2000.
Although the results in Asia of Continental Micronesia, Inc.
("CMI"), a wholly owned subsidiary of the Company, have declined in
recent years, the Company successfully redeployed CMI capacity into
stronger domestic markets and CMI's recent results continue to
improve. Continental will continue to critically review its growth
plans in light of industry conditions and will adjust or redeploy
resources, including aircraft capacity, as necessary, similar to
its recent decision to accelerate the retirement of certain DC-10-
30 aircraft and replace them with narrowbody aircraft on certain
transatlantic routes. In addition, management believes the Company
is well positioned to respond to market conditions in the event of
a sustained economic downturn for the following reasons:
underdeveloped hubs with strong local traffic; a flexible fleet
plan; a strong cash balance, a $225 million unused revolving credit
facility and a well developed alliance network.
Results of Operations
The following discussion provides an analysis of the Company's
results of operations and reasons for material changes therein for
the three years ended December 31, 1999.
Comparison of 1999 to 1998. The Company recorded consolidated net
income of $455 million and $383 million for the years ended
December 31, 1999 and 1998, respectively. Net income in 1999 was
significantly impacted by several non-recurring items, including a
$182 million gain on the sale of the Company's interest in AMADEUS
Global Travel Distribution S.A. ("AMADEUS") ($297 million pre-tax),
a $50 million fleet disposition/impairment loss ($81 million pre-
tax) related to the early retirement of several DC-10-30's and
other items, the cumulative effect of accounting changes ($33
million, net of taxes) related to the write-off of pilot training
costs and a change in the method of accounting for the sale of
mileage credits to participating partners in the Company's frequent
flyer program, a $20 million gain ($33 million pre-tax) on the sale
of a portion of the Company's interest in Equant N.V. ("Equant")
and a $3 million loss ($4 million pre-tax) on the sale of the
Company's warrants to purchase common stock of priceline.com, Inc.
("Priceline"). Net income in 1998 was significantly impacted by a
$77 million ($122 million pre-tax) fleet disposition/ impairment
loss resulting from the Company's decision to accelerate the
retirement of certain jet and turboprop aircraft.
Passenger revenue increased 8.9%, $660 million, during 1999 as
compared to 1998. The increase was due to an 11.3% increase in
revenue passenger miles, partially offset by a 3.3% decrease in
yield. Both yield pressures in the transatlantic markets and a
6.7% increase in average stage length negatively impacted yield.
Cargo and mail revenue increased 10.2%, $28 million, in 1999 as
compared to 1998 due to increased domestic and international
volumes and new markets added in 1999.
Other operating revenue increased 12.2%, $24 million, in 1999
compared to the prior year primarily due to an increase in fees
charged to customers to change advance purchase tickets and also
due to an increase in Presidents Club revenue as a result of a
larger number of these airport private clubs.
Wages, salaries and related costs increased 13.2%, $292 million,
during 1999 as compared to 1998, primarily due to an 8.3% increase
in average full-time equivalent employees to support increased
flying and higher wage rates resulting from the Company's decision
to increase employee wages to industry standard by the year 2000.
Aircraft fuel expense increased 6.1%, $44 million, in 1999 as
compared to the prior year. The average price per gallon increased
1.0% from 46.83 cents in 1998 to 47.31 cents in 1999. This
increase is net of gains of approximately $105 million recognized
during 1999 related to the Company's fuel hedging program. See
"Fuel Hedging" below. In addition, the quantity of jet fuel used
increased 3.7% principally reflecting increased capacity offset in
part by the increased fuel efficiency of the Company's younger
fleet.
Aircraft rentals increased 17.0%, $112 million, during 1999 as
compared to 1998, due to the delivery of new aircraft.
Commissions expense decreased 1.2%, $7 million, during 1999 as
compared to 1998 due to lower rates resulting from international
commission caps and a lower volume of commissionable sales,
partially offset by increased passenger revenue.
Other rentals and landing fees increased 20.0%, $83 million,
primarily due to higher facilities rent due to increased rates and
volume and higher landing fees resulting from increased operations.
Depreciation and amortization expense increased 22.4%, $66 million,
in 1999 compared to 1998 primarily due to the addition of new
aircraft and related spare parts. These increases were partially
offset by approximately a $5 million reduction in the amortization
of routes, gates and slots resulting from the recognition of
previously unbenefitted net operating losses ("NOLs") during 1998.
During the fourth quarter of 1999, the Company made the 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. The DC-10-30's will be replaced by Boeing 757 and
Boeing 737-800 aircraft on certain routes, and by Boeing 777
aircraft on other routes. In addition, the market value of certain
Boeing 747 aircraft no longer operated by the Company has declined.
As a result of these items and certain other fleet-related items,
the Company recorded a fleet disposition/impairment loss of $81
million in the fourth quarter of 1999.
Approximately $52 million of the $81 million charge relates to the
impairment of owned or capital leased aircraft and related
inventory held for disposal with a carrying amount of $77 million.
The remaining $29 million of the charge relates primarily to costs
expected to be incurred related to the return of leased aircraft.
As of December 31, 1999, the remaining accrual for the 1999 fleet
disposition/impairment loss totaled $12 million. The Company
expects to finance the cash outlays primarily with internally
generated funds.
Other operating expense increased 14.9%, $243 million, in 1999 as
compared to the prior year, primarily as a result of increases in
passenger services expense, aircraft servicing expense,
reservations and sales expense and other miscellaneous expense,
principally due to a 9.7% increase in available seat miles.
Interest expense increased 30.9%, $55 million, due to an increase
in long-term debt resulting from the purchase of new aircraft and
$200 million of 8% unsecured senior notes issued in December 1998,
partially offset by interest savings of $9 million due to the
conversion of the Company's 6-3/4% Convertible Subordinated Notes
into Class B common stock.
Interest income increased 20.3%, $12 million, due to higher average
balances of cash, cash equivalents and short-term investments and
due to higher rates.
The Company's other nonoperating income (expense) in 1999 includes
a $33 million gain on the sale of a portion of the Company's
interest in Equant, partially offset by foreign currency losses of
$13 million, losses on equity investments of $7 million and a $4
million loss on the sale of the Company's warrants to purchase
common stock of Priceline. Other nonoperating income (expense) in
1998 included a $6 million gain on the sale of certain stock of
America West Holdings Corporation ("America West Holdings").
Comparison of 1998 to 1997. The Company recorded consolidated net
income of $383 million and $385 million for the years ended
December 31, 1998 and 1997 (including special charges),
respectively. Net income in 1998 was significantly impacted by a
$77 million ($122 million pre-tax) fleet disposition/impairment
loss resulting from the Company's decision to accelerate the
retirement of certain jet and turboprop aircraft. Management
believes that the Company benefitted in the first quarter of 1997
from the expiration of the aviation trust fund tax (the "ticket
tax"). The ticket tax was reinstated on March 7, 1997. Management
believes that the ticket tax has a negative impact on the Company,
although neither the amount of such negative impact directly
resulting from the reimposition of the ticket tax, nor the benefit
realized by its previous expiration, can be precisely determined.
Passenger revenue increased 10.7%, $723 million, during 1998 as
compared to 1997. The increase was due to a 12.5% increase in
revenue passenger miles, partially offset by a 2.4% decrease in
yield. The decrease in yield was due to lower industry-wide fare
levels and an 8% increase in average stage length.
Cargo and mail increased 6.6%, $17 million, due to an increase in
freight revenue resulting from strong international volumes and
strong growth in Continental's express delivery service.
Wages, salaries and related costs increased 22.3%, $404 million,
during 1998 as compared to 1997, primarily due to an 11.2% increase
in average full-time equivalent employees to support increased
flying and higher wage rates resulting from the Company's decision
to increase employee wages to industry standards by the year 2000.
Aircraft fuel expense decreased 17.9%, $158 million, in 1998 as
compared to the prior year. The average price per gallon decreased
25.6% from 62.91 cents in 1997 to 46.83 cents in 1998. This
reduction was partially offset by a 9.6% increase in the quantity
of jet fuel used principally reflecting increased capacity.
Aircraft rentals increased 19.6%, $108 million, during 1998 as
compared to 1997, due primarily to the delivery of new leased
aircraft.
Maintenance, materials and repairs increased 8.4%, $45 million,
during 1998 as compared to 1997. Aircraft maintenance expense in
the second quarter of 1997 was reduced by $16 million due to the
reversal of reserves that were no longer required as a result of
the acquisition of 10 aircraft previously leased by the Company.
In addition, maintenance expense increased due to the overall
increase in flight operations offset by newer aircraft and the
volume and timing of engine overhauls as part of the Company's
ongoing maintenance program.
Depreciation and amortization expense increased 15.7%, $40 million,
in 1998 compared to 1997 primarily due to the addition of new
aircraft and related spare parts. These increases were partially
offset by an approximate $18 million reduction in the amortization
of reorganization value in excess of amounts allocable to
identifiable assets and routes, gates and slots resulting from the
recognition of previously unbenefitted NOLs.
In August 1998, Continental announced that CMI would accelerate the
retirement of its four Boeing 747 aircraft by April 1999 and its
remaining thirteen Boeing 727 aircraft by December 2000. The
Boeing 747s were replaced by DC-10-30 aircraft and the Boeing 727
aircraft were replaced with a reduced number of Boeing 737
aircraft. In addition, Continental Express, Inc. ("Express"), a
wholly owned subsidiary of the Company, announced that it would
accelerate the retirement of certain turboprop aircraft by December
2000, including its fleet of 32 Embraer 120 turboprop aircraft, as
regional jets are acquired to replace turboprops. As a result of
its decision to accelerate the retirement of these aircraft,
Continental recorded a fleet disposition/impairment loss of $77
million ($122 million pre-tax) in the third quarter of 1998.
Other operating expense increased 10.3%, $152 million, in 1998 as
compared to the prior year, primarily as a result of increases in
passenger and aircraft servicing expense, reservations and sales
expense and other miscellaneous expense, primarily due to the 10.6%
increase in available seat miles.
Interest expense increased 7.2%, $12 million, due to an increase in
long-term debt resulting from the purchase of new aircraft.
Interest capitalized increased 57.1%, $20 million, due to increased
capital spending and a higher average balance of purchase deposits
for flight equipment.
The Company's other nonoperating income (expense) in 1998 included
a $6 million gain on the sale of America West Holdings stock.
Certain Statistical Information
An analysis of statistical information for Continental's jet
operations, excluding regional jets operated by Express, for each
of the three years in the period ended December 31, 1999 is as
follows:
<TABLE>
<CAPTION>
Net Increase/ Net Increase/
(Decrease) (Decrease)
1999 1999-1998 1998 1998-1997 1997
<S> <C> <C> <C> <C> <C>
Revenue pas-
senger miles
(millions) (1) . 60,022 11.3 % 53,910 12.5 % 47,906
Available seat
miles
(millions) (2) . 81,946 9.7 % 74,727 10.6 % 67,576
Passenger load
factor (3) . . . 73.2% 1.1 pts. 72.1% 1.2 pts. 70.9%
Breakeven pas-
senger load
factor (4), (5). 65.6% 4.0 pts. 61.6% 1.5 pts. 60.1%
Passenger revenue
per available
seat mile
(cents). . . . . 9.06 (1.8)% 9.23 (0.6)% 9.29
Total revenue per
available seat
mile (cents) . . 9.81 (1.4)% 9.95 (1.1)% 10.06
Operating cost
per available
seat mile
(cents) (5). . . 9.03 1.6 % 8.89 (1.7)% 9.04
Average yield
per revenue
passenger mile
(cents) (6). . . 12.37 (3.3)% 12.79 (2.4)% 13.11
Average fare per
revenue
passenger. . . .$163.07 3.2 % $158.02 3.7 % $152.40
Revenue passengers
(thousands). . . 45,540 4.4 % 43,625 5.9 % 41,210
Average length of
aircraft flight
(miles). . . . . 1,114 6.7 % 1,044 8.0 % 967
Average daily
utilization of
each aircraft
(hours) (7). . . 10:29 2.6 % 10:13 0.0 % 10:13
Actual aircraft
in fleet at end
of period (8). . 363 - 363 7.7 % 337
</TABLE>
_______________
Continental has entered into block space arrangements with certain
other carriers whereby one or both of the carriers is obligated to
purchase capacity on the other. The table above excludes 2.6
billion, 1.9 billion and 738 million available seat miles, together
with related revenue passenger miles and enplanements, operated by
Continental but purchased and marketed by the other carriers in
1999, 1998 and 1997, respectively, and includes 1.0 billion and 358
million available seat miles, together with related revenue
passenger miles and enplanements, operated by other carriers but
purchased and marketed by Continental in 1999 and 1998,
respectively.
(1) The number of scheduled miles flown by revenue passengers.
(2) The number of seats available for passengers multiplied by
the number of scheduled miles those seats are flown.
(3) Revenue passenger miles divided by available seat miles.
(4) The percentage of seats that must be occupied by revenue
passengers in order for the airline to break even on an
income before income taxes basis, excluding nonrecurring
charges, nonoperating items and other special items.
(5) 1999 and 1998 exclude fleet disposition/impairment losses
totaling $81 million and $122 million, respectively.
(6) The average revenue received for each mile a revenue
passenger is carried.
(7) The average number of hours per day that an aircraft flown in
revenue service is operated (from gate departure to gate
arrival).
(8) Excludes all-cargo 727 aircraft (four in 1999 and six in 1998
and 1997) at CMI.
Liquidity and Capital Resources
During 1999, the Company completed a number of transactions
intended to strengthen its long-term financial position and enhance
earnings:
In February 1999, the Company completed an offering of $806 million
of pass-through certificates used to finance (either through
leveraged leases or secured debt financings) the debt portion of
the acquisition cost of 22 aircraft delivered in 1999.
In March 1999, the Company completed a $160 million Credit
Facility, with a maturity date of March 2001, to finance pre-
delivery deposits for certain new Boeing aircraft to be delivered
between March 1999 and March 2002.
In April 1999, the Company exercised its right and called for
redemption in May 1999, all $230 million of its 6-3/4% Convertible
Subordinated Notes due 2006. The notes were converted into 7.6
million shares of Class B common stock during May 1999.
Also, in June 1999, the Company completed an offering of $742
million of pass-through certificates used to finance (either
through leveraged leases or secured debt financings) the debt
portion of the acquisition cost of 21 new Boeing aircraft delivered
in 1999.
In October 1999, Continental sold its interest in AMADEUS for $409
million, including a special dividend.
During 1999, the Company's Board of Directors increased the size of
its common stock repurchase program by $900 million, bringing the
total size of the program to $1.2 billion. As of January 21, 2000,
the Company has repurchased 18,853,600 Class B common shares for
$804 million since the inception of the program in March of 1998.
As of December 31, 1999, Continental had approximately $3.4 billion
(including current maturities) of long-term debt and capital lease
obligations, and had approximately $1.6 billion of common
stockholders' equity, a ratio of 2.1 to 1, at both December 31,
1999 and 1998.
As of December 31, 1999, the Company had $1.6 billion in cash and
cash equivalents and short-term investments, compared to $1.4
billion as of December 31, 1998. Net cash provided by operating
activities decreased $100 million during the year ended December
31, 1999 compared to the same period in the prior year primarily
due to a decrease in operating income. Net cash used by investing
activities for the year ended December 31, 1999 compared to the
same period in the prior year decreased $39 million, primarily due
to proceeds received from the sale of AMADEUS and increased
proceeds received from the sale of equipment offset by the purchase
of short-term investments in 1999. Net cash used by financing
activities increased $514 million primarily due to an increase in
the purchase of the Company's Class B common stock and a decrease
in proceeds received from the issuance of long-term debt.
Continental has unused lines of credit totaling $225 million. A
significant amount of Continental's assets are encumbered.
Deferred Tax Assets. As of December 31, 1999, the Company had
deferred tax assets aggregating $611 million, including $266
million of NOLs, and a valuation allowance of $263 million.
As a result of NOLs, the Company will not pay United States federal
income taxes (other than alternative minimum tax) until it has
recorded approximately an additional $700 million of taxable income
following December 31, 1999. Section 382 of the Internal Revenue
Code ("Section 382") imposes limitations on a corporation's ability
to utilize NOLs if it experiences an "ownership change". In
general terms, an ownership change may result from transactions
increasing the ownership of certain stockholders in the stock of a
corporation by more than 50 percentage points over a three-year
period. In the event that an ownership change should occur,
utilization of Continental's NOLs would be subject to an annual
limitation under Section 382 determined by multiplying the value of
the Company's stock at the time of the ownership change by the
applicable long-term tax exempt rate (which was 5.72% for December
1999). Any unused annual limitation may be carried over to later
years, and the amount of the limitation may under certain
circumstances be increased by the built-in gains in assets held by
the Company at the time of the change that are recognized in the
five-year period after the change. Under current conditions, if an
ownership change were to occur, Continental's annual NOL
utilization would be limited to approximately $172 million per year
other than through the recognition of future built-in gain
transactions.
On November 20, 1998, an affiliate of Northwest Airlines, Inc.
completed its acquisition of certain equity of the Company
previously held by Air Partners, L.P. and its affiliates, together
with certain Class A common stock of the Company held by certain
other investors, totaling 8,661,224 shares of the Class A common
stock (the "Air Partners Transaction"). The Company does not
believe that the Air Partners Transaction resulted in an ownership
change for purposes of Section 382.
Purchase Commitments. Continental has substantial commitments for
capital expenditures, including for the acquisition of new
aircraft. As of January 14, 2000, Continental had agreed to
acquire a total of 74 Boeing jet aircraft through 2005. The
Company anticipates taking delivery of 28 Boeing jet aircraft in
2000. Continental also has options for an additional 118 aircraft
(exercisable subject to certain conditions). The estimated
aggregate cost of the Company's firm commitments for Boeing
aircraft is approximately $4 billion. Continental currently plans
to finance its new Boeing aircraft with a combination of enhanced
pass through trust certificates, lease equity and other third-party
financing, subject to availability and market conditions.
Continental has commitments or letters of intent for backstop
financing for approximately 18% of the anticipated remaining
acquisition cost of future Boeing deliveries. In addition, at
January 14, 2000, Continental has firm commitments to purchase 34
spare engines related to the new Boeing aircraft for approximately
$219 million which will be deliverable through March 2005.
However, further financing will be needed to satisfy the Company's
capital commitments for other aircraft and aircraft-related
expenditures such as engines, spare parts, simulators and related
items. There can be no assurance that sufficient financing will be
available for all aircraft and other capital expenditures not
covered by firm financing commitments. Deliveries of new Boeing
aircraft are expected to increase aircraft rental, depreciation and
interest costs while generating cost savings in the areas of
maintenance, fuel and pilot training.
As of January 14, 2000, Express had firm commitments for 43 Embraer
ERJ-145 ("ERJ-145") regional jets and 19 Embraer ERJ-135 ("ERJ-
135") regional jets, with options for an additional 100 ERJ-145 and
50 ERJ-135 aircraft exercisable through 2008. Express anticipates
taking delivery of 15 ERJ-145 and 12 ERJ-135 regional jets in 2000.
Neither Express nor Continental will have any obligation to take
any of the firm ERJ-145 or ERJ-135 aircraft that are not financed
by a third party and leased to Continental.
Continental expects its cash outlays for 2000 capital expenditures,
exclusive of fleet plan requirements, to aggregate $207 million,
primarily relating to software application and automation
infrastructure projects, aircraft modifications and mandatory
maintenance projects, passenger terminal facility improvements and
office, maintenance, telecommunications and ground equipment.
Continental's capital expenditures during 1999 aggregated $213
million, exclusive of fleet plan requirements.
The Company expects to fund its future capital commitments through
internally generated funds together with general Company financings
and aircraft financing transactions. However, there can be no
assurance that sufficient financing will be available for all
aircraft and other capital expenditures not covered by firm
financing commitments.
Continental has certain block-space arrangements whereby it is
committed to purchase capacity on other carriers at an aggregate
cost of approximately $159 million per year. These arrangements
are currently scheduled to expire over the next eight years.
Pursuant to other block-space arrangements, other carriers are
committed to purchase capacity at a cost of approximately $95
million per year on Continental.
Year 2000. The Year 2000 issue arose as a result of computer
programs having been written using two digits (rather than four) to
define the applicable year, among other problems. Any information
technology ("IT") systems with time-sensitive software might
recognize a date using "00" as the year 1900 rather than the year
2000, which could result in miscalculations and system failures.
The problem could also extend to many "non-IT" systems; that is,
operating and control systems that rely on embedded chip systems.
In addition, the Company was at risk from Year 2000 failures on the
part of third party-suppliers and governmental agencies with which
the Company interacts.
The Company uses a significant number of computer software programs
and embedded operating systems that are essential to its
operations. For this reason, the Company implemented a Year 2000
project in late 1995 so that the Company's computer systems would
function properly in the year 2000 and thereafter. The Company's
Year 2000 project involved the review of a number of internal and
third-party systems. Each system was subjected to the project's
five phases which consisted of systems inventory, evaluation and
analysis, modification implementation, user testing and integration
compliance. The Company completed its system review and made
certain modifications to its existing software and systems and/or
conversions to new software. As a result, the Year 2000 issue did
not pose any operational problems.
The Company completed its extensive communications and on-site
visits with its significant suppliers, vendors and governmental
agencies with which its systems interface and exchange data or upon
which its business depends. The Company coordinated efforts with
these parties to minimize the extent to which its business would be
vulnerable to their failure to remediate their own Year 2000
problems. The Company's business is dependent upon certain
domestic and foreign governmental organizations or entities such as
the Federal Aviation Administration that provide essential aviation
industry infrastructure. The systems of such third parties on
which Continental relies did not pose significant operational
problems for the Company. Management updated its day-to-day
operational contingency plans for possible Year 2000-specific
operational requirements. Although passenger travel was lower in
the latter part of December and early January due in part, the
Company believes, to Year 2000 concerns, the Company does not
believe that it has continued exposure to the Year 2000 issue.
The total cost of the Company's Year 2000 project (excluding
internal payroll) was $20 million and was funded through cash from
operations. In addition, the Company estimates that the negative
revenue impact in the latter part of December and early January
attributable to the Year 2000 concerns approximated $20 million and
$10 million, respectively. The cost of the Year 2000 project was
limited by the substantial outsourcing of the Company's systems and
the significant implementation of new systems since 1993.
Bond Financings. In July 1996, the Company announced plans to
expand its gates and related facilities into Terminal B at Bush
Intercontinental Airport, as well as planned improvements at
Terminal C and the construction of a new automated people mover
system linking Terminal B and Terminal C. The majority of the
Company's expansion project has been completed. In April 1997 and
January 1999, the City of Houston completed the offering of $190
million and $46 million, respectively, aggregate principal amount
of tax-exempt special facilities revenue bonds (the "IAH Bonds") to
finance such expansion and improvements. The IAH Bonds are
unconditionally guaranteed by Continental. In connection
therewith, the Company has entered into long-term leases (or
amendments to existing leases) with the City of Houston providing
for the Company to make rental payments sufficient to service the
related tax-exempt bonds, which have a term no longer than 30
years.
Continental substantially completed the expansion of its facilities
at its Hopkins International Airport hub in Cleveland in the third
quarter of 1999. The expansion, which included a new jet concourse
for the regional jet service offered by Express, as well as other
facility improvements, cost approximately $156 million and was
funded principally by a combination of tax-exempt special
facilities revenue bonds (issued in March 1998) and general airport
revenue bonds (issued in December 1997) by the City of Cleveland,
Ohio (the "City of Cleveland"). Continental has unconditionally
guaranteed the special facilities revenue bonds and has entered
into a long-term lease with the City of Cleveland under which
rental payments will be sufficient to service the related bonds.
In September 1999, the City of Cleveland completed the issuance of
$71 million aggregate principal amount of tax-exempt bonds. The
bond proceeds were used to refinance $75 million aggregate
principal amount in bonds originally issued by the City of
Cleveland in 1990 for the purpose of constructing certain terminal
and other improvements at Cleveland Hopkins International Airport.
Continental has unconditionally guaranteed the bonds and has a
long-term lease with the City of Cleveland under which rental
payments will be sufficient to service the related bonds, which
have a term of 20 years. Continental estimates that it will save
approximately $44 million in debt service payments over the 20-year
term as a result of the refinancing.
Also, in September 1999, the New Jersey Economic Development
Authority completed the offering of $730 million aggregate
principal amount of tax-exempt special facility revenue bonds to
finance a portion of Continental's Global Gateway Program at Newark
International Airport. Major construction began in the third
quarter of 1999 and is scheduled to be completed in 2002. The
program includes construction of a new concourse in Terminal C and
other facility improvements. Continental has unconditionally
guaranteed the bonds and has entered into a long-term lease with
the New Jersey Economic Development Authority under which rental
payments will be sufficient to service the related bonds, which
have a term of 30 years.
Employees. In September 1997, the Company announced a plan to
bring all employees to industry standard wages no later than the
end of the year 2000. Wage increases began in 1997, and will
continue to be phased in through 2000. The Company is in the
process of formulating a plan to bring employees to industry
standard benefits over a multi-year period.
The following is a table of the Company's, Express's and CMI's
principal collective bargaining agreements, and their respective
amendable dates:
<TABLE>
<CAPTION>
Approximate
Number of
Full-time Contract
Employee Equivalent Representing Amendable
Group Employees Union Date
<S> <C> <C> <C>
Continental Pilots 5,000 Independent October 2002
Association
of Continental
Pilots ("IACP")
Express Pilots 1,350 IACP October 2002
Dispatchers 150 Transport Workers October 2003
Union of America
Continental 3,300 International January 2002
Mechanics Brotherhood of
Teamsters
("Teamsters")
Express 350 Teamsters January 2003
Mechanics
CMI Mechanics 150 Teamsters March 2001
Continental 7,800 International (Negotiations
Flight Attendants Association of for amended
Machinists and contract
Aerospace Workers ongoing)
("IAM")
Express 500 IAM (Negotiations
Flight Attendants for amended
contract
ongoing)
CMI 350 IAM June 2000
Flight Attendants
CMI Fleet and 475 Teamsters March 2001
Passenger Service
Employees
</TABLE>
In February 2000, the Company announced a 54-month tentative
collective bargaining agreement with its Continental Airlines
flight attendants. The agreement is subject to ratification by the
Continental Airlines flight attendants. In September 1999, Express
and the IAM began collective bargaining negotiations to amend the
Express flight attendants' contract (which became amendable in
November 1999). The Company believes that mutually acceptable
agreements can be reached with such employees, although the
ultimate outcome of the negotiations is unknown at this time.
The other employees of Continental, Express and CMI are not covered
by collective bargaining agreements.
Other. The Department of Transportation has proposed the
elimination of slot restrictions at high density airports other
than Ronald Reagan Washington National Airport in Washington, D.C.
Legislation containing a similar proposal, which could eliminate
slots as early as 2002 at O'Hare International Airport in Chicago
and 2007 at LaGuardia Airport and John F. Kennedy International
Airport in New York has passed the full House of Representatives
and the full Senate and is currently being considered by a
conference committee. The Company cannot predict whether any of
these proposals will be adopted. However, if legislation or
regulation eliminating slots were adopted, the value of such slots
could be deemed to be permanently impaired, resulting in a loss
being charged to earnings for the relevant period. Moreover, the
elimination of slots could have an adverse effect upon future
results of operations of the Company. At December 31, 1999, the
net book value of slots at these three airports was $64 million.
Management believes that the Company's costs are likely to be
affected in the future by (i) higher aircraft ownership costs as
new aircraft are delivered, (ii) higher wages, salaries, benefits
and related costs as the Company compensates its employees
comparable to industry average, (iii) changes in the costs of
materials and services (in particular, the cost of fuel, which can
fluctuate significantly in response to global market conditions),
(iv) changes in distribution costs and structure, (v) changes in
governmental regulations and taxes affecting air transportation and
the costs charged for airport access, including new security
requirements, (vi) changes in the Company's fleet and related
capacity and (vii) the Company's continuing efforts to reduce costs
throughout its operations, including reduced maintenance costs for
new aircraft, reduced distribution expense from using Continental's
electronic ticket product, E-Ticket and the internet for bookings,
and reduced interest expense.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Market Risk Sensitive Instruments and Positions
The Company is subject to certain market risks, including commodity
price risk (i.e., aircraft fuel prices), interest rate risk,
foreign currency risk and price changes related to investments in
equity securities. The adverse effects of potential changes in
these market risks are discussed below. The sensitivity analyses
presented do not consider the effects that such adverse changes may
have on overall economic activity nor do they consider additional
actions management may take to mitigate the Company's exposure to
such changes. Actual results may differ. See the notes to the
consolidated financial statements for a description of the
Company's accounting policies and other information related to
these financial instruments.
Aircraft Fuel. The Company's results of operations are
significantly impacted by changes in the price of aircraft fuel.
During 1999 and 1998, aircraft fuel accounted for 9.7% and 10.2%,
respectively, of the Company's operating expenses (excluding fleet
disposition/impairment losses). In order to provide short-term
protection (generally three to six months) against a sharp increase
in jet fuel prices, the Company from time to time enters into
petroleum call options, petroleum swap contracts and jet fuel
purchase commitments. The Company's fuel hedging strategy could
result in the Company not fully benefiting from certain fuel price
declines. As of December 31, 1999, the Company had hedged
approximately 24% of its projected 2000 fuel requirements,
including 93% related to the first quarter and 8% related to the
second quarter using petroleum call options, compared to
approximately 25% of its projected 1999 fuel requirements hedged at
December 31, 1998 using petroleum swap contracts and purchase
commitments. The Company estimates that at December 31, 1999, a
ten percent increase in the price per gallon of aircraft fuel would
not have a material impact on the fair value of the existing
petroleum call options, as compared to an $8 million increase in
the fair value of the petroleum swap contracts existing at December
31, 1998.
Foreign Currency. The Company is exposed to the effect of exchange
rate fluctuations on the U.S. dollar value of foreign currency
denominated operating revenue and expenses. The Company's largest
exposure comes from the Japanese yen. However, the Company is
attempting to mitigate the effect of certain potential foreign
currency losses by entering into forward contracts that effectively
enable it to sell Japanese yen expected to be received from yen-
denominated net cash flows over the next twelve months at specified
exchange rates. As of December 31, 1999, the Company had entered
into forward contracts to hedge approximately 95% of its 2000
projected yen-denominated net cash flows, as compared to having in
place average rate options and forward contracts to hedge 69% of
its 1999 projected yen-denominated net cash flows at December 31,
1998. The Company estimates that at December 31, 1999, a 10%
strengthening in the value of the U.S. dollar relative to the yen
would have increased the fair value of the existing forward
contracts by $18 million as compared to a $7 million increase in
the fair value of existing average rate options and forward
contracts at December 31, 1998.
Interest Rates. The Company's results of operations are affected
by fluctuations in interest rates (e.g., interest expense on debt
and interest income earned on short-term investments).
The Company had approximately $690 million and $599 million of
variable-rate debt as of December 31, 1999 and 1998, respectively.
The Company has mitigated its exposure on certain variable-rate
debt by entering into an interest rate cap (notional amount of $106
million and $125 million as of December 31, 1999 and 1998,
respectively) which expires in July 2001. The interest rate cap
limits the amount of potential increase in the LIBOR rate component
of the floating rate to a maximum of 9% over the term of the
contract. If average interest rates increased by 100 basis points
during 2000 as compared to 1999, the Company's projected 2000
interest expense would increase by approximately $6 million. At
December 31, 1998, an interest rate increase of 100 basis points
during 1999 and compared to 1998 was projected to increase 1999
interest expense by approximately $5 million. The interest rate
cap does not mitigate this increase in interest expense materially
given the current level of such floating rates.
As of December 31, 1999 and 1998, the fair value of $2.2 billion
and $1.5 billion (carrying value) of the Company's fixed-rate debt
was estimated to be $2.2 billion and $1.5 billion, respectively,
based upon discounted future cash flows using current incremental
borrowing rates for similar types of instruments or market prices.
Market risk, estimated as the potential increase in fair value
resulting from a hypothetical 100 basis points decrease in interest
rates, was approximately $91 million and $70 million as of December
31, 1999 and 1998, respectively. The fair value of the remaining
fixed-rate debt at December 31, 1999 and 1998, (with a carrying
value of $248 million and $287 million, respectively, and primarily
relates to aircraft modification notes and various loans with
immaterial balances) was not practicable to estimate due to the
large number and small dollar amounts of these notes.
If 2000 average short-term interest rates decreased by 100 basis
points over 1999 average rates, the Company's projected interest
income from cash, cash equivalents and short-term investments would
decrease by approximately $11 million during 2000, compared to an
estimated $13 million decrease during 1999 measured at December 31,
1998.
Investments in Equity Securities. The Company has a 49% equity
investment in Compania Panamena de Aviacion, S.A. ("COPA") and a
28% equity investment in Gulfstream International Airlines, Inc.
("Gulfstream") which are also subject to price risk. However,
since a readily determinable market value does not exist for either
COPA or Gulfstream (each is privately held), the Company is unable
to quantify the amount of price risk sensitivity inherent in these
investments. At December 31, 1999 and 1998, the carrying value of
COPA was $49 million and $53 million, respectively.
At December 31, 1999, the Company owned approximately 357,000
depository certificates convertible, subject to certain
restrictions, into the common stock of Equant, which completed an
initial public offering in July 1998. As of December 31, 1999, the
estimated fair value of these depository certificates was
approximately $40 million, based upon the publicly traded market
value of Equant common stock. Since the fair value of the
Company's investment in the depository certificates is not readily
determinable (i.e., the depository certificates are not traded on
a securities exchange), the investment is carried at cost, which
was not material as of December 31, 1999 or 1998.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index to Consolidated Financial Statements
Page No.
Report of Independent Auditors F-2
Consolidated Statements of Operations for each of the
Three Years in the Period Ended December 31, 1999 F-3
Consolidated Balance Sheets as of December 31, 1999
and 1998 F-5
Consolidated Statements of Cash Flows for each of the
Three Years in the Period Ended December 31, 1999 F-7
Consolidated Statements of Redeemable Preferred Stock
and Common Stockholders' Equity for each of the
Three Years in the Period Ended December 31, 1999 F-9
Notes to Consolidated Financial Statements F-15
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Continental Airlines, Inc.
We have audited the accompanying consolidated balance sheets of
Continental Airlines, Inc. (the "Company") as of December 31, 1999
and 1998, and the related consolidated statements of operations,
redeemable preferred stock and common stockholders' equity and cash
flows for each of the three years in the period ended December 31,
1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of the Company at December 31, 1999 and 1998,
and the consolidated results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999,
in conformity with accounting principles generally accepted in the
United States.
As discussed in Note 1 to the consolidated financial statements,
effective January 1, 1999, the Company changed its method of
accounting for the sale of mileage credits to participating
partners in its frequent flyer program.
ERNST & YOUNG LLP
Houston, Texas
January 17, 2000
<TABLE>
CONTINENTAL AIRLINES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
<CAPTION>
Year Ended December 31,
1999 1998 1997
<S> <C> <C> <C>
Operating Revenue:
Passenger. . . . . . . . . . . . . . . . $8,116 $7,456 $6,733
Cargo and mail . . . . . . . . . . . . . 303 275 258
Other. . . . . . . . . . . . . . . . . . 220 196 203
8,639 7,927 7,194
Operating Expenses:
Wages, salaries and related costs. . . . 2,510 2,218 1,814
Aircraft fuel. . . . . . . . . . . . . . 771 727 885
Aircraft rentals . . . . . . . . . . . . 771 659 551
Maintenance, materials and repairs . . . 603 582 537
Commissions. . . . . . . . . . . . . . . 576 583 567
Other rentals and landing fees . . . . . 497 414 395
Depreciation and amortization. . . . . . 360 294 254
Fleet disposition/impairment losses. . . 81 122 -
Other. . . . . . . . . . . . . . . . . . 1,870 1,627 1,475
8,039 7,226 6,478
Operating Income 600 701 716
Nonoperating Income (Expense):
Interest expense . . . . . . . . . . . . (233) (178) (166)
Interest income. . . . . . . . . . . . . 71 59 56
Interest capitalized . . . . . . . . . . 55 55 35
Gain on sale of AMADEUS. . . . . . . . . 297 - -
Other, net . . . . . . . . . . . . . . . 8 11 (1)
198 (53) (76)
Income before Income Taxes, Cumulative
Effect of Accounting Changes and
Extraordinary Charge . . . . . . . . . . 798 648 640
Income Tax Provision. . . . . . . . . . . (310) (248) (237)
Distributions on Preferred Securities
of Trust, net of applicable income taxes
of $7 and $8 in 1998 and 1997,
respectively . . . . . . . . . . . . . . - (13) (14)
(continued on next page)
</TABLE>
<TABLE>
CONTINENTAL AIRLINES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
<CAPTION>
Year Ended December 31,
1999 1998 1997
<S> <C> <C> <C>
Income before Cumulative Effect of
Accounting Changes and
Extraordinary Charge . . . . . . . . . . $ 488 $ 387 $ 389
Cumulative Effect of Accounting
Changes, Net of Applicable Income
Taxes of $19 (1) . . . . . . . . . . . . (33) - -
Extraordinary Charge, net of applicable
income taxes of $2 in 1998 and 1997. . . - (4) (4)
Net Income. . . . . . . . . . . . . . . . 455 383 385
Preferred Dividend Requirements and
Accretion to Liquidation Value . . . . . - - (2)
Income Applicable to Common Shares. . . . $ 455 $ 383 $ 383
Earnings per Common Share:
Income before Cumulative Effect of
Accounting Changes and
Extraordinary Charge. . . . . . . . . $ 7.02 $ 6.40 $ 6.72
Cumulative Effect of Accounting
Changes . . . . . . . . . . . . . . . (0.48) - -
Extraordinary Charge. . . . . . . . . . - (0.06) (0.07)
Net Income. . . . . . . . . . . . . . . $ 6.54 $ 6.34 $ 6.65
Earnings per Common Share Assuming
Dilution:
Income before Cumulative Effect of
Accounting Changes and
Extraordinary Charge. . . . . . . . . $ 6.64 $ 5.06 $ 5.03
Cumulative Effect of Accounting
Changes . . . . . . . . . . . . . . . (0.44) - -
Extraordinary Charge. . . . . . . . . . - (0.04) (0.04)
Net Income. . . . . . . . . . . . . . . $ 6.20 $ 5.02 $ 4.99
(1) See Note 1(i) for the proforma effect of retroactive application
of the accounting change.
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</TABLE>
<TABLE>
CONTINENTAL AIRLINES, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except for share data)
<CAPTION>
December 31, December 31,
ASSETS 1999 1998
<S> <C> <C>
Current Assets:
Cash and cash equivalents. . . . . . . . $1,198 $1,399
Short-term investments . . . . . . . . . 392 -
Accounts receivable, net of allowance
for doubtful receivables of $20 and
$22, respectively . . . . . . . . . . . 506 449
Spare parts and supplies, net of
allowance for obsolescence of $59 and
$46, respectively . . . . . . . . . . . 236 166
Deferred income taxes. . . . . . . . . . 145 234
Prepayments and other assets . . . . . . 129 106
Total current assets . . . . . . . . . 2,606 2,354
Property and Equipment:
Owned property and equipment:
Flight equipment. . . . . . . . . . . . 3,593 2,459
Other . . . . . . . . . . . . . . . . . 814 582
4,407 3,041
Less: Accumulated depreciation . . . . 808 625
3,599 2,416
Purchase deposits for flight equipment . 366 410
Capital leases:
Flight equipment. . . . . . . . . . . . 300 361
Other . . . . . . . . . . . . . . . . . 88 56
388 417
Less: Accumulated amortization . . . . 180 178
208 239
Total property and equipment . . . . . 4,173 3,065
Other Assets:
Routes, gates and slots, net of
accumulated amortization
of $345 and $295, respectively. . . . . 1,131 1,181
Investments. . . . . . . . . . . . . . . 71 151
Other assets, net. . . . . . . . . . . . 242 335
Total other assets . . . . . . . . . . 1,444 1,667
Total Assets . . . . . . . . . . . . $8,223 $7,086
(continued on next page)
</TABLE>
<TABLE>
CONTINENTAL AIRLINES, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except for share data)
<CAPTION>
December 31, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
<S> <C> <C>
Current Liabilities:
Current maturities of long-term debt . . $ 278 $ 184
Current maturities of capital leases . . 43 47
Accounts payable . . . . . . . . . . . . 856 843
Air traffic liability. . . . . . . . . . 962 854
Accrued payroll and pensions . . . . . . 299 265
Accrued other liabilities. . . . . . . . 337 249
Total current liabilities . . . . . . . 2,775 2,442
Long-Term Debt. . . . . . . . . . . . . . 2,855 2,267
Capital Leases. . . . . . . . . . . . . . 200 213
Other Long-Term Liabilities:
Deferred income taxes. . . . . . . . . . 590 372
Accruals for aircraft retirements and
excess facilities . . . . . . . . . . . 69 95
Other. . . . . . . . . . . . . . . . . . 141 393
Total other long-term liabilities . . . 800 860
Commitments and Contingencies
Continental-Obligated Mandatorily
Redeemable Preferred Securities
of Subsidiary Trust Holding Solely
Convertible Subordinated
Debentures . . . . . . . . . . . . . . . - 111
Common Stockholders' Equity:
Class A common stock - $.01 par,
50,000,000 shares authorized;
11,320,849 shares issued and out-
standing in 1999 and 11,406,732
shares issued and outstanding
in 1998 . . . . . . . . . . . . . . . . - -
Class B common stock - $.01 par,
200,000,000 shares authorized;
63,923,431 shares issued in 1999
and 53,370,741 shares issued
in 1998 . . . . . . . . . . . . . . . . 1 1
Additional paid-in capital . . . . . . . 871 634
Retained earnings. . . . . . . . . . . . 1,114 659
Accumulated other comprehensive income . (1) (88)
Treasury Stock - 9,763,684 and 399,524
Class B shares, respectively, at cost . (392) (13)
Total common stockholders' equity . . . 1,593 1,193
Total Liabilities and Stockholders'
Equity . . . . . . . . . . . . . . . $8,223 $7,086
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</TABLE>
<TABLE>
CONTINENTAL AIRLINES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
<CAPTION>
Year Ended December 31,
1999 1998 1997
<S> <C> <C> <C>
Cash Flows From Operating
Activities:
Net income . . . . . . . . . . . . . . . $ 455 $ 383 $ 385
Adjustments to reconcile net income
to net cash provided by operating
activities:
Deferred income taxes. . . . . . . . . 293 224 212
Depreciation . . . . . . . . . . . . . 284 211 162
Amortization . . . . . . . . . . . . . 76 83 92
Fleet disposition/impairment losses. . 81 122 -
Gain on sale of AMADEUS. . . . . . . . (297) - -
Gain on sale of other investments. . . (29) (6) -
Cumulative effect of change in
accounting principles . . . . . . . . 33 - -
Other, net . . . . . . . . . . . . . . (83) (4) 34
Changes in operating assets and
liabilities:
Increase in accounts receivable. . . (53) (102) (1)
Increase in spare parts and
supplies. . . . . . . . . . . . . . (99) (71) (38)
Increase in accounts payable . . . . 8 59 71
Increase in air traffic liability. . 110 108 85
Other. . . . . . . . . . . . . . . . (3) (131) (103)
Net cash provided by operating
activities. . . . . . . . . . . . . . . 776 876 899
Cash Flows from Investing Activities:
Purchase deposits paid in connection
with future aircraft deliveries . . . . (1,174) (818) (409)
Purchase deposits refunded in
connection with aircraft delivered. . . 1,139 758 141
Capital expenditures . . . . . . . . . . (706) (610) (417)
Purchase of short-term investments . . . (392) - -
Proceeds from sale of AMADEUS, net . . . 391 - -
Proceeds from disposition of property
and equipment . . . . . . . . . . . . . 77 46 29
Proceeds from sale of other investments. 35 9 -
Investment in and advances to
partner airlines. . . . . . . . . . . . (23) (53) -
Other. . . . . . . . . . . . . . . . . . (6) (30) (1)
Net cash used by investing activities . (659) (698) (657)
(continued on next page)
</TABLE>
<TABLE>
CONTINENTAL AIRLINES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
<CAPTION>
Year Ended December 31,
1999 1998 1997
<S> <C> <C> <C>
Cash Flows From Financing Activities:
Proceeds from issuance of
long-term debt, net . . . . . . . . . . $ 453 $ 737 $ 517
Purchase of Class B common stock . . . . (528) (223) -
Payments on long-term debt and
capital lease obligations . . . . . . . (295) (423) (676)
Proceeds from issuance of common stock . 38 56 24
Proceeds from sale-leaseback
transactions. . . . . . . . . . . . . . 14 71 39
Dividends paid on preferred securities
of trust. . . . . . . . . . . . . . . . - (22) (22)
Purchase of warrants to purchase
Class B common stock. . . . . . . . . . - - (94)
Redemption of redeemable preferred
stock . . . . . . . . . . . . . . . . . - - (48)
Other. . . . . . . . . . . . . . . . . . - - (18)
Net cash (used) provided by financing
activities . . . . . . . . . . . . . . (318) 196 (278)
Net (Decrease) Increase in Cash and
Cash Equivalents . . . . . . . . . . . . (201) 374 (36)
Cash and Cash Equivalents
Beginning of Period. . . . . . . . . . . 1,399 1,025 1,061
Cash and Cash Equivalents
End of Period. . . . . . . . . . . . . . $1,198 $1,399 $1,025
Supplemental Cash Flows Information:
Interest paid. . . . . . . . . . . . . . $ 221 $ 157 $ 156
Income taxes paid. . . . . . . . . . . . $ 18 $ 25 $ 12
Investing and Financing Activities
Not Affecting Cash:
Property and equipment acquired
through the issuance of debt . . . . . $ 774 $ 425 $ 207
Conversion of 6-3/4% Convertible
Subordinated Notes . . . . . . . . . . $ 230 $ - $ -
Conversion of trust originated
preferred securities . . . . . . . . . $ 111 $ 134 $ -
Capital lease obligations incurred. . . $ 50 $ 124 $ 22
Sale-leaseback of Beech 1900-D aircraft $ 81 $ - $ -
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</TABLE>
<TABLE>
CONTINENTAL AIRLINES, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED
STOCK AND COMMON STOCKHOLDERS' EQUITY
(In millions)
<CAPTION>
Retained Accumulated
Redeemable Additional Earnings Other Treasury
Preferred Paid-In (Accumulated Comprehensive Comprehensive Stock,
Stock Capital Deficit) Income Income at Cost
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 . . $ 46 $ 688 $ (109) $ 2 $329 $ -
Net Income . . . . . . . . . . - - 385 - 385 -
Purchase of Warrants . . . . . - (94) - - - -
Accumulated Dividends on
Series A 12% Cumulative
Preferred Stock . . . . . . . 2 (2) - - - -
Redemption of Series A
12% Cumulative Preferred
Stock . . . . . . . . . . . . (48) - - - - -
Additional Minimum Pension
Liability, net of applicable
income taxes of $2. . . . . . - - - (4) (4) -
Other. . . . . . . . . . . . . - 49 - - - -
Balance, December 31, 1997 . . - 641 276 (2) 381 -
(continued on next page)
</TABLE>
<TABLE>
CONTINENTAL AIRLINES, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED
STOCK AND COMMON STOCKHOLDERS' EQUITY
(In millions)
<CAPTION>
Retained Accumulated
Redeemable Additional Earnings Other Treasury
Preferred Paid-In (Accumulated Comprehensive Comprehensive Stock,
Stock Capital Deficit) Income Income at Cost
<S> <C> <C> <C> <C> <C> <C>
Net Income . . . . . . . . . . $ - $ - $ 383 $ - $383 $ -
Cumulative Effect of
Adopting SFAS 133 (see Note 5)
as of October 1, 1998, net of
applicable income taxes
of $1 . . . . . . . . . . . . - - - 1 1 -
Net loss on derivative
instruments designated and
qualifying as cash flow
hedging instruments, net of
applicable income taxes
of $4 . . . . . . . . . . . . - - - (7) (7) -
Additional Minimum Pension
Liability, net of applicable
income taxes of $41 . . . . . - - - (76) (76) -
Unrealized loss on Marketable
Equity Securities, net of
applicable income taxes
of $1 . . . . . . . . . . . . - - - (4) (4) -
Purchase of Common Stock . . . - - - - - (223)
Reissuance of Treasury Stock
pursuant to Stock Plans . . . - - - - - 50
Issuance of Common Stock
pursuant to Stock Plans . . . - 19 - - - -
Conversion of Trust Originated
Preferred Securities into
Common Stock. . . . . . . . . - (32) - - - 160
Other. . . . . . . . . . . . . - 6 - - - -
Balance, December 31, 1998 . . - 634 659 (88) 297 (13)
(continued on next page)
</TABLE>
<TABLE>
CONTINENTAL AIRLINES, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED
STOCK AND COMMON STOCKHOLDERS' EQUITY
(In millions)
<CAPTION>
Retained Accumulated
Redeemable Additional Earnings Other Treasury
Preferred Paid-In (Accumulated Comprehensive Comprehensive Stock,
Stock Capital Deficit) Income Income at Cost
<S> <C> <C> <C> <C> <C> <C>
Net Income . . . . . . . . . . $ - $ - $ 455 $ - $455 $ -
Net gain on derivative
instruments designated and
qualifying as cash flow
hedging instruments, net of
reclassification adjustments
and applicable income taxes
of $2 . . . . . . . . . . . . - - - 4 4 -
Unrealized gain on marketable
equity securities, net of
applicable income taxes . . . - - - 1 1 -
Reduction in additional
minimum pension liability,
net of applicable income
taxes of $43. . . . . . . . . - - - 82 82 -
Purchase of Common Stock . . . - - - - - (528)
Reissuance of Treasury Stock
pursuant to Stock Plans . . . - (18) - - - 69
Conversion of 6-3/4%
Convertible Subordinated
Notes into Common Stock . . . - 161 - - - 66
Conversion of Trust Originated
Preferred Securities into
Common Stock. . . . . . . . . - 100 - - - 11
Conversion of Class A Common
Stock to Class B Common
Stock . . . . . . . . . . . . - (3) - - - 3
Other. . . . . . . . . . . . . - (3) - - - -
Balance, December 31, 1999 . . $ - $ 871 $ 1,114 $ (1) $542 $(392)
</TABLE>
<TABLE>
CONTINENTAL AIRLINES, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED
STOCK AND COMMON STOCKHOLDERS' EQUITY
NUMBER OF SHARES
<CAPTION>
Redeemable Class A Class B
Preferred Common Common Treasury
Stock Stock Stock Stock
<S> <C> <C> <C> <C>
Balance, December 31, 1996 . . . . . . . 447,082 9,280,000 47,943,343 -
Conversion of Class A to Class B
Common Stock. . . . . . . . . . . . . . - (900,536) 900,536 -
Purchase of Common Stock . . . . . . . . - - (154,882) 154,882
Reissuance of Treasury Stock pursuant
to Stock Plans. . . . . . . . . . . . . - - 154,882 (154,882)
Issuance of Preferred Stock Dividends
on Series A 12% Cumulative Preferred
Stock . . . . . . . . . . . . . . . . . 13,165 - - -
Redemption of Series A 12% Cumulative
Preferred Stock . . . . . . . . . . . . (460,247) - - -
Issuance of Common Stock pursuant to
Stock Plans . . . . . . . . . . . . . . - - 1,646,419 -
Conversion of Trust Originated
Preferred Securities into
Common Stock. . . . . . . . . . . . . . - - 21,712 -
Balance, December 31, 1997 . . . . . . . - 8,379,464 50,512,010 -
(continued on next page)
</TABLE>
<TABLE>
CONTINENTAL AIRLINES, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED
STOCK AND COMMON STOCKHOLDERS' EQUITY
NUMBER OF SHARES
<CAPTION>
Redeemable Class A Class B
Preferred Common Common Treasury
Stock Stock Stock Stock
<S> <C> <C> <C> <C>
Purchase of Common Stock . . . . . . . . - - (4,452,700) 4,452,700
Reissuance of Treasury Stock pursuant
to Stock Plans. . . . . . . . . . . . . - - 859,080 (859,080)
Reissuance of Treasury Stock pursuant
to Conversion of Trust Originated
Preferred Securities. . . . . . . . . . - - 3,181,896 (3,181,896)
Conversion of Class A to Class B
Common Stock. . . . . . . . . . . . . . - (12,200) 12,200 (12,200)
Issuance of Common Stock pursuant to
Stock Plans . . . . . . . . . . . . . . - - 235,290 -
Conversion of Trust Originated
Preferred Securities into
Common Stock. . . . . . . . . . . . . . - - 2,376,753 -
Exercise of warrants . . . . . . . . . . - 3,039,468 246,688 -
Balance, December 31, 1998 . . . . . . . - 11,406,732 52,971,217 399,524
(continued on next page)
</TABLE>
<TABLE>
CONTINENTAL AIRLINES, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED
STOCK AND COMMON STOCKHOLDERS' EQUITY
NUMBER OF SHARES
<CAPTION>
Redeemable Class A Class B
Preferred Common Common Treasury
Stock Stock Stock Stock
<S> <C> <C> <C> <C>
Purchase of Common Stock . . . . . . . . - - (13,133,700) 13,133,700
Reissuance of Treasury Stock pursuant
to Stock Plans. . . . . . . . . . . . . - - 1,853,478 (1,853,478)
Reissuance of Treasury Stock pursuant
to Conversion of Class A to Class B
Common Stock. . . . . . . . . . . . . . - (85,883) 85,883 (85,883)
Issuance of Common Stock pursuant to
Stock Plans . . . . . . . . . . . . . . - - 13,227 -
Conversion of 6-3/4% Convertible
Subordinated Notes into Common Stock. . - - 6,132,055 -
Reissuance of Treasury Stock pursuant
to Conversion of 6-3/4% Convertible
Subordinated Notes. . . . . . . . . . . - - 1,485,065 (1,485,065)
Conversion of Trust Originated
Preferred Securities into
Common Stock. . . . . . . . . . . . . . - - 4,407,408 -
Reissuance of Treasury Stock pursuant
to Conversion of Trust Originated
Preferred Securities. . . . . . . . . . - - 345,114 (345,114)
Balance, December 31, 1999 . . . . . . . - 11,320,849 54,159,747 9,763,684
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
CONTINENTAL AIRLINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continental Airlines, Inc. (the "Company" or "Continental") is a
major United States air carrier engaged in the business of
transporting passengers, cargo and mail. Continental is the fifth
largest United States airline (as measured by 1999 revenue
passenger miles) and, together with its wholly owned subsidiaries,
Continental Express, Inc. ("Express"), and Continental Micronesia,
Inc. ("CMI"), each a Delaware corporation, serves 219 airports
worldwide at January 17, 2000. As of December 31, 1999,
Continental flies to 132 domestic and 87 international destinations
and offers additional connecting service through alliances with
domestic and foreign carriers. Continental directly serves 16
European cities, eight South American cities, Tel Aviv and Tokyo
and is one of the leading airlines providing service to Mexico and
Central America, serving more destinations there than any other
United States airline. Through its Guam hub, CMI provides
extensive service in the western Pacific, including service to more
Japanese cities than any other United States carrier.
As used in these Notes to Consolidated Financial Statements, the
terms "Continental" and "Company" refer to Continental Airlines,
Inc. and, unless the context indicates otherwise, its subsidiaries.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation -
The consolidated financial statements of the Company include
the accounts of Continental and its operating subsidiaries,
Express and CMI. All significant intercompany transactions
have been eliminated in consolidation.
(b) Use of Estimates -
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
(c) Cash and Cash Equivalents -
Cash and cash equivalents consist of cash and short-term,
highly liquid investments which are readily convertible into
cash and have a maturity of three months or less when
purchased.
(d) Short-Term Investments -
The Company invests in commercial paper with original
maturities in excess of 90 days but less than 270 days. These
investments are classified as short-term investments in the
accompanying consolidated balance sheet. Short-term
investments are stated at cost, which approximates market
value.
(e) Spare Parts and Supplies -
Inventories, expendable parts and supplies relating to flight
equipment are carried at average acquisition cost and are
expensed when incurred in operations. An allowance for
obsolescence is provided over the remaining estimated useful
life of the related aircraft, for spare parts expected to be
on hand the date the aircraft are retired from service, plus
allowances for spare parts currently identified as excess.
These allowances are based on management estimates, which are
subject to change.
(f) Property and Equipment -
Property and equipment are recorded at cost and are
depreciated to estimated residual values over their estimated
useful lives using the straight-line method. The estimated
useful lives and residual values for the Company's property
and equipment are as follows:
<TABLE>
<CAPTION>
Estimated Estimated
Useful Life Residual Value
<S> <C> <C>
Jet aircraft. . . . . . . . 25 to 30 years 10-15%
Turboprop aircraft. . . . . 18 years 10%
Ground property and
equipment. . . . . . . . . 2 to 30 years 0%
Capital lease - flight
and ground . . . . . . . . Lease Term 0%
</TABLE>
(g) Routes, Gates and Slots -
Routes are amortized on a straight-line basis over 40 years,
gates over the stated term of the related lease and slots over
20 years. Routes, gates and slots are comprised of the
following (in millions):
<TABLE>
<CAPTION>
Balance at Accumulated Amortization
December 31, 1999 at December 31, 1999
<S> <C> <C>
Routes. . . . $ 732 $157
Gates . . . . 306 141
Slots . . . . 93 47
$1,131 $345
</TABLE>
(h) Air Traffic Liability -
Passenger revenue is recognized when transportation is
provided rather than when a ticket is sold. The amount of
passenger ticket sales not yet recognized as revenue is
reflected in the accompanying Consolidated Balance Sheets as
air traffic liability. The Company performs periodic
evaluations of this estimated liability, and any adjustments
resulting therefrom, which can be significant, are included in
results of operations for the periods in which the evaluations
are completed.
(i) Frequent Flyer Program -
Continental sponsors a frequent flyer program ("OnePass") and
records an estimated liability for the incremental cost
associated with providing the related free transportation at
the time a free travel award is earned. The liability is
adjusted periodically based on awards earned, awards redeemed
and changes in the OnePass program.
The Company also sells mileage credits in the OnePass program
to participating partners, such as hotels, car rental agencies
and credit card companies. During 1999, as a result of the
recently issued Staff Accounting Bulletin No. 101 - "Revenue
Recognition in Financial Statements," the Company changed the
method it uses to account for the sale of these mileage
credits. This change, which totaled $27 million, net of tax,
was applied retroactively to January 1, 1999. Under the new
accounting method, revenue from the sale of mileage credits is
deferred and recognized when transportation is provided.
Previously, the resulting revenue, net of the incremental cost
of providing future air travel, was recorded in the period in
which the credits were sold. This change reduced net income
for the year ended December 31, 1999 by $21 million ($32
million pre-tax). The Company believes the new method is
preferable as it results in a better matching of revenues with
the period in which services are provided.
The pro forma results, assuming the accounting change is
applied retroactively, is shown below (in millions except per
share data):
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Income before Cumulative Effect
of Accounting Change and
Extraordinary Charge . . . . . . $ 488 $ 382 $ 385
Earnings per Common Share . . . . $ 7.02 $ 6.32 $ 6.65
Earnings per Common Share
Assuming Dilution. . . . . . . . $ 6.64 $ 5.00 $ 4.98
Net Income. . . . . . . . . . . . $ 482 $ 378 $ 381
Earnings per Common Share . . . . $ 6.93 $ 6.26 $ 6.58
Earnings per Common Share
Assuming Dilution. . . . . . . . $ 6.57 $ 4.95 $ 4.93
Actual per share amounts are shown below for comparative
purposes.
Income before Cumulative Effect
of Accounting Change and
Extraordinary Charge . . . . . . $ 488 $ 387 $ 389
Earnings per Common Share . . . . $ 7.02 $ 6.40 $ 6.72
Earnings per Common Share
Assuming Dilution. . . . . . . . $ 6.64 $ 5.06 $ 5.03
Net Income. . . . . . . . . . . . $ 455 $ 383 $ 385
Earnings per Common Share . . . . $ 6.54 $ 6.34 $ 6.65
Earnings per Common Share
Assuming Dilution. . . . . . . . $ 6.20 $ 5.02 $ 4.99
</TABLE>
(j) Passenger Traffic Commissions -
Passenger traffic commissions are recognized as expense when
the transportation is provided and the related revenue is
recognized. The amount of passenger traffic commissions not
yet recognized as expense is included in Prepayments and other
assets in the accompanying Consolidated Balance Sheets.
(k) Deferred Income Taxes -
Deferred income taxes are provided under the liability method
and reflect the net tax effects of temporary differences
between the tax basis of assets and liabilities and their
reported amounts in the financial statements.
(l) Maintenance and Repair Costs -
Maintenance and repair costs for owned and leased flight
equipment, including the overhaul of aircraft components, are
charged to operating expense as incurred, except engine
overhaul costs covered by power by the hour agreements, which
are accrued on the basis of hours flown.
(m) Advertising Costs -
The Company expenses the costs of advertising as incurred.
Advertising expense was $82 million, $78 million and $78
million for the years ended December 31, 1999, 1998 and 1997,
respectively.
(n) Stock Plans and Awards -
Continental has elected to follow Accounting Principles Board
Opinion No. 25 - "Accounting for Stock Issued to Employees"
("APB 25") in accounting for its employee stock options and
its stock purchase plans because the alternative fair value
accounting provided for under Statement of Financial
Accounting Standards No. 123 - "Accounting for Stock-Based
Compensation" ("SFAS 123") requires use of option valuation
models that were not developed for use in valuing employee
stock options or purchase rights. Under APB 25, since the
exercise price of the Company's employee stock options equals
the market price of the underlying stock on the date of grant,
generally no compensation expense is recognized. Furthermore,
under APB 25, since the stock purchase plans are considered
noncompensatory plans, no compensation expense is recognized.
(o) Measurement of Impairment -
In accordance with Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Company records impairment losses on long-lived assets used in
operations when events and circumstances indicate that the
assets might be impaired and the undiscounted cash flows
estimated to be generated by those assets are less than the
carrying amount of those assets.
(p) Start-Up Costs -
Statement of Position 98-5, "Reporting on the Costs of Start-
Up Activities" ("SOP 98-5"), requires start-up costs to be
expensed as incurred. Continental adopted SOP 98-5 in the
first quarter of 1999. This statement requires all
unamortized start up costs (e.g., pilot training costs related
to induction of new aircraft) to be expensed upon adoption,
resulting in a $6 million cumulative effect of a change in
accounting principle, net of tax, in the first quarter of
1999.
(q) Reclassifications -
Certain reclassifications have been made in the prior years'
financial statements to conform to the current year
presentation.
NOTE 2 - EARNINGS PER SHARE
Basic earnings per common share ("EPS") excludes dilution and is
computed by dividing net income available to common stockholders by
the weighted average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could
occur if securities or other obligations to issue common stock were
exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the
Company. The following table sets forth the computation of basic
and diluted earnings per share (in millions):
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Numerator:
Income before cumulative effect
of accounting changes and
extraordinary charge . . . . . . . $488 $387 $389
Cumulative effect of accounting
changes. . . . . . . . . . . . . . (33) - -
Extraordinary charge, net of
applicable income taxes. . . . . . - (4) (4)
Net income. . . . . . . . . . . . . 455 383 385
Preferred stock dividends . . . . . - - (2)
Numerator for basic earnings per
share - income available to
common stockholders. . . . . . . . 455 383 383
Effect of dilutive securities:
Preferred Securities of Trust. . . - 11 14
6-3/4% convertible subordinated
notes . . . . . . . . . . . . . . 4 9 11
4 20 25
Other . . . . . . . . . . . . . . . - - (4)
Numerator for diluted earnings
per share - income available to
common stockholders after
assumed conversions . . . . . . . $459 $403 $404
1999 1998 1997
Denominator:
Denominator for basic earnings per
share - weighted-average shares. . 69.5 60.3 57.6
Effect of dilutive securities:
Employee stock options . . . . . . 1.4 1.7 1.6
Warrants . . . . . . . . . . . . . - 0.9 3.5
Preferred Securities of Trust. . . 0.1 9.8 10.3
6-3/4% convertible subordinated
notes . . . . . . . . . . . . . . 2.9 7.6 7.6
Restricted Class B common stock. . - - 0.4
Dilutive potential common shares. . 4.4 20.0 23.4
Denominator for diluted earnings
per share - adjusted weighted-
average and assumed conversions . 73.9 80.3 81.0
</TABLE>
Approximately 1.1 million in 1999 and 1.4 million in 1998 of
weighted average options to purchase shares of the Company's Class
B common stock, par value $.01 per share ("Class B common stock"),
were not included in the computation of diluted earnings per share
because the options' exercise price was greater than the average
market price of the common shares and, therefore, the effect would
have been antidilutive.
NOTE 3 - LONG-TERM DEBT
Long-term debt as of December 31 is summarized as follows (in
millions):
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Secured
Notes payable, interest rates of 5.00% to
7.73%, payable through 2019 . . . . . . . . $1,817 $ 886
Floating rate notes, interest rates of
LIBOR plus 0.75% to 1.25%, Eurodollar
plus 1.0%, or Commercial Paper,
payable through 2009. . . . . . . . . . . . 241 223
Revolving credit facility totaling $160
million, floating interest rates of
LIBOR or Eurodollar plus 1.125% to 1.375%,
payable through 2001. . . . . . . . . . . . 160 57
Notes payable, interest rates of 8.49% to
9.46%, payable through 2008 . . . . . . . . 51 66
Notes payable, interest rates of 7.13% to
7.15%, payable through 1999 . . . . . . . . - 86
Unsecured
Senior notes payable, 9.5%, payable
through 2001. . . . . . . . . . . . . . . . 242 250
Credit facility, floating interest rate
of LIBOR or Eurodollar plus 1.0%,
payable through 2002. . . . . . . . . . . . 215 245
Senior notes payable, interest rate of
8.0%, payable through 2005. . . . . . . . . 200 200
Notes payable, interest rate of 8.125%,
payable through 2008. . . . . . . . . . . . 110 110
Floating rate note, interest rate of LIBOR
or Eurodollar plus 1.25%, payable
through 2004. . . . . . . . . . . . . . . . 74 74
Convertible subordinated notes, interest
rate of 6.75% . . . . . . . . . . . . . . . - 230
Other. . . . . . . . . . . . . . . . . . . . 23 24
3,133 2,451
Less: current maturities. . . . . . . . . . 278 184
Total. . . . . . . . . . . . . . . . . . . . $2,855 $2,267
</TABLE>
At December 31, 1999 and 1998, the LIBOR and Eurodollar rates
associated with Continental's indebtedness approximated 6.0% and
5.1% and 6.0% and 5.1%, respectively. The Commercial Paper rate
was 6.1% and 5.5% as of December 31, 1999 and 1998, respectively.
A majority of Continental's property and equipment is subject to
agreements securing indebtedness of Continental.
In July 1997, Continental entered into a $575 million credit
facility (the "Credit Facility"), including a $275 million term
loan, the proceeds of which were loaned to CMI to repay its
existing $320 million secured term loan. In connection with this
prepayment, Continental recorded a $4 million after tax
extraordinary charge relating to early extinguishment of debt. The
Credit Facility also includes a $225 million revolving credit
facility with a commitment fee of 0.225% per annum on the unused
portion, and a $75 million term loan commitment with a current
floating interest rate of Libor or Eurodollar plus 1.25%. At
December 31, 1999 and 1998, no borrowings were outstanding under
the $225 million revolving credit facility. During 1998, the
Credit Facility became unsecured due to an upgrade of Continental's
credit rating by Standard and Poor's Corporation.
The Credit Facility does not contain any financial covenants
relating to CMI other than covenants restricting CMI's incurrence
of certain indebtedness and pledge or sale of assets. In addition,
the Credit Facility contains certain financial covenants applicable
to Continental and prohibits Continental from granting a security
interest on certain of its international route authorities and its
stock in Air Micronesia, Inc., CMI's parent company.
In April 1998, the Company completed an offering of $187 million of
pass-through certificates to be used to refinance the debt related
to 14 aircraft currently owned by Continental. In connection with
this refinancing, Continental recorded a $4 million after tax
extraordinary charge to consolidated earnings in the second quarter
of 1998 related to the early extinguishment of such debt.
At December 31, 1999, under the most restrictive provisions of the
Company's debt and credit facility agreements, the Company had a
minimum cash balance requirement of $600 million, a minimum net
worth requirement of $972 million and was restricted from paying
cash dividends in excess of $576 million.
On April 15, 1999, the Company exercised its right and called for
redemption on May 25, 1999, all $230 million of its 6-3/4%
Convertible Subordinated Notes due 2006. The notes were converted
into 7.6 million shares of Class B common stock during May 1999.
Maturities of long-term debt due over the next five years are as
follows (in millions):
Year ending December 31,
2000. . . . . . . . . . . . . . . . . . $278
2001. . . . . . . . . . . . . . . . . . 592
2002. . . . . . . . . . . . . . . . . . 266
2003. . . . . . . . . . . . . . . . . . 170
2004. . . . . . . . . . . . . . . . . . 239
NOTE 4 - LEASES
Continental leases certain aircraft and other assets under long-
term lease arrangements. Other leased assets include real
property, airport and terminal facilities, sales offices,
maintenance facilities, training centers and general offices. Most
leases also include both renewal options and purchase options.
At December 31, 1999, the scheduled future minimum lease payments
under capital leases and the scheduled future minimum lease rental
payments required under aircraft and engine operating leases, that
have initial or remaining noncancellable lease terms in excess of
one year, are as follows (in millions):
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
<S> <C> <C>
Year ending December 31,
2000. . . . . . . . . . . . . . . . . . $ 59 $ 851
2001. . . . . . . . . . . . . . . . . . 50 823
2002. . . . . . . . . . . . . . . . . . 46 753
2003. . . . . . . . . . . . . . . . . . 28 700
2004. . . . . . . . . . . . . . . . . . 26 652
Later years . . . . . . . . . . . . . . 96 6,080
Total minimum lease payments . . . . . . . . 305 $9,859
Less: amount representing interest. . . . . 62
Present value of capital leases. . . . . . . 243
Less: current maturities of capital
leases. . . . . . . . . . . . . . . . . . . 43
Long-term capital leases . . . . . . . . . . $200
</TABLE>
Not included in the above operating lease table is approximately
$493 million of annual average minimum lease payments for each of
the next five years relating to non-aircraft leases, principally
airport and terminal facilities and related equipment.
Continental is the guarantor of $1.2 billion aggregate principal
amount of tax-exempt special facilities revenue bonds. These
bonds, issued by various airport municipalities, are payable solely
from rentals paid by Continental under long-term agreements with
the respective governing bodies.
At December 31, 1999, the Company, including Express, had 382 and
19 aircraft under operating and capital leases, respectively.
These leases have remaining lease terms ranging from one month to
22 years.
The Company's total rental expense for all operating leases, net of
sublease rentals, was $1.1 billion, $922 million and $787 million
in 1999, 1998 and 1997, respectively.
NOTE 5 - FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
As part of the Company's risk management program, Continental uses
or used a variety of financial instruments, including petroleum
call options, petroleum swaps, jet fuel purchase commitments,
foreign currency average rate options, foreign currency forward
contracts and interest rate cap agreements. The Company does not
hold or issue derivative financial instruments for trading
purposes.
Effective October 1, 1998, the Company adopted Statement of
Financial Accounting Standards No. 133 - "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133
requires the Company to recognize all derivatives on the balance
sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a
hedge, depending on the nature of the hedge, changes in the fair
value of derivatives are either offset against the change in fair
value of assets, liabilities, or firm commitments through earnings
or recognized in other comprehensive income until the hedged item
is recognized in earnings. The ineffective portion of a
derivative's change in fair value is immediately recognized in
earnings. The adoption of SFAS 133 on October 1, 1998 did not have
a material impact on results of operations but resulted in the
cumulative effect of an accounting change of $2 million pre-tax
being recognized as income in other comprehensive income.
Notional Amounts and Credit Exposure of Derivatives
The notional amounts of derivative financial instruments summarized
below do not represent amounts exchanged between parties and,
therefore, are not a measure of the Company's exposure resulting
from its use of derivatives. The amounts exchanged are calculated
based upon the notional amounts as well as other terms of the
instruments, which relate to interest rates, exchange rates or
other indices.
The Company is exposed to credit losses in the event of non-
performance by counterparties to these financial instruments, but
it does not expect any of the counterparties to fail to meet their
obligations. To manage credit risks, the Company selects
counterparties based on credit ratings, limits its exposure to a
single counterparty under defined Company guidelines, and monitors
the market position with each counterparty.
Fuel Price Risk Management
The Company uses a combination of petroleum call options, petroleum
swap contracts, and jet fuel purchase commitments to provide some
short-term protection against a sharp increase in jet fuel prices.
These instruments generally cover the Company's forecasted jet fuel
needs for three to six months.
The Company accounts for the call options and swap contracts as
cash flow hedges. In accordance with SFAS 133, such financial
instruments are marked-to-market using forward prices and fair
market value quotes with the offset to other comprehensive income,
net of applicable income taxes and hedge ineffectiveness and then
subsequently recognized as a component of fuel expense when the
underlying fuel being hedged is used. The ineffective portion of
these call options and swap agreements is determined based on the
correlation between West Texas Intermediate Crude Oil prices and
jet fuel prices, which was not material for the years ended
December 31, 1999 and 1998. For the year ended December 31, 1999,
the Company recognized approximately a $105 million net gain on its
fuel hedging program. The gain is included in fuel expense in the
accompanying consolidated statement of operations.
At December 31, 1999, the Company had petroleum call options
outstanding with an aggregate notional amount of approximately $310
million and an immaterial fair value. The notional value of the
Company's petroleum swap contracts outstanding at December 31, 1998
was $82 million with a fair value of $6 million loss, which was
recorded in other current liabilities with the offset to other
comprehensive income, net of applicable income taxes and hedge
ineffectiveness. The loss was recognized in earnings during 1999.
Foreign Currency Exchange Risk Management
The Company uses a combination of foreign currency average rate
options and forward contracts to hedge against the currency risk
associated with Japanese yen-denominated net cash flows for the
next nine to twelve months. The average rate options and forward
contracts have only nominal intrinsic value at the time of
purchase.
The Company accounts for these instruments as cash flow hedges. In
accordance with SFAS 133, such financial instruments are marked-to-
market using forward prices and fair market value quotes with the
offset to other comprehensive income, net of applicable income
taxes and hedge ineffectiveness and then subsequently recognized as
a component of other revenue when the underlying net cash flows are
realized. The Company measures hedge effectiveness of average rate
options and forward contracts based on the forward price of the
underlying commodity. Hedge ineffectiveness was not material
during 1999 or 1998.
At December 31, 1999, the Company had yen forward contracts
outstanding with an aggregate notional amount of $197 million and
a fair value loss of $5 million. The notional amount of the
Company's yen average rate options and forward contracts
outstanding at December 31, 1998 was $78 million and $76 million,
respectively, with a total fair value loss of $3 million.
Unrealized losses are recorded in other current liabilities with
the offset to other comprehensive income, net of applicable income
taxes and hedge ineffectiveness. The unrealized loss at December
31, 1999 will be recognized in earnings within the next twelve
months.
Interest Rate Risk Management
The Company entered into an interest rate cap agreement to reduce
the impact of potential increases on floating rate debt. The
interest rate cap had a notional amount of $106 million and $125
million as of December 31, 1999 and 1998, respectively, and is
effective through July 31, 2001. The Company accounts for the
interest rate cap as a cash flow hedge whereby the fair value of
the interest rate cap is reflected as an asset in the accompanying
consolidated balance sheet with the offset, net of any hedge
ineffectiveness (which is not material) recorded as interest
expense and net of applicable income taxes, to other comprehensive
income. The fair value of the interest rate cap was not material
as of December 31, 1999 or 1998. As interest expense on the
underlying hedged debt is recognized, corresponding amounts are
removed from other comprehensive income and charged to interest
expense. Such amounts were not material during 1999 or 1998.
Accumulated Derivative Gains or Losses
The following table summarizes activity in other comprehensive
income related to derivatives classified as cash flow hedges held
by the Company during the period October 1 (the date of the
Company's adoption of SFAS 133) through December 31, 1998 and for
the year ended December 31, 1999 (in millions):
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Accumulated derivative loss included in
other comprehensive income at beginning
of period. . . . . . . . . . . . . . . . $ (6) $ -
Cumulative effect of adopting SFAS 133 as
of October 1, 1998, net. . . . . . . . . - 1
(Gains)/losses reclassified into earnings
from other comprehensive income, net . . (63) -
Change in fair value of derivatives, net . 67 (7)
Accumulated loss included in other
comprehensive income, net. . . . . . . . $ (2) $ (6)
</TABLE>
Other Financial Instruments
(a) Cash equivalents -
Cash equivalents consist primarily of commercial paper with
original maturities of three months or less and approximate
fair value due to their short maturity.
(b) Short-term Investments -
Short-term investments consist primarily of commercial paper
with original maturities in excess of 90 days but less than
270 days and approximate fair value due to their short
maturity.
(c) Investment in Equity Securities -
Continental's investment in America West Holdings Corporation
is classified as available-for-sale and carried at an
aggregate market value of approximately $3 million at both
December 31, 1999 and 1998. Included in stockholders' equity
at both December 31, 1999 and 1998 are net unrealized gains of
$1 million.
In May 1998, the Company acquired a 49% interest in Compania
Panamena de Aviacion, S.A. ("COPA") for $53 million. The
investment is accounted for under the equity method of
accounting. As of December 31, 1999 and 1998, the excess of
the amount at which the investment is carried and the amount
of underlying equity in the net assets was $40 million and $43
million, respectively. This difference is being amortized
over 40 years.
On October 20, 1999, Continental sold its interest in AMADEUS
Global Travel Distribution, S.A. ("AMADEUS") for $409 million,
including a special dividend. The sale, which occurred as
part of AMADEUS's initial public offering resulted in a gain
of approximately $297 million. As of December 31, 1998,
Continental's investment in AMADEUS was carried at cost ($95
million), since a readily determinable market value did not
exist.
At December 31, 1999, the Company owned approximately 357,000
depository certificates convertible, subject to certain
restrictions, into the common stock of Equant N.V. ("Equant"),
which completed an initial public offering in July 1998. As
of December 31, 1999, the estimated fair value of these
depository certificates was approximately $40 million, based
upon the publicly traded market value of Equant common stock.
Since the fair value of the Company's investment in the
depository certificates is not readily determinable (i.e., the
depository certificates are not traded on a securities
exchange), the investment is carried at cost, which was not
material as of December 31, 1999 or 1998.
In December 1999, the Company acquired a 28% interest in
Gulfstream International Airlines, Inc. ("Gulfstream"). The
investment is accounted for under the equity method of
accounting.
In 1999, Continental received 1,500,000 warrants to purchase
common stock of priceline.com, Inc. ("Priceline") at an
exercise price of $59.93 per share (the "Warrants"). In the
fourth quarter of 1999, the Company sold the Warrants for $18
million, resulting in a loss of approximately $4 million.
(d) Debt -
The fair value of the Company's debt with a carrying value of
$2.75 billion and $1.98 billion at December 31, 1999 and 1998,
respectively, estimated based on the discounted amount of
future cash flows using the current incremental rate of
borrowing for a similar liability or market prices,
approximate $2.53 billion and $1.88 billion, respectively.
The fair value of the remaining debt (with a carrying value of
$383 million and $473 million, respectively, and primarily
relating to aircraft modification notes and various loans with
immaterial balances) was not practicable to estimate due to
the large number and small dollar amounts of these notes.
NOTE 6 - PREFERRED SECURITIES OF TRUST
Continental Airlines Finance Trust, a Delaware statutory business
trust (the "Trust") with respect to which the Company owned all of
the common trust securities, had 2,298,327 8-1/2% Convertible Trust
Originated Preferred Securities ("TOPrS") outstanding at December
31, 1998. In November 1998, the Company exercised its right and
called for redemption approximately half of its outstanding TOPrS.
The TOPrS were convertible into shares of Class B common stock at
a conversion price of $24.18 per share of Class B common stock. As
a result of the call for redemption, 2,688,173 TOPrS were converted
into 5,558,649 shares of Class B common stock. In December 1998,
the Company called for redemption the remaining outstanding TOPrS.
As a result of the second call, the remaining 2,298,327 TOPrS were
converted into 4,752,522 shares of Class B common stock during
January 1999.
Distributions on the preferred securities were payable by the Trust
at the annual rate of 8-1/2% of the liquidation value of $50 per
preferred security and are included in Distributions on Preferred
Securities of Trust in the accompanying Consolidated Statements of
Operations. At December 31, 1998, outstanding TOPrS totaling $111
million are included in Continental-Obligated Mandatorily
Redeemable Preferred Securities of Subsidiary Trust Holding Solely
Convertible Subordinated Debentures in the accompanying
Consolidated Balance Sheets.
The sole assets of the trust were 8-1/2% Convertible Subordinated
Deferrable Interest Debentures ("Convertible Subordinated
Debentures") with an aggregate principal amount of $115 million at
December 31, 1998.
The Convertible Subordinated Debentures and related income
statement effects are eliminated in the Company's consolidated
financial statements.
NOTE 7 - PREFERRED, COMMON AND TREASURY STOCK
Preferred Stock
Continental has 10 million shares of authorized preferred stock,
none of which was outstanding as of December 31, 1999 or 1998.
Common Stock
Continental has two classes of common stock issued and outstanding,
Class A common stock, par value $.01 per share ("Class A common
stock") and Class B common stock. Each share of Class A common
stock is entitled to 10 votes per share and each share of Class B
common stock is entitled to one vote per share. In addition,
Continental has authorized 50 million shares of Class D common
stock, par value $.01 per share, none of which is outstanding.
The Company's Certificate of Incorporation permits shares of the
Company's Class A common stock to be converted into an equal number
of shares of Class B common stock. During 1999 and 1998, 85,883
and 12,200 shares of the Company's Class A common stock,
respectively, were so converted.
Treasury Stock
The Company's Board of Directors has authorized the expenditure of
up to $1.2 billion to repurchase shares of the Company's Class A
common stock and Class B common stock or securities convertible
into Class B common stock. The Company's Board of Directors also
authorized the Company to use up to one-half of its 2000 and later
adjusted net income, and all of the net proceeds of future sales of
non-strategic assets, for additional stock repurchases. Subject to
applicable securities law, such purchases occur at times and in
amounts that the Company deems appropriate. No time limit was
placed on the duration of the repurchase program. As of December
31, 1999, the Company had repurchased 17,586,400 shares of Class B
common stock for $751 million since the inception of the repurchase
program in March 1998.
Stockholder Rights Plan
Effective November 20, 1998, the Company adopted a stockholder
rights plan (the "Rights Plan") in connection with the disposition
by Air Partners, L.P. ("Air Partners") of its interest in the
Company to an affiliate of Northwest Airlines, Inc. (together with
such affiliate, "Northwest").
The rights become exercisable upon the earlier of (i) the tenth day
following a public announcement or public disclosure of facts
indicating that a person or group of affiliated or associated
persons has acquired beneficial ownership of 15% or more of the
total number of votes entitled to be cast generally by the holders
of the common stock of the Company then outstanding, voting
together as a single class (such person or group being an
"Acquiring Person"), or (ii) the tenth business day (or such later
date as may be determined by action of the Board of Directors prior
to such time as any person becomes an Acquiring Person) following
the commencement of, or announcement of an intention to make, a
tender offer or exchange offer the consummation of which would
result in any person becoming an Acquiring Person. Certain persons
and entities related to the Company, Air Partners or Northwest at
the time the Rights Plan was adopted are exempt from the definition
of "Acquiring Person."
The rights will expire on November 20, 2008 unless extended or
unless the rights are earlier redeemed or exchanged by the Company.
Subject to certain adjustments, if any person becomes an Acquiring
Person, each holder of a right, other than rights beneficially
owned by the Acquiring Person and its affiliates and associates
(which rights will thereafter be void), will thereafter have the
right to receive, upon exercise thereof, that number of Class B
Common Shares having a market value of two times the exercise price
($200, subject to adjustment) of the right.
If at any time after a person becomes an Acquiring Person, (i) the
Company merges into any other person, (ii) any person merges into
the Company and all of the outstanding common stock does not remain
outstanding after such merger, or (iii) the Company sells 50% or
more of its consolidated assets or earning power, each holder of a
right (other than the Acquiring Person and its affiliates and
associates) will have the right to receive, upon the exercise
thereof, that number of shares of common stock of the acquiring
corporation (including the Company as successor thereto or as the
surviving corporation) which at the time of such transaction will
have a market value of two times the exercise price of the right.
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
Company's voting power, the 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).
At any time prior to any person becoming an Acquiring Person, the
Board of Directors may redeem the rights at a price of $.001 per
right. The Rights Plan may be amended by the Board of Directors
without the consent of the holders of the rights, except that from
and after such time as any person becomes an Acquiring Person no
such amendment may adversely affect the interests of the holders of
the rights (other than the Acquiring Person and its affiliates and
associates). Until a right is exercised, the holder thereof, as
such, will have no rights as a stockholder of the Company,
including, without limitation, the right to vote or to receive
dividends.
NOTE 8 - STOCK PLANS AND AWARDS
Stock Options
On October 4, 1999, the Board of Directors adopted the Continental
Airlines, Inc. Incentive Plan 2000 (the "2000 Incentive Plan"),
subject to approval by the stockholders of the Company at the
annual stockholders meeting in May 2000. The 2000 Incentive Plan
provides that the Company may grant awards (options, restricted
stock awards, performance awards or incentive awards) to non-
employee directors of the Company or employees of the Company or
its subsidiaries. Subject to adjustment as provided in the
Incentive Plan, the aggregate number of shares of Class B common
stock that may be issued under the Incentive Plan may not exceed
3,000,000 shares, which may be originally issued or treasury shares
or a combination thereof.
The stockholders of the Company have approved the Company's 1998
Stock Incentive Plan, 1997 Stock Incentive Plan and 1994 Incentive
Equity Plan (collectively, the "Plans") under which the Company may
issue shares of restricted Class B common stock or grant options to
purchase shares of Class B common stock to non-employee directors
and employees of the Company or its subsidiaries. Subject to
adjustment as provided in the Plans, the aggregate number of shares
of Class B common stock that may be issued may not exceed
16,500,000 shares, which may be originally issued or treasury
shares or a combination thereof. Options granted under the Plans
are awarded with an exercise price equal to the fair market value
of the stock on the date of grant. The total shares remaining
available for grant under the Plans at December 31, 1999 was
969,327. No options may be awarded under the 1994 Incentive Equity
Plan after December 31, 1999. Stock options granted under the
Plans generally vest over a period of three to four years and have
a term of five years.
Under the terms of the Plans, a change of control would result in
all outstanding options under these plans becoming exercisable in
full and restrictions on restricted shares being terminated.
The table on the following page summarizes stock option
transactions pursuant to the Company's Plans (share data in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
Weighted- Weighted- Weighted-
Average Average Average
Options Exercise Price Options Exercise Price Options Exercise Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
Beginning of
Year. . . . . . 9,683 $30.31 5,998 $22.62 5,809 $17.37
Granted. . . . . 1,055 $33.38 6,504 $43.75 1,968 $29.34
Exercised . . . (1,464) $16.54 (807) $19.53 (1,582) $11.72
Cancelled. . . . (269) $37.41 (2,012) $55.18 (197) $22.49
Outstanding at
End of Year . . 9,005 $32.69 9,683 $30.31 5,998 $22.62
Options
exercisable
at end of
year (1). . . . 4,845 $29.13 5,174 $23.56 1,229 $20.61
(1) On November 20, 1998, Air Partners disposed of its interest in the Company to Northwest,
resulting in a change of control under the terms of the Plans. As a result, all options
and restricted stock then outstanding under these plans became exercisable and fully
vested, respectively.
</TABLE>
The following tables summarize the range of exercise prices and the
weighted average remaining contractual life of the options
outstanding and the range of exercise prices for the options
exercisable at December 31, 1999 (share data in thousands):
<TABLE>
<CAPTION>
Options Outstanding
Weighted
Average
Remaining
Range of Contractual Weighted Average
Exercise Prices Outstanding Life Exercise Price
<S> <C> <C> <C>
$4.56-$8.00 208 0.68 $7.80
$8.19-$22.13 183 2.03 $16.64
$22.38-$28.63 2,468 1.76 $26.12
$28.75-$32.13 2,616 3.45 $30.31
$32.25-$56.81 3,530 3.92 $41.35
$4.56-$56.81 9,005 3.08 $32.69
Options Exercisable
Range of Weighted Average
Exercise Prices Exercisable Exercise Price
$4.56-$8.00 208 $ 7.80
$8.19-$22.13 183 $16.64
$22.38-$28.63 2,468 $26.12
$28.75-$32.13 917 $29.71
$32.25-$56.81 1,069 $41.90
$4.56-$56.81 4,845 $29.13
</TABLE>
Employee Stock Purchase Plans
All employees of the Company are eligible to participate in the
Company's stock purchase program under which they may purchase
shares of Class B common stock of the Company at 85% of the lower
of the fair market value on the first day of the option period or
the last day of the option period. During 1999 and 1998, 526,729
and 305,978 shares, respectively, of Class B common stock were
issued at prices ranging from $27.84 to $49.41 in 1999 and $29.33
to $49.41 in 1998. During 1997, 218,892 shares of Class B common
stock were issued at prices ranging from $19.55 to $29.33.
Pro Forma SFAS 123 Results
Pro forma information regarding net income and earnings per share
has been determined as if the Company had accounted for its
employee stock options and purchase rights under the fair value
method of SFAS 123. The fair value for these options was estimated
at the date of grant using a Black-Scholes option pricing model
with the following weighted-average assumptions for 1999, 1998 and
1997, respectively: risk-free interest rates of 4.9%, 4.9% and
6.1%; dividend yields of 0%; volatility factors of the expected
market price of the Company's common stock of 43% for 1999, 40% for
1998 and 34% for 1997; and a weighted-average expected life of the
option of 3.1 years, 3.0 years and 2.5 years. The weighted average
grant date fair value of the stock options granted in 1999, 1998
and 1997 was $11.13, $13.84 and $7.87 per option, respectively.
The fair value of the purchase rights under the stock purchase
plans was also estimated using the Black-Scholes model with the
following weighted-average assumptions for 1999, 1998 and 1997,
respectively: risk free interest rates of 4.7%, 4.7% and 5.2%;
dividend yields of 0%; expected volatility of 43% for 1999, 40% for
1998 and 34% for 1997; and an expected life of .25 years for 1999,
.25 years for 1998 and .33 years for 1997. The weighted-average
fair value of the purchase rights granted in 1999, 1998 and 1997
was $7.72, $9.10 and $7.38, respectively.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferrable. In addition, option
valuation models require the input of highly subjective assumptions
including the expected stock price volatility. Because the
Company's employee stock options and purchase rights have
characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options and
purchase rights.
Assuming that the Company had accounted for its employee stock
options and purchase rights using the fair value method and
amortized the resulting amount to expense over the options' vesting
period, net income would have been reduced by $24 million, $18
million and $11 million for the years ended December 31, 1999, 1998
and 1997, respectively. Basic EPS would have been reduced by
35 cents, 30 cents and 18 cents for the years ended December 31,
1999, 1998 and 1997, respectively, and diluted EPS would have been
reduced by 33 cents, 23 cents and 14 cents for the same periods,
respectively. The pro forma effect on net income is not
representative of the pro forma effects on net income in future
years because it did not take into consideration pro forma
compensation expense related to grants made prior to 1995.
NOTE 9 - ACCUMULATED OTHER COMPREHENSIVE INCOME
The components of accumulated other comprehensive income are as
follows (in millions):
<TABLE>
<CAPTION>
Unrealized
Gain/
Minimum Unrealized (Loss) on
Pension Gain/(Loss) Derivative
Liability on Investments Instruments Total
<S> <C> <C> <C> <C>
Balance at
December 31, 1996 . $ (2) $ 4 $ - $ 2
Current year net
change in other
comprehensive
income. . . . . . . (4) - - (4)
Balance at
December 31, 1997 . (6) 4 - (2)
Current year net
change in other
comprehensive
income. . . . . . . (76) (4) (6) (86)
Balance at
December 31, 1998 . (82) - (6) (88)
Current year net
change in other
comprehensive
income. . . . . . . 82 1 4 87
Balance at
December 31, 1999 . $ - $ 1 $ (2) $ (1)
</TABLE>
NOTE 10 - EMPLOYEE BENEFIT PLANS
The Company has noncontributory defined benefit pension and defined
contribution (including 401(k) savings) plans. Substantially all
domestic employees of the Company are covered by one or more of
these plans. The benefits under the active defined benefit pension
plan are based on years of service and an employee's final average
compensation. For the years ended December 31, 1999, 1998 and
1997, total expense for the defined contribution plan was $14
million, $8 million and $6 million, respectively.
The following table sets forth the defined benefit pension plans'
change in projected benefit obligation for 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
(in millions)
<S> <C> <C>
Projected benefit obligation at
beginning of year . . . . . . . . $1,230 $ 846
Service cost . . . . . . . . . . . 66 55
Interest cost. . . . . . . . . . . 90 69
Plan amendments. . . . . . . . . . 54 110
Actuarial (gains) losses . . . . . (47) 178
Benefits paid. . . . . . . . . . . (93) (28)
Projected benefit obligation at
end of year . . . . . . . . . . . $1,300 $1,230
</TABLE>
The following table sets forth the defined benefit pension plans'
change in the fair value of plan assets for 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
(in millions)
<S> <C> <C>
Fair value of plan assets at
beginning of year . . . . . . . . $ 781 $ 633
Actual return on plan assets . . . 138 75
Employer contributions . . . . . . 187 101
Benefits paid. . . . . . . . . . . (93) (28)
Fair value of plan assets at
end of year . . . . . . . . . . . $1,013 $ 781
</TABLE>
Pension cost recognized in the accompanying consolidated balance
sheets is computed as follows:
<TABLE>
<CAPTION>
1999 1998
(in millions)
<S> <C> <C>
Funded status of the plans -
net underfunded . . . . . . . . . $ (287) $ (449)
Unrecognized net actuarial loss. . 152 256
Unrecognized prior service cost. . 143 113
Net amount recognized. . . . . . . 8 (80)
Prepaid benefit cost . . . . . . . 12 2
Accrued benefit liability. . . . . (78) (320)
Intangible asset . . . . . . . . . 74 113
Accumulated other comprehensive
income. . . . . . . . . . . . . . - 125
Net amount recognized. . . . . . . $ 8 $ (80)
</TABLE>
The $125 million charge to other comprehensive income in 1998 was
reversed in 1999 due to favorable asset performance and an increase
in the weighted average assumed discount rate.
Net periodic defined benefit pension cost for 1999, 1998 and 1997
included the following components:
<TABLE>
<CAPTION>
1999 1998 1997
(in millions)
<S> <C> <C> <C>
Service cost . . . . . . . . . . . $ 66 $ 55 $ 38
Interest cost. . . . . . . . . . . 90 69 51
Expected return on plan assets . . (84) (64) (49)
Amortization of prior service
cost . . . . . . . . . . . . . . 13 6 1
Amortization of unrecognized
net actuarial loss . . . . . . . 13 4 -
Net periodic benefit cost. . . . . $ 98 $ 70 $ 41
</TABLE>
The following actuarial assumptions were used to determine the
actuarial present value of the Company's projected benefit
obligation:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Weighted average assumed
discount rate. . . . . . . . . . 8.25% 7.0% 7.25%
Expected long-term rate of
return on plan assets. . . . . . 9.50% 9.50% 9.25%
Weighted average rate of
compensation increase. . . . . .4.98%-5.27% 5.30% 4.90%
</TABLE>
The projected benefit obligation, accumulated benefit obligation
and the fair value of plan assets for the pension plans with
projected benefit obligations and accumulated benefit obligations
in excess of plan assets were $1.3 billion, $1.1 billion and $1.0
billion, respectively, as of December 31, 1999, and $1.2 billion,
$1.1 billion and $771 million, respectively, as of December 31,
1998.
During 1999 and 1998, the Company amended its benefit plan as a
result of changes in benefits pursuant to new collective bargaining
agreements.
Plan assets consist primarily of equity securities, long-term debt
securities and short-term investments.
Continental's policy is to fund the noncontributory defined benefit
pension plans in accordance with Internal Revenue Service ("IRS")
requirements as modified, to the extent applicable, by agreements
with the IRS.
The Company also has a profit sharing program under which an award
pool consisting of 15% of the Company's annual pre-tax earnings,
subject to certain adjustments, is distributed each year to
substantially all employees (other than employees whose collective
bargaining agreement provides otherwise or who otherwise receive
profit sharing payments as required by local law) on a pro rata
basis according to base salary. The profit sharing expense
included in the accompanying Consolidated Statements of Operations
for the years ended December 31, 1999, 1998 and 1997 was $62
million, $86 million and $105 million, respectively.
NOTE 11 - INCOME TAXES
The reconciliations of income tax computed at the United States
federal statutory tax rates to income tax provision for the years
ended December 31, 1999, 1998 and 1997 are as follows (in
millions):
<TABLE>
<CAPTION>
Amount Percent
1999 1998 1997 1999 1998 1997
<S> <C> <C> <C> <C> <C> <C>
Income tax pro-
vision at
United States
statutory rates . . $279 $227 $224 35.0% 35.0% 35.0 %
State income tax
provision . . . . . 12 10 9 1.5 1.5 1.4
Meals and
entertainment
disallowance. . . . 11 10 9 1.3 1.5 1.4
Net operating loss
not previously
benefitted. . . . . - - (15) - - (2.3)
Other. . . . . . . . 8 1 10 1.1 0.3 1.6
Income tax
provision, net. . . $310 $248 $237 38.9% 38.3% 37.1 %
</TABLE>
The significant component of the provision for income taxes for the
year ended December 31, 1999, 1998 and 1997 was a deferred tax
provision of $293 million, $231 million and $220 million,
respectively. The provision for income taxes for each of the years
ended December 31, 1999, 1998 and 1997 also reflects a current tax
provision in the amount of $17 million, as the Company is in an
alternative minimum tax position for federal income tax purposes
and pays current state and foreign income tax.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the related amounts used for
income tax purposes. Significant components of the Company's
deferred tax liabilities and assets as of December 31, 1999 and
1998 are as follows (in millions):
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Spare parts and supplies, fixed assets
and intangibles . . . . . . . . . . . . . $ 590 $ 536
Deferred gain. . . . . . . . . . . . . . . 61 57
Capital and safe harbor lease activity . . 73 46
Other, net . . . . . . . . . . . . . . . . 69 39
Gross deferred tax liabilities . . . . . . 793 678
Accrued liabilities. . . . . . . . . . . . (254) (347)
Net operating loss carryforwards . . . . . (266) (372)
Investment tax credit carryforwards. . . . (45) (45)
Minimum tax credit carryforward. . . . . . (46) (37)
Other. . . . . . . . . . . . . . . . . . . - (2)
Gross deferred tax assets. . . . . . . . . (611) (803)
Deferred tax assets valuation allowance. . 263 263
Net deferred tax liability . . . . . . . . 445 138
Less: current deferred tax asset. . . . . (145) (234)
Non-current deferred tax liability . . . . $ 590 $ 372
</TABLE>
At December 31, 1999, the Company had estimated tax net operating
losses ("NOLs") of $700 million for federal income tax purposes
that will expire through 2009 and federal investment tax credit
carryforwards of $45 million that will expire through 2001. As a
result of the change in ownership of the Company on April 27, 1993,
the ultimate utilization of the Company's net operating losses and
investment tax credits may be limited. Reflecting this limitation,
the Company had a valuation allowance of $263 million at December
31, 1999 and 1998.
The Company has consummated several transactions which resulted in
the recognition of NOLs of the Company's predecessor. To the
extent the Company were to determine in the future that additional
NOLs of the Company's predecessor could be recognized in the
accompanying consolidated financial statements, such benefit would
reduce the value ascribed to routes, gates and slots.
NOTE 12 - ACCRUALS FOR AIRCRAFT RETIREMENTS AND EXCESS FACILITIES
During the fourth quarter of 1999, the Company made the 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. The DC-10-30's will be replaced by Boeing 757 and
Boeing 737-800 aircraft on certain routes, and by Boeing 777
aircraft on other routes. In addition, the market value of certain
Boeing 747 aircraft no longer operated by the Company has declined.
As a result of these items and certain other fleet-related items,
the Company recorded a fleet disposition/impairment loss of $81
million in the fourth quarter of 1999.
Approximately $52 million of the $81 million charge relates to the
impairment of owned or capital leased aircraft and related
inventory held for disposal with a carrying amount of $77 million.
The remaining $29 million of the charge relates primarily to costs
expected to be incurred related to the return of leased aircraft.
As of December 31, 1999, the remaining accrual for the 1999 fleet
disposition/impairment loss totaled $12 million.
In August 1998, the Company announced that CMI planned to
accelerate the retirement of its four Boeing 747 aircraft by April
1999 and its remaining thirteen Boeing 727 aircraft by December
2000. The Boeing 747s have been replaced by DC-10-30 aircraft and
the Boeing 727 aircraft will be replaced with a reduced number of
Boeing 737 aircraft. In addition, Express accelerated the
retirement of certain turboprop aircraft to the year 2000,
including its fleet of 32 EMB-120 turboprop aircraft, as regional
jets are acquired to replace turboprops. In connection with its
decision to accelerate the replacement of these aircraft, the
Company performed evaluations to determine, in accordance with SFAS
121, whether future cash flows (undiscounted and without interest
charges) expected to result from the use and eventual disposition
of these aircraft would be less than the aggregate carrying amount
of these aircraft and the related assets. As a result of the
evaluation, management determined that the estimated future cash
flows expected to be generated by these aircraft would be less than
their carrying amount, and therefore these aircraft are impaired as
defined by SFAS 121. Consequently, the original cost basis of
these aircraft and related items was reduced to reflect the fair
market value at the date the decision was made, resulting in a $59
million fleet disposition/impairment loss. In determining the fair
market value of these assets, the Company considered recent
transactions involving sales of similar aircraft and market trends
in aircraft dispositions. The remaining $63 million of the fleet
disposition/impairment loss includes cash and non-cash costs
related primarily to future commitments on leased aircraft past the
dates they will be removed from service and the write-down of
related inventory to its estimated fair market value. The combined
charge of $122 million was recorded in the third quarter of 1998.
As of December 31, 1999, the remaining accrual for the 1998 fleet
disposition/impairment loss totaled $40 million.
The remaining balance of accruals for aircraft retirements and
excess facilities at December 31, 1999 relates to the 1996 fleet
disposition/impairment loss accrual of $21 million and the 1994
accrual for fleet disposition/impairment loss and underutilized
facilities of $47 million.
The following represents the activity within these accruals during
the three years ended December 31, 1999 (in millions):
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Total accruals at beginning of year. . $155 $151 $205
Net cash payments:
Aircraft related. . . . . . . . . . . (32) (34) (27)
Underutilized facilities and other. . (20) (30) (13)
Increase/(decrease) in accrual for
grounded aircraft . . . . . . . . . . - - (16)
Fleet disposition/impairment loss for
costs of return of leased aircraft. . 20 - -
Fleet disposition/impairment loss
for the retirement of aircraft. . . . - 63 -
Other. . . . . . . . . . . . . . . . . (3) 5 2
Total accruals at end of year. . . . . 120 155 151
Portion included in accrued other
liabilities . . . . . . . . . . . . . (51) (60) (28)
Accrual for aircraft retirements and
excess facilities . . . . . . . . . . $ 69 $ 95 $123
</TABLE>
The remaining accruals relate primarily to anticipated cash outlays
associated with (i) underutilized airport facilities (primarily
associated with Denver International Airport), (ii) the return of
leased aircraft and (iii) the remaining liability associated with
the grounded aircraft. The Company has assumed certain sublease
rental income for these closed and underutilized facilities and
grounded aircraft in determining the accrual at each balance sheet
date. However, should actual sublease rental income be different
from the Company's estimates, the actual charge could be different
from the amount estimated. The remaining accrual represents cash
outlays to be incurred over the remaining lease terms (from one to
19 years). The Company expects to finance the cash outlays
primarily with internally generated funds.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
Continental has substantial commitments for capital expenditures,
including for the acquisition of new aircraft. As of January 14,
2000, Continental had agreed to acquire a total of 74 Boeing jet
aircraft through 2005. The Company anticipates taking delivery of
28 Boeing jet aircraft in 2000. Continental also has options for
an additional 118 aircraft (exercisable subject to certain
conditions). The estimated aggregate cost of the Company's firm
commitments for Boeing aircraft is approximately $4 billion.
Continental currently plans to finance its new Boeing aircraft with
a combination of enhanced pass through trust certificates, lease
equity and other third-party financing, subject to availability and
market conditions. Continental has commitments or letters of
intent for backstop financing for approximately 18% of the
anticipated remaining acquisition cost of future Boeing deliveries.
In addition, at January 14, 2000, Continental has firm commitments
to purchase 34 spare engines related to the new Boeing aircraft for
approximately $219 million, which will be deliverable through March
2005. However, further financing will be needed to satisfy the
Company's capital commitments for other aircraft and aircraft-
related expenditures such as engines, spare parts, simulators and
related items. There can be no assurance that sufficient financing
will be available for all aircraft and other capital expenditures
not covered by firm financing commitments. Deliveries of new
Boeing aircraft are expected to increase aircraft rental,
depreciation and interest costs while generating cost savings in
the areas of maintenance, fuel and pilot training.
As of January 14, 2000, Express had firm commitments for 43 Embraer
ERJ-145 ("ERJ-145") 50-seat regional jets and 19 Embraer ERJ-135
("ERJ-135") 37-seat regional jets, with options for an additional
100 ERJ-145 and 50 ERJ-135 aircraft exercisable through 2008.
Express anticipates taking delivery of 15 ERJ-145 and 12 ERJ-135
regional jets in 2000. Neither Express nor Continental will have
any obligation to take any of the firm ERJ-145 or ERJ-135 aircraft
that are not financed by a third party and leased to Continental.
Continental expects its cash outlays for 2000 capital expenditures,
exclusive of fleet plan requirements, to aggregate $207 million
primarily relating to software application and automation
infrastructure projects, aircraft modifications and mandatory
maintenance projects, passenger terminal facility improvements and
office, maintenance, telecommunications and ground equipment.
Continental remains contingently liable until December 1, 2015, on
$202 million of long-term lease obligations of US Airways, Inc.
("US Airways") related to the East End Terminal at LaGuardia
Airport in New York. If US Airways defaulted on these obligations,
Continental could be required to cure the default, at which time it
would have the right to occupy the terminal.
Continental has certain block space arrangements whereby it is
committed to purchase capacity on other carriers at an aggregate
cost of approximately $159 million per year. These arrangements
are currently scheduled to expire over the next eight years.
Pursuant to other block-space arrangements, other carriers are
committed to purchase capacity at a cost of approximately $95
million per year on Continental.
Approximately 42% of the Company's employees are covered by
collective bargaining agreements. The Company's collective
bargaining agreements with its Express flight attendants and
Continental Airlines flight attendants (representing approximately
18% of the Company's employees) became amendable in November and
December 1999, respectively. Negotiations began in September 1999
to amend these contracts. The Company believes that mutually
acceptable agreements can be reached with such employees, although
the ultimate outcome of the Company's negotiations is unknown at
this time.
Legal Proceedings
United States of America v. Northwest Airlines Corp. & Continental
Airlines, Inc.: The Antitrust Division of the Department of
Justice is challenging under Section 7 of the Clayton Act and
Section 1 of the Sherman Act the acquisition by Northwest of Shares
of Continental's Class A common stock bearing, together with
certain shares for which Northwest has a limited proxy, more than
50% of the fully diluted voting power of all Continental stock.
The government's position is that, notwithstanding various
agreements that restrict Northwest's ability to exercise voting
control over Continental and are designed to assure Continental's
competitive independence, Northwest's control of the Class A common
stock will reduce actual and potential competition in various ways
and in a variety of markets. The government seeks an order
requiring Northwest to divest all voting stock in Continental on
terms and conditions as may be agreed to by the government and the
Court. No specific relief is sought against Continental. Trial is
currently set for October 2000.
The Company and/or certain of its subsidiaries are defendants in
various lawsuits, including suits relating to certain environmental
claims, the Company's consolidated Plan of Reorganization under
Chapter 11 of the federal bankruptcy code which became effective on
April 27, 1993, and proceedings arising in the normal course of
business. While the outcome of these lawsuits and proceedings
cannot be predicted with certainty and could have a material
adverse effect on the Company's financial position, results of
operations and cash flows, it is the opinion of management, after
consulting with counsel, that the ultimate disposition of such
suits will not have a material adverse effect on the Company's
financial position, results of operations or cash flows.
NOTE 14 - RELATED PARTY TRANSACTIONS
The following is a summary of significant related party
transactions that occurred during 1999, 1998 and 1997, other than
those discussed elsewhere in the Notes to Consolidated Financial
Statements.
The Company and America West Airlines, Inc. ("America West"), a
subsidiary of America West Holdings Corporation, in which David
Bonderman holds a significant interest, entered into a series of
agreements during 1994 related to code-sharing and ground handling
that have created substantial benefits for both airlines. Mr.
Bonderman is a director and stockholder of the Company. The
services provided are considered normal to the daily operations of
both airlines. As a result of these agreements, Continental paid
America West $25 million, $20 million and $16 million in 1999, 1998
and 1997, respectively, and America West paid Continental $31
million, $27 million and $23 million in 1999, 1998 and 1997,
respectively.
In November 1998, the Company and Northwest, a significant
stockholder of the Company, began implementing a long-term global
alliance involving extensive code-sharing, frequent flyer
reciprocity and other cooperative activities. The services
provided are considered normal to the daily operations of both
airlines. As a result of these activities, Continental paid
Northwest $7 million in 1999, and Northwest paid Continental $9
million in 1999.
During December 1999, Continental entered into an equipment sales
agreement with COPA for $8 million. The resulting note receivable
is payable in quarterly installments through October 2002. During
1999, COPA paid Continental $4 million for services considered
normal to the daily operations of both airlines.
In connection with Continental's investment in Gulfstream,
Continental purchased from Gulfstream, a ten-year $10 million
convertible note, payable in quarterly installments of principal
and interest totaling $0.4 million. Continental also purchased a
six month $3 million secured note, with interest paid quarterly and
principal due at the end of the six months. During 1999,
Continental paid Gulfstream $1 million and Gulfstream paid
Continental $13 million for services considered normal to the daily
operations of both airlines.
Also during December 1999, under a sale and leaseback agreement
with Gulfstream, Express sold 25 Beech 1900-D aircraft to
Gulfstream in exchange for Gulfstream's assumption of $81 million
in debt. Express is leasing these aircraft from Gulfstream for
periods ranging from eight to 23 months.
NOTE 15 - SEGMENT REPORTING
Information concerning principal geographic areas is as follows (in
millions):
<TABLE>
<CAPTION>
1999 1998 1997
Operating Operating Operating
Revenue Revenue Revenue
<S> <C> <C> <C>
Domestic (U.S.) $6,066 $5,596 $5,196
Atlantic 1,102 995 778
Latin America 860 769 572
Pacific 611 567 648
$8,639 $7,927 $7,194
</TABLE>
The Company attributes revenue among the geographical areas based
upon the origin and destination of each flight segment. The
Company's tangible assets consist primarily of flight equipment
which is mobile across geographic markets and, therefore, has not
been allocated. Continental has one reportable operating segment
(air transportation).
NOTE 16 - QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
Unaudited summarized financial data by quarter for 1999 and 1998 is as follows (in millions,
except per share data):
<CAPTION>
Three Months Ended
March 31 June 30 September 30 December 31
<S> <C> <C> <C> <C>
1999 (a)
Operating revenue . . . . . . . . . . . . . $2,042 $2,181 $2,264 $2,152
Operating income (loss) . . . . . . . . . . 153 247 202 (2)
Income before cumulative effect of
accounting changes . . . . . . . . . . . . 85 132 104 167
Cumulative effect of accounting changes:
Start-up costs . . . . . . . . . . . . . . (6) - - -
Sale of frequent flyer miles . . . . . . . (27) - - -
Net income. . . . . . . . . . . . . . . . . 52 132 104 167
Earnings per common share:
Income before cumulative effect of
accounting changes (b) . . . . . . . . . $ 1.25 $ 1.85 $ 1.47 $ 2.46
Cumulative effect of accounting
changes, net of tax. . . . . . . . . . . (0.48) - - -
Net income (b). . . . . . . . . . . . . . $ 0.77 $ 1.85 $ 1.47 $ 2.46
Earnings per common share assuming
dilution:
Income before cumulative effect of
accounting changes (b) . . . . . . . . . $ 1.13 $ 1.73 $ 1.44 $ 2.42
Cumulative effect of accounting
changes, net of tax. . . . . . . . . . . (0.42) - - -
Net income (b). . . . . . . . . . . . . . $ 0.71 $ 1.73 $ 1.44 $ 2.42
(continued on next page)
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31 June 30 September 30 December 31
<S> <C> <C> <C> <C>
1998
Operating revenue . . . . . . . . . . . . . $1,848 $2,030 $2,110 $1,939
Operating income. . . . . . . . . . . . . . 150 280 143 128
Nonoperating income (expense), net. . . . . (13) (5) (18) (17)
Net income. . . . . . . . . . . . . . . . . 81 163 73 66
Earnings per common share:
Income before extraordinary charge. . . . $ 1.38 $ 2.74 $ 1.21 $ 1.08
Extraordinary charge, net of tax. . . . . - (0.06) - -
Net income (b). . . . . . . . . . . . . . $ 1.38 $ 2.68 $ 1.21 $ 1.08
Earnings per common share assuming
dilution:
Income before extraordinary charge. . . . $ 1.06 $ 2.11 $ 0.97 $ 0.91
Extraordinary charge, net of tax. . . . . - (0.05) - -
Net income (b). . . . . . . . . . . . . . $ 1.06 $ 2.06 $ 0.97 $ 0.91
Proforma Effect Assuming Accounting Change-
Sale of Frequent Flyer Miles - is Applied
Retroactively:
Income before Extraordinary Charge. . . . $ 79 $ 166 $ 71 $ 66
Earnings per Common Share (b) . . . . . . $ 1.34 $ 2.72 $ 1.18 $ 1.07
Earnings per Common Share Assuming
Dilution (b) . . . . . . . . . . . . . . $ 1.04 $ 2.09 $ 0.96 $ 0.90
Net Income. . . . . . . . . . . . . . . . $ 79 $ 162 $ 71 $ 66
Earnings per Common Share (b) . . . . . . $ 1.34 $ 2.66 $ 1.18 $ 1.07
Earnings per Common Share Assuming
Dilution (b) . . . . . . . . . . . . . . $ 1.04 $ 2.05 $ 0.96 $ 0.90
(a) During the fourth quarter of 1999, the Company changed its method of accounting for the
sale of mileage credits under its frequent flyer program. Therefore, effective January
1, 1999, the Company recorded a $27 million cumulative effect of a change in accounting
principle, net of tax, and has restated the quarterly information for 1999 presented
herein.
(b) The sum of the four quarterly earnings per share amounts does not agree with the
earnings per share as calculated for the full year due to the fact that the full year
calculation uses a weighted average number of shares based on the sum of the four
quarterly weighted average shares divided by four quarters.
</TABLE>
During the first quarter of 1999, Continental recorded a $6 million
cumulative effect of a change in accounting principle, net of tax,
related to the write-off of pilot training costs.
In addition, during the first quarter of 1999, Continental recorded
a $12 million gain ($20 million pre-tax) on the sale of a portion
of the Company's interest in Equant.
During the fourth quarter of 1999, the Company changed its method
of accounting for the sale of mileage credits under its frequent
flyer program. Therefore, effective January 1, 1999, the Company
recorded a $27 million cumulative effect of this change in
accounting principle, net of tax.
During the fourth quarter of 1999, Continental recorded a $182
million gain ($297 million pre-tax) on the sale of its interest in
AMADEUS and a $6 million net gain ($9 million pre-tax) on other
asset sales, including a portion of its interest in Equant.
Also during the fourth quarter of 1999, Continental recorded a
fleet disposition/impairment loss of $50 million ($81 million pre-
tax).
During the second quarter of 1998, Continental recorded a $4
million after tax extraordinary charge relating to prepayment of
debt.
During the third quarter of 1998, Continental recorded a fleet
disposition/impairment loss of $77 million ($122 million pre-tax)
relating to its decision to accelerate the retirement of certain
jet and turboprop aircraft.
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
There were no changes in or disagreements on any matters of
accounting principles or financial statement disclosure between the
Company and its independent auditors during the registrant's two
most recent fiscal years or any subsequent interim period.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Incorporated herein by reference from the Company's definitive
proxy statement for the annual meeting of stockholders to be held
on May 23, 2000.
ITEM 11. EXECUTIVE COMPENSATION.
Incorporated herein by reference from the Company's definitive
proxy statement for the annual meeting of stockholders to be held
on May 23, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Incorporated herein by reference from the Company's definitive
proxy statement for the annual meeting of stockholders to be held
on May 23, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated herein by reference from the Company's definitive
proxy statement for the annual meeting of stockholders to be held
on May 23, 2000.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a) The following financial statements are included in Item 8.
"Financial Statements and Supplementary Data":
Report of Independent Auditors
Consolidated Statements of Operations for each of the Three
Years in the Period Ended December 31, 1999
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Cash Flows for each of the Three
Years in the Period Ended December 31, 1999
Consolidated Statements of Redeemable Preferred Stock and
Common Stockholders' Equity for each of the Three Years
in the Period Ended December 31, 1999
Notes to Consolidated Financial Statements
(b) Financial Statement Schedules:
Report of Independent Auditors
Schedule II - Valuation and Qualifying Accounts
All other schedules have been omitted because they are
inapplicable, not required, or the information is included
elsewhere in the consolidated financial statements or notes
thereto.
(c) Reports on Form 8-K:
None.
(d) See accompanying Index to Exhibits.
REPORT OF INDEPENDENT AUDITORS
We have audited the consolidated financial statements of
Continental Airlines, Inc. (the "Company") as of December 31, 1999
and 1998, and for each of the three years in the period ended
December 31, 1999, and have issued our report thereon dated January
17, 2000 (included elsewhere in this Form 10-K). Our audits also
included the financial statement schedule for these related periods
listed in Item 14(b) of this Form 10-K. This schedule is the
responsibility of the Company's management. Our responsibility is
to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
Houston, Texas
January 17, 2000
<TABLE>
CONTINENTAL AIRLINES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1999, 1998, and 1997
(In millions)
<CAPTION>
Allowance
for Doubtful Allowance for
Receivables Obsolescence
<S> <C> <C>
Balance, December 31, 1996 . . . $ 27 $ 47
Additions charged to expense . 12 12
Deductions from reserve. . . . (21) (4)
Other. . . . . . . . . . . . . 5 (4)
Balance, December 31, 1997 . . . 23 51
Additions charged to expense . 18 17
Deductions from reserve. . . . (18) (16)
Other. . . . . . . . . . . . . (1) (6)
Balance, December 31, 1998 . . . 22 46
Additions charged to expense . 12 19
Deductions from reserve. . . . (12) (5)
Other. . . . . . . . . . . . . (2) (1)
Balance, December 31, 1999 . . . $ 20 $ 59
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CONTINENTAL AIRLINES, INC.
By /s/ LAWRENCE W. KELLNER
Lawrence W. Kellner
Executive Vice President and
Chief Financial Officer
(On behalf of Registrant)
Date: February 11, 2000
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons in the
capacities indicated on February 11, 2000.
Signature Capacity
/s/ GORDON M. BETHUNE Chairman and Chief Executive Officer
Gordon M. Bethune (Principal Executive Officer)
/s/ LAWRENCE W. KELLNER Executive Vice President and
Lawrence W. Kellner Chief Financial Officer
(Principal Financial Officer)
/s/ CHRIS KENNY Staff Vice President and Controller
Chris Kenny (Principal Accounting Officer)
THOMAS J. BARRACK, JR.* Director
Thomas J. Barrack, Jr.
DAVID BONDERMAN* Director
David Bonderman
/s/GREGORY D. BRENNEMAN Director
Gregory D. Brenneman
KIRBYJON CALDWELL* Director
Kirbyjon Caldwell
PATRICK FOLEY* Director
Patrick Foley
DOUGLAS McCORKINDALE* Director
Douglas McCorkindale
GEORGE G. C. PARKER* Director
George G. C. Parker
RICHARD W. POGUE* Director
Richard W. Pogue
WILLIAM S. PRICE III* Director
William Price III
DONALD L. STURM* Director
Donald L. Sturm
KAREN HASTIE WILLIAMS* Director
Karen Hastie Williams
CHARLES A. YAMARONE* Director
Charles A. Yamarone
*By /s/ LAWRENCE W. KELLNER
Lawrence W. Kellner
Attorney in-fact
February 11, 2000
INDEX TO EXHIBITS
OF
CONTINENTAL AIRLINES, INC.
2.1 Revised Third Amended Disclosure Statement Pursuant to
Section 1125 of the Bankruptcy Code with Respect to
Debtors' Revised Second Amended Joint Plan of
Reorganization Under Chapter 11 of the United States
Bankruptcy Code, as filed with the Bankruptcy Court on
January 13, 1993 -- incorporated by reference from
Exhibit 2.1 to Continental's Annual Report on Form 10-K
for the year ended December 31, 1992 (File no. 0-9781).
2.2 Modification of Debtors' Revised Second Amended Joint
Plan of Reorganization dated March 12, 1993 --
incorporated by reference to Exhibit 2.2 to Continental's
Current Report on Form 8-K, dated April 16, 1993 (File
no. 0-9781) (the "4/93 8-K").
2.3 Second Modification of Debtors' Revised Second Amended
Joint Plan of Reorganization, dated April 8, 1993 --
incorporated by reference to Exhibit 2.3 to the 4/93 8-K.
2.4 Third Modification of Debtors' Revised Second Amended
Joint Plan of Reorganization, dated April 15, 1993 --
incorporated by reference to Exhibit 2.4 to the 4/93 8-K.
2.5 Confirmation Order, dated April 16, 1993 -- incorporated
by reference to Exhibit 2.5 to the 4/93 8-K.
3.1 Amended and Restated Certificate of Incorporation of
Continental -- incorporated by reference to
Exhibit 4.1(a) to Continental's Form S-8 registration
statement (No. 333-06993) (the "1996 S-8").
3.2 By-laws of Continental, as amended to date --
incorporated by reference to Exhibit 99.3 to
Continental's Current Report on Form 8-K dated November
20, 1998 (the "11/98 8-K").
4.1 Specimen Class A Common Stock Certificate of the Company
-- incorporated by reference to Exhibit 4.1 to
Continental's Annual Report on Form 10-K for the year
ended December 31, 1995 (File no. 0-9781) (the "1995 10-
K").
4.2 Specimen Class B Common Stock Certificate of the Company
-- incorporated by reference to Exhibit 4.1 to
Continental's Form S-1 Registration Statement (No. 33-
68870) (the "1993 S-1").
4.3 Rights Agreement, dated as of November 20, 1998, between
Continental and Harris Trust and Savings Bank --
incorporated by reference to Exhibit 4.1 to the 11/98 8-
K.
4.3(a) First Amendment to Rights Agreement, dated as of February
8, 2000 -- incorporated by reference to Exhibit 4.1 to
Continental's Current Report on Form 8-K dated February
8, 2000 (File No. 0-9781) (the "2/00 8-K").
4.4 Certificate of Designation of Series A Junior
Participating Preferred Stock, included as Exhibit A to
Exhibit 4.3 -- incorporated by reference to Exhibit 4.2
to the 11/98 8-K.
4.5 Form of Right Certificate, included as Exhibit B to
Exhibit 4.3 -- incorporated by reference to Exhibit 4.3
to the 11/98 8-K.
4.6 Summary of Rights to Purchase Preferred Shares, included
as Exhibit C to Exhibit 4.3 -- incorporated by reference
to Exhibit 4.4 to the 11/98 8-K.
4.7 Amended and Restated Governance Agreement, dated February
8, 2000, among the Company, Northwest Airlines
Corporation ("Northwest") and Northwest Airlines Holdings
Corporation ("Northwest Holdings") -- incorporated by
reference to Exhibit 99.2 to the 2/00 8-K.
4.8 Supplemental Agreement dated November 20, 1998 among the
Company, Newbridge Parent Corporation and Northwest --
incorporated by reference to Exhibit 99.7 to the 11/98 8-
K.
4.8(a) First Amendment to Supplemental Agreement, dated as of
February 8, 2000, among the Company, Northwest and
Northwest Holdings -- incorporated by reference to
Exhibit 99.3 to the 2/00 8-K.
4.9 Amended and Restated Registration Rights Agreement dated
April 19, 1996 among the Company, Air Partners, L.P. and
Air Canada -- incorporated by reference to Exhibit 10.2
to Continental's Form S-3 Registration Statement (No.
333-02701).
4.9(a) Amendment dated November 20, 1998 to the Amended and
Restated Registration Rights Agreement among the Company,
Air Partners and Northwest -- incorporated by reference
to Exhibit 99.5 to the 11/98 8-K.
4.10 Warrant Agreement dated as of April 27, 1993, between
Continental and Continental as warrant agent --
incorporated by reference to Exhibit 4.7 to the 4/93 8-K.
4.11 Continental hereby agrees to furnish to the Commission,
upon request, copies of certain instruments defining the
rights of holders of long-term debt of the kind described
in Item 601(b)(4)(iii)(A) of Regulation S-K.
9.1 Northwest Airlines/Air Partners Voting Trust Agreement
dated as of November 20, 1998 among the Company,
Northwest, Northwest Holdings, Air Partners and
Wilmington Trust Company, as Trustee -- incorporated by
reference to Exhibit 99.4 to the 11/98 8-K.
9.1(a) First amendment to Northwest Airlines/Air Partners Voting
Trust Agreement, dated as of February 8, 2000 between the
Company and Northwest -- incorporated by reference to
Exhibit 99.1 to the 2/00 8-K.
10.1 Agreement of Lease dated as of January 11, 1985, between
the Port Authority of New York and New Jersey and People
Express Airlines, Inc., regarding Terminal C (the
"Terminal C Lease") -- incorporated by reference to
Exhibit 10.61 to the Annual Report on Form 10-K (File No.
0-9781) of People Express Airlines, Inc. for the year
ended December 31, 1984.
10.1(a) Supplemental Agreements Nos. 1 through 6 to the Terminal
C Lease -- incorporated by reference to Exhibit 10.3 to
Continental's Annual Report on Form 10-K (File No. 1-
8475) for the year ended December 31, 1987 (the "1987 10-
K").
10.1(b) Supplemental Agreement No. 7 to the Terminal C Lease --
incorporated by reference to Exhibit 10.4 to
Continental's Annual Report on Form 10-K (File No. 1-
8475) for the year ended December 31, 1988.
10.1(c) Supplemental Agreements No. 8 through 11 to the Terminal
C Lease -- incorporated by reference to Exhibit 10.10 to
the 1993 S-1.
10.1(d) Supplemental Agreements No. 12 through 15 to the Terminal
C Lease -- incorporated by reference to Exhibit 10.2(d)
to the 1995 10-K.
10.1(e) Supplemental Agreement No. 16 to the Terminal C Lease --
incorporated by reference to Exhibit 10.1(e) to
Continental's Annual Report on Form 10-K for the year
ended December 31, 1997 (File no. 0-9781) (the "1997 10-
K").
10.1(f) Supplemental Agreement No. 17 to the Terminal C Lease.
(2)(3)
10.2 Assignment of Lease with Assumption and Consent dated as
of August 15, 1987, among the Port Authority of New York
and New Jersey, People Express Airlines, Inc. and
Continental -- incorporated by reference to Exhibit
10.2 to the 1987 10-K.
10.3* Amended and restated employment agreement between the
Company and Gordon Bethune, dated as of November 20, 1998
-- incorporated by reference to Exhibit 10.3 to the 1998
10-K.
10.3(a)* Amendment dated as of May 19, 1999 to Mr. Bethune's
Employment Agreement -- incorporated by reference to
Exhibit 10.2 to Continental's Quarterly Report on Form
10-Q for the quarter ended June 30, 1999 (File No. 0-
9781) (the "1999 Q-2 10-Q").
10.3(b)* Amendment dated as of September 16, 1999 to Mr. Bethune's
Employment Agreement -- incorporated by reference to
Exhibit 10.2 to Continental's Quarterly Report on Form
10-Q for the quarter ended September 30,1999 (File No. 0-
9781) (the "1999 Q-3 10-Q").
10.4* Amended and restated employment agreement between the
Company and Gregory Brenneman, dated as of November 20,
1998 -- incorporated by reference to Exhibit 10.4 to the
1998 10-K.
10.4(a)* Amendment dated as of May 19, 1999 to Mr. Brenneman's
Employment Agreement -- incorporated by reference to
Exhibit 10.3 to the 1999 Q-2 10-Q.
10.4(b)* Amendment dated as of September 16, 1999 to Mr.
Brenneman's Employment Agreement -- incorporated by
reference to Exhibit 10.3 to the 1999 Q-3 10-Q.
10.5* Amended and restated employment agreement dated as of
September 16, 1999 between the Company and Lawrence
Kellner -- incorporated by reference to Exhibit 10.4 to
the 1999 Q-3 10-Q.
10.6* Amended and restated employment agreement dated as of
September 16, 1999 between the Company and C.D. McLean --
incorporated by reference to Exhibit 10.5 to the 1999 Q-3
10-Q.
10.7* Amended and restated employment agreement dated September
16, 1999 between the Company and Jeffery A. Smisek --
incorporated by reference to Exhibit 10.6 to the 1999 Q-3
10-Q.
10.8* Stay Bonus Agreement between the Company and Gordon
Bethune -- incorporated by reference to Exhibit 10.3 to
Continental's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998 (File no. 0-9781) (the "1998
Q-2 10-Q").
10.9* Stay Bonus Agreement between the Company and Gregory
Brenneman -- incorporated by reference to Exhibit 10.4 to
the 1998 Q-2 10-Q.
10.10* Stay Bonus Agreement between the Company and Lawrence
Kellner -- incorporated by reference to Exhibit 10.5 to
the 1998 Q-2 10-Q.
10.11* Stay Bonus Agreement between the Company and C.D. McLean
-- incorporated by reference to Exhibit 10.6 to the 1998
Q-2 10-Q.
10.12* Stay Bonus Agreement between the Company and Jeffery
Smisek -- incorporated by reference to Exhibit 10.7 to
the 1998 Q-2 10-Q.
10.13* Forms of Stay Bonus Agreements for other executive
officers -- incorporated by reference to Exhibit 10.8 to
the 1998 Q-2 10-Q.
10.14* Executive Bonus Program -- incorporated by reference to
Appendix B to the Company's proxy statement relating its
annual meeting of stockholders held on June 26, 1996.
10.14(a)* Amendment of Executive Bonus Program effective January 1,
1999 -- incorporated by reference to Exhibit 10.2 to
Continental's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999 (File no. 0-9781) (the "1999
Q-1 10-Q").
10.14(b)* Amendment of Executive Bonus Program dated February 8,
2000. (3)
10.15* Continental Airlines, Inc. 1994 Incentive Equity Plan
("1994 Equity Plan") -- incorporated by reference to
Exhibit 4.3 to the Company's Form S-8 Registration
Statement (No. 33-81324).
10.15(a)* First Amendment to 1994 Equity Plan -- incorporated by
reference to Exhibit 10.1 to Continental's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1995 (File no. 0-9781).
10.15(b)* Second Amendment to 1994 Equity Plan -- incorporated by
reference to Exhibit 4.3(c) to the 1996 S-8.
10.15(c)* Third Amendment to 1994 Equity Plan -- incorporated by
reference to Exhibit 10.4 to Continental's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1996 (File no. 0-9781).
10.15(d)* Fourth Amendment to 1994 Equity Plan -- incorporated by
reference to Exhibit 10.10(d) to the 1997 10-K.
10.15(e)* Form of Employee Stock Option Grant pursuant to the 1994
Equity Plan -- incorporated by reference to Exhibit
10.10(e) to the 1997 10-K.
10.15(f)* Form of Outside Director Stock Option Grant pursuant to
the 1994 Equity Plan -- incorporated by reference to
Exhibit 10.10(f) to the 1997 10-K.
10.15(g)* Form of Restricted Stock Grant pursuant to the 1994
Equity Plan -- incorporated by reference to Exhibit
10.10(g) to the 1997 10-K.
10.16* Continental Airlines, Inc. 1997 Stock Incentive Plan
("1997 Incentive Plan") -- incorporated by reference to
Exhibit 4.3 to Continental's Form S-8 Registration
Statement (No. 333-23165).
10.16(a)* First Amendment to 1997 Incentive Plan -- incorporated by
reference to Exhibit 10.11(a) to the 1997 10-K.
10.16(b)* Form of Employee Stock Option Grant pursuant to the 1997
Incentive Plan -- incorporated by reference to Exhibit
10.11(b) to the 1997 10-K.
10.16(c)* Form of Outside Director Stock Option Grant pursuant to
the 1997 Incentive Plan -- incorporated by reference to
Exhibit 10.11(c) to the 1997 10-K.
10.17* Amendment and Restatement of the 1994 Equity Plan and the
1997 Incentive Plan -- incorporated by reference to
Exhibit 10.19 to the 1998 10-K.
10.18* Continental Airlines, Inc. 1998 Stock Incentive Plan
("1998 Incentive Plan") -- incorporated by reference to
Exhibit 4.3 to Continental's Form S-8 Registration
Statement (No. 333-57297) (the "1998 S-8").
10.18(a)* Form of Employee Stock Option Grant pursuant to the 1998
Incentive Plan -- incorporated by reference to Exhibit
4.4 to the 1998 S-8.
10.19* Amended and Restated Continental Airlines, Inc. Deferred
Compensation Plan. (3)
10.20* Continental Airlines, Inc. Incentive Plan 2000. (3)
10.21* Continental Airlines, Inc. Executive Bonus Performance
Award Program, as amended. (3)
10.22* Continental Airlines, Inc. Long Term Incentive
Performance Award Program. (3)
10.23* Form of Letter Agreement relating to certain flight
benefits between the Company and each of its nonemployee
directors -- incorporated by reference to Exhibit 10.19
to the 1995 10-K.
10.24 Purchase Agreement No. 1783, including exhibits and side
letters, between the Company and Boeing, effective
April 27, 1993, relating to the purchase of Boeing 757
aircraft ("P.A. 1783") -- incorporated by reference to
Exhibit 10.2 to Continental's Quarterly Report on Form
10-Q for the quarter ended June 30, 1993 (File no. 0-
9781). (1)
10.24(a) Supplemental Agreement No. 4 to P.A. 1783, dated March
31, 1995 -- incorporated by reference to Exhibit
10.12(a) to Continental's Annual Report on Form 10-K for
the year ended December 31, 1994 (File no. 0-9781) (the
"1994 10-K"). (1)
10.24(b) Supplemental Agreement No. 6 to P.A. 1783, dated June 13,
1996 -- incorporated by reference to Exhibit 10.6 to
Continental's Quarterly Report on Form 10-Q for the
quarter ending June 30, 1996 (File no. 0-9781) (the "1996
Q-2 10-Q"). (1)
10.24(c) Supplemental Agreement No. 7 to P.A. 1783, dated July 23,
1996 -- incorporated by reference to Exhibit 10.6(a) to
the 1996 Q-2 10-Q. (1)
10.24(d) Supplemental Agreement No. 8 to P.A. 1783, dated October
27, 1996 -- incorporated by reference to Exhibit 10.11(d)
to Continental's Annual Report on Form 10-K for the year
ended December 31, 1996 (File no. 0-9781) (the "1996 10-
K"). (1)
10.24(e) Letter Agreement No. 6-1162-GOC-044 to P.A. 1783, dated
March 21, 1997 -- incorporated by reference to Exhibit
10.4 to Continental's Quarterly Report on Form 10-Q for
the quarter ending March 31, 1997 (File no. 0-9781) (the
"1997 Q-1 10-Q"). (1)
10.24(f) Supplemental Agreement No. 9 to P.A. 1783, dated August
13, 1997 -- incorporated by reference to Exhibit 10.1 to
Continental's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997 (File no. 0-9781). (1)
10.24(g) Supplemental Agreement No. 10, including side letters, to
P.A. 1783, dated October 10, 1997 -- incorporated by
reference to Exhibit 10.13(g) to the 1997 10-K. (1)
10.24(h) Supplemental Agreement No. 11, including exhibits and
side letters, to P.A. 1783, dated July 30, 1998 --
incorporated by reference to Exhibit 10.2 to
Continental's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998 (File no. 0-9781) (the
"1998 Q-3 10-Q"). (1)
10.24(i) Supplemental Agreement No. 12, including side letter, to
P.A. 1783, dated September 29, 1998 -- incorporated by
reference to Exhibit 10.23(i) to the 1998 10-K. (1)
10.24(j) Supplemental Agreement No. 13 to P.A. 1783, dated
November 16, 1998 -- incorporated by reference to Exhibit
10.23(j) to the 1998 10-K. (1)
10.24(k) Supplemental Agreement No. 14, including side letter, to
P.A. 1783, dated December 17, 1998 -- incorporated by
reference to Exhibit 10.23(k) to the 1998 10-K. (1)
10.24(l) Supplemental Agreement No. 15, including side letter, to
P.A. 1783, dated February 18, 1999 -- incorporated by
reference to Exhibit 10.3 to the 1999 Q-1 10-Q. (1)
10.24(m) Supplemental Agreement No. 16, including side letters, to
P.A. 1783, dated July 2, 1999 -- incorporated by
reference to Exhibit 10.7 to the 1999 Q-3 10-Q. (2)
10.25 Purchase Agreement No. 1951, including exhibits and side
letters thereto, between the Company and Boeing, dated
July 23, 1996, relating to the purchase of Boeing 737
aircraft ("P.A. 1951") -- incorporated by reference to
Exhibit 10.8 to the 1996 Q-2 10-Q. (1)
10.25(a) Supplemental Agreement No. 1 to P.A. 1951, dated October
10, 1996 -- incorporated by reference to Exhibit 10.14(a)
to the 1996 10-K. (1)
10.25(b) Supplemental Agreement No. 2 to P.A. 1951, dated March 5,
1997 -- incorporated by reference to Exhibit 10.3 to the
1997 Q1 10-Q. (1)
10.25(c) Supplemental Agreement No. 3, including exhibit and side
letter, to P.A. 1951, dated July 17, 1997 -- incorporated
by reference to Exhibit 10.14(c) to the 1997 10-K. (1)
10.25(d) Supplemental Agreement No. 4, including exhibits and side
letters, to P.A. 1951, dated October 10, 1997 --
incorporated by reference to Exhibit 10.14(d) to the 1997
10-K. (1)
10.25(e) Supplemental Agreement No. 5, including exhibits and side
letters, to P.A. 1951 dated October 10, 1997 --
incorporated by reference to Exhibit 10.1 to the 1998 Q-2
10-Q. (1)
10.25(f) Supplemental Agreement No. 6, including exhibits and side
letters, to P.A. 1951, dated July 30, 1998 -- incor-
porated by reference to Exhibit 10.1 to the 1998 Q-3 10-
Q. (1)
10.25(g) Supplemental Agreement No. 7, including side letters, to
P.A. 1951, dated November 12, 1998 -- incorporated by
reference to Exhibit 10.24(g) to the 1998 10-K. (1)
10.25(h) Supplemental Agreement No. 8, including side letters, to
P.A. 1951, dated December 7, 1998 -- incorporated by
reference to Exhibit 10.24(h) to the 1998 10-K. (1)
10.25(i) Letter Agreement No. 6-1162-GOC-131R1 to P.A. 1951, dated
March 26, 1998 -- incorporated by reference to Exhibit
10.1 to Continental's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998 (File no. 0-9781). (1)
10.25(j) Supplemental Agreement No. 9, including side letters, to
P.A. 1951, dated February 18, 1999 -- incorporated by
reference to Exhibit 10.4 to the 1999 Q-1 10-Q. (1)
10.25(k) Supplemental Agreement No. 10, including side letters, to
P.A. 1951, dated March 19, 1999 -- incorporated by
reference to Exhibit 10.4(a) to the 1999 Q-1 10-Q. (1)
10.25(l) Supplemental Agreement No. 11, including side letters, to
P.A. 1951, dated May 14, 1999 -- incorporated by
reference to Exhibit 10.7 to the 1999 Q-2 10-Q. (1)
10.25(m) Supplemental Agreement No. 12 to P.A. 1951, dated July 2,
1999 -- incorporated by reference to Exhibit 10.8 to the
1999 Q-3 10-Q. (2)
10.25(n) Supplemental Agreement No. 13 to P.A. 1951, dated October
13, 1999. (2)(3)
10.25(o) Supplemental Agreement No. 14 to P.A. 1951, dated
December 13, 1999. (2)(3)
10.26 Aircraft General Terms Agreement between the Company and
Boeing, dated October 10, 1997 -- incorporated by
reference to Exhibit 10.15 to the 1997 10-K. (1)
10.26(a) Letter Agreement No. 6-1162-GOC-136 between the Company
and Boeing, dated October 10, 1997, relating to certain
long-term aircraft purchase commitments of the Company --
incorporated by reference to Exhibit 10.15(a) to the 1997
10-K. (1)
10.27 Purchase Agreement No. 2060, including exhibits and side
letters, between the Company and Boeing, dated October
10, 1997, relating to the purchase of Boeing 767 aircraft
("P.A. 2060") -- incorporated by reference to Exhibit
10.16 to the 1997 10-K. (1)
10.27(a) Supplemental Agreement No. 1 to P.A. 2060 dated December
18, 1997 -- incorporated by reference to Exhibit 10.16(a)
to the 1997 10-K. (1)
10.27(b) Supplemental Agreement No. 2 to P.A. 2060 dated June 8,
1999 -- incorporated by reference to Exhibit 10.8 to the
1999 Q-2 10-Q. (1)
10.28 Purchase Agreement No. 2061, including exhibits and side
letters, between the Company and Boeing, dated October
10, 1997, relating to the purchase of Boeing 777 aircraft
("P.A. 2061") -- incorporated by reference to Exhibit
10.17 to the 1997 10-K. (1)
10.28(a) Supplemental Agreement No. 1 to P.A. 2061 dated December
18, 1997 -- incorporated by reference to Exhibit 10.17(a)
as to the 1997 10-K. (1)
10.28(b) Supplemental Agreement No. 2, including side letter, to
P.A. 2061, dated July 30, 1998 -- incorporated by
reference to Exhibit 10.27(b) to the 1998 10-K. (1)
10.28(c) Supplemental Agreement No. 3, including side letter, to
P.A. 2061, dated September 25, 1998 -- incorporated by
reference to Exhibit 10.27(c) to the 1998 10-K. (1)
10.28(d) Supplemental Agreement No. 4, including side letter, to
P.A. 2061, dated February 3, 1999 -- incorporated by
reference to Exhibit 10.5 to the 1999 Q-1 10-Q. (1)
10.28(e) Supplemental Agreement No. 5, including side letter, to
P.A. 2061, dated March 26, 1999 -- incorporated by
reference to Exhibit 10.5(a) to the 1999 Q-1 10-Q. (1)
10.28(f) Supplemental Agreement No. 6, including side letter, to
P.A. 2061, dated May 14, 1999 -- incorporated by
reference to Exhibit 10.9 to the 1999 Q-2 10-Q. (1)
10.29 Purchase Agreement No. 2211, including exhibits and side
letters thereto, between the Company and Boeing, dated
November 16, 1998, relating to the purchase of Boeing 767
aircraft ("P.A. 2211") -- incorporated by reference to
Exhibit 10.28 to the 1998 10-K. (1)
10.29(a) Supplemental Agreement No. 1, including side letters, to
P.A. 2211, dated July 2, 1999 -- incorporated by
reference to Exhibit 10.9 to the 1999 Q-2 10-Q. (1)
10.30 Lease Agreement dated as of May 1992 between the City and
County of Denver, Colorado and Continental regarding
Denver International Airport -- incorporated by reference
to Exhibit 10.17 to the 1993 S-1.
10.30(a) Supplemental Lease Agreement, including an exhibit
thereto, dated as of April 3, 1995 between the City and
County of Denver, Colorado and Continental and United Air
Lines, Inc. regarding Denver International Airport --
incorporated by reference to Exhibit 10.15(a) to the 1994
10-K.
10.31 Airport Use and Lease Agreement dated as of January 1,
1998 between the Company and the City of Houston, Texas
regarding Bush Intercontinental -- incorporated by
reference to Exhibit 10.30 to the 1998 10-K.
10.31(a) Special Facilities Lease Agreement dated as of March 1,
1997 by and between the Company and the City of Houston,
Texas regarding an automated people mover project at Bush
Intercontinental -- incorporated by reference to Exhibit
10.30(a) to the 1998 10-K.
10.31(b) Amended and Restated Special Facilities Lease Agreement
dated as of December 1, 1998 by and between the Company
and the City of Houston, Texas regarding certain terminal
improvement projects at Bush Intercontinental --
incorporated by reference to Exhibit 10.30(b) to the 1998
10-K.
10.31(c) Amended and Restated Special Facilities Lease Agreement
dated December 1, 1998 by and between the Company and the
City of Houston, Texas regarding certain airport
improvement projects at Bush Intercontinental --
incorporated by reference to Exhibit 10.30(c) to the 1998
10-K.
10.32 Agreement and Lease dated as of May 1987, as
supplemented, between the City of Cleveland, Ohio and
Continental regarding Hopkins International --
incorporated by reference to Exhibit 10.6 to
Continental's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993 (File no. 0-9781).
10.32(a) Special Facilities Lease Agreement dated as of October
24, 1997 by and between the Company and the City of
Cleveland, Ohio regarding certain concourse expansion
projects at Hopkins International (the "1997 SFLA") --
incorporated by reference to Exhibit 10.31(a) to the 1998
10-K.
10.32(b) First Supplemental Special Facilities Lease Agreement
dated as of March 1, 1998, and relating to the 1997 SFLA
-- incorporated by reference to Exhibit 10.1 to the 1999
Q-1 10-Q.
10.33 Special Facilities Lease Agreement dated as of December
1, 1989 by and between the Company and the City of
Cleveland, Ohio regarding Cleveland Hopkins International
Airport (the "1989 SFLA") -- incorporated by reference to
Exhibit 10.1 to the 1999 Q-3 10-Q.
10.33(a) First Supplemental Special Facilities Lease Agreement
dated as of March 1, 1998, and relating to the 1989 SFLA
-- incorporated by reference to Exhibit 10.1(a) to the
1999 Q-3 10-Q.
10.33(b) Second Supplemental Special Facilities Lease Agreement
dated as of March 1, 1998, and relating to the 1989 SFLA
-- incorporated by reference to Exhibit 10.1(b) to the
1999 Q-3 10-Q.
10.34 Third Revised Investment Agreement, dated April 21, 1994,
between America West Airlines, Inc. and AmWest Partners,
L.P. -- incorporated by reference to Exhibit 1 to
Continental's Schedule 13D relating to America West
Airlines, Inc. filed on August 25, 1994.
10.35 Letter Agreement No. 11 between the Company and General
Electric Company, dated December 22, 1997, relating to
certain long-term engine purchase commitments of the
Company -- incorporated by reference to Exhibit 10.23 to
the 1997 10-K. (1)
18.1 Letter from Ernst & Young LLP re change in accounting
principle. (3)
21.1 List of Subsidiaries of Continental. (3)
23.1 Consent of Ernst & Young LLP. (3)
24.1 Powers of attorney executed by certain directors and
officers of Continental. (3)
27.1 Financial Data Schedule. (3)
__________
* These exhibits relate to management contracts or compensatory
plans or arrangements.
(1) The Commission has granted confidential treatment for a
portion of this exhibit.
(2) The Company has applied to the Commission for confidential
treatment of a portion of this exhibit.
(3) Filed herewith.
EXHIBIT 10.1(f)
PORT AUTHORITY LEASE NO. ANA-170
SUPPLEMENT NO. 17 TO LEASE ANA-170
PORT AUTHORITY OF NEW YORK AND NEW JERSEY
AND
CONTINENTAL AIRLINES, INC.
(the "Lessee")
<PAGE>
THIS AGREEMENT SHALL NOT BE BINDING
UPON THE PORT AUTHORITY UNTIL DULY
EXECUTED BY AN EXECUTIVE OFFICER
THEREOF AND DELIVERED TO THE LESSEE
BY AN AUTHORIZED REPRESENTATIVE OF THE
PORT AUTHORITY
Newark International Airport
Supplement No. 17
Port Authority Lease No. ANA-170
SEVENTEENTH SUPPLEMENTAL AGREEMENT
THIS AGREEMENT, made as of September 1, 1999 (the
"Effective Date") (sometimes referred to as "Seventeenth
Supplemental Agreement" or as "Supplement No. 17" of the Lease) by
and between THE PORT AUTHORITY OF NEW YORK AND NEW JERSEY
(hereinafter referred to as "the Port Authority") and CONTINENTAL
AIRLINES, INC., a corporation of the State of Delaware,
(hereinafter referred to as "the Lessee"),
WITNESSETH, That:
WHEREAS, the Port Authority and People Express Airlines, Inc.
as of January 11, 1985 entered into an agreement of lease covering
certain premises, rights and privileges at and in respect to Newark
International Airport (hereinafter called the "Airport") as therein
set forth (said agreement of lease as heretofore supplemented and
amended is hereinafter called the "Lease"); and
WHEREAS, the Lease was thereafter assigned by said People
Express Airlines, Inc. to the Lessee pursuant to an Assignment of
Lease with Assumption and Consent Agreement entered into among the
Port Authority, the Lessee and said People Express Airlines, Inc.
and dated August 15, 1987; and
WHEREAS, a certain Stipulation between the parties hereto was
heretofore submitted for approval of the United States Bankruptcy
Court for the District of Delaware ("the Bankruptcy Court")
covering the Lessee's assumption of the Lease as part of the
confirmation of its reorganization plan in its Chapter 11
bankruptcy proceedings and as debtor and debtor in possession
pursuant to the applicable provisions of the United States
Bankruptcy Code as set forth in and subject to the terms and
conditions of said Stipulation (said Stipulation being hereinafter
referred to as the "Stipulation"); and
WHEREAS, the Stipulation and the Lessee's assumption of the
Lease was approved by the Bankruptcy Court by an Order thereof
dated the 1st day of October, 1993; and
WHEREAS, the Port Authority and the Lessee desire to extend
the term of the letting of Area C-3 under the Lease and to amend
the Lease in certain other respects as hereinafter set forth;
NOW, THEREFORE, in consideration of the covenants and mutual
agreements herein contained, the Port Authority and the Lessee
hereby agree to amend the Lease, effective as of the Effective Date
(except as otherwise herein expressly provided), as follows:
1. (a) Premises added to Area C-3: In addition to the
premises heretofore let to the Lessee under the Lease as to which
the letting shall continue in full force and effect subject to all
the terms and conditions of the Lease, as herein amended, the Port
Authority hereby lets to the Lessee and the Lessee hereby hires and
takes from the Port Authority the following areas at Newark
International Airport (i) effective as of 12:01 A.M. on the
Effective Date the ground areas shown in diagonal hatch and in
broken diagonal hatch on the sketch attached hereto, hereby made a
part hereof and marked "Exhibit A-1", together with the fixtures,
improvements and other property of the Port Authority located or to
be located therein or thereon (collectively, the "Added Area 1)",
(ii) effective as of 12:01 A.M. on the Effective Date the ground
areas (including the area known as "Adams Ditch") shown in crosses
on Exhibit A-1, together with the fixtures, improvements and other
property of the Port Authority located or to be located therein or
thereon (collectively, the "Added Area 2" and also sometimes
referred to as the "Adams Ditch Area"), and (iii) effective as of
12:01 A.M. on the Added Area 3 Effective Date (as defined below)
the ground areas shown in cross-hatch on Exhibit A-1, together with
the fixtures, improvements and other property of the Port Authority
located or to be located therein or thereon (collectively, the
"Added Area 3") and, the said Added Area 1, Added Area 2 and Added
Area 3 to be and become a part of Area C-3 of the premises under
the Lease, as herein amended, let to the Lessee (said Added Area 1,
Added Area 2 and Added Area 3 sometimes collectively hereinafter
referred to as the "Area C-3 Addition") subject to and in
accordance with all of the terms, covenants, provisions and
conditions of the Lease, as herein amended, for and during all the
residue and remainder of the term of the letting of Area C-3 under
the Lease, as herein amended, and as said term is extended pursuant
to Paragraph 2 hereof.
It is expressly recognized that Exhibit A-1 is a preliminary
exhibit and is marked "Preliminary" and is subject to replacement
with a final exhibit upon the Port Authority's determination of
final metes and bounds of the aforesaid Added Area 1, Added Area 2
and Added Area 3 as more fully described in Paragraph 3A of this
Supplement No. 17.
For purposes hereof, the term "Added Area 3 Effective Date"
shall mean the later to occur of (i) the date set forth by the Port
Authority in a completion certificate delivered by the Port
Authority to the Lessee covering the portion of the Expansion
Construction Work which constitutes the Area C-3 concourse (as
defined in Paragraph (b) (1) (i) of Section 93 of the Lease)
pursuant to paragraph (n) (1), (n) (3) or (n) (4) of Section 93 of
the Lease, and (ii) November 1, 2001.
Subsequent to the execution of this Supplement No. 17 to the
Lease and prior to the Added Area 3 Effective Date the Port
Authority and the Lessee shall each use their best efforts to enter
into space permit(s) or other appropriate agreement(s) which
provide the Lessee with temporary staged access to portions of the
area which would become the Added Area 3 for the purpose of
performing paving and such other specified construction activities
as may be permitted (as provided in said permit(s) or other
agreement(s), and consistent with the terms of this Supplement No.
17). The parties each understand that such access will be
coordinated and staged so as to permit the continuous use by the
Port Authority of Added Area 3 for vehicular parking except for
those portions thereof that are, from time to time, temporarily
made available to the Lessee as provided herein, and that it is the
Lessee's desire to have as much of said area as possible paved and
ready for use as aircraft ramp on the Added Area 3 Effective Date.
(b) Premises added to C-1 and C-2 portions of the
premises: In addition to the premises heretofore let to the Lessee
under the Lease as to which the letting shall continue in full
force and effect subject to all the terms and conditions of the
Lease, as herein amended, the Port Authority hereby lets to the
Lessee and the Lessee hereby hires and takes from the Port
Authority at Newark International Airport effective as of 12:01
A.M. on the Effective Date the ground areas shown in diagonal hatch
and in crosses on the sketch attached hereto, hereby made a part
hereof and marked "Exhibit B-1", together with the fixtures,
improvements and other property of the Port Authority located or to
be located therein or thereon (collectively, the "Added Area 4"),
to be and become a part of the "C-1 and C-2 portions" of the
premises under the Lease, as herein amended, let to the Lessee
(said Added Area 4 being sometimes hereinafter referred to as the
"C-1-C-2 Additional Area") subject to and in accordance with all of
the terms, covenants, provisions and conditions of the Lease, as
herein amended, for and during all the residue and remainder of the
term of the letting of the C-1 and C-2 portions of the premises
under the Lease, as herein amended; with an expiration date of
March 31, 2013 as set forth in Section 4 of the Lease.
It is expressly recognized that Exhibit B-1 is a preliminary
exhibit and is marked "Preliminary" and is subject to replacement
with a final exhibit upon the Port Authority's determination of
final metes and bounds of the aforesaid Added Area 4 as more fully
described in Paragraph 3A of this Supplement No. 17.
The term "C-1 and C-2 portions" of the premises shall
refer to all portions of the premises let to the Lessee under the
Lease excluding the Area C-3 portion of the premises.
(c) The parties acknowledge and agree that the aforesaid
areas added to the premises under subparagraphs (a) and (b) of this
Paragraph 1 constitute non-residential real property.
(d) (1) The Lessee accepts all of the aforesaid
additional areas added to the premises under subparagraphs (a) and
(b) of this Paragraph 1 in their "as is" condition and agrees that
the Port Authority shall not have any responsibility for any work
or installation to make said aforesaid additional areas usable by
the Lessee, to place it in any particular condition or to reimburse
the Lessee for any work or installation as may be made by or on
behalf of the Lessee, the Lessee having exclusive responsibility
therefor. However, the Lessee shall not effect, without the prior
written approval of the Port Authority, any modification, addition,
removal or other change with respect to said additional areas added
to the premises under subparagraphs (a) and (b) of this Paragraph
1. The Lessee hereby acknowledges that it has not relied upon any
representation or statement of the Port Authority or its
Commissioners, officers, employees or agents as to the condition of
the said additional areas added to the premises under subparagraphs
(a) and (b) of this Paragraph 1. The Lessee, prior to the
execution of this Agreement, has thoroughly examined the said
additional areas added to the premises under subparagraphs (a) and
(b) of this Paragraph 1 and determined them to be suitable for the
Lessee's operations hereunder and the Lessee hereby agrees to take
said additional areas added to the premises under subparagraphs (a)
and (b) of this Paragraph 1 in the condition they are in as of the
applicable effective date and, subject to Section 12(p)(2) of the
Lease as herein amended, to assume all responsibility for any and
all risks, costs and expenses of any kind whatsoever (including but
not limited to the risks, costs and expenses described in
subsubparagraph (2) of this subparagraph (d)) caused by, arising
out of or in connection with, the condition of the said areas
whether any aspect of such condition existed prior to, on or after
the applicable effective date of the letting of the said additional
areas added to the premises under subparagraphs (a) and (b) of this
Paragraph 1, including without limitation all Environmental
Requirements (as defined in Section 72 of the Lease as herein
amended) and Environmental Damages (as defined Section 72 of the
Lease as herein amended), and to indemnify and hold harmless the
Port Authority for all such risks, requirements, costs and expenses
imposed upon or required of the Port Authority. Without limiting
any obligation of the Lessee to commence operations hereunder at
the time and in the manner stated elsewhere in the Lease as herein
amended, the Lessee agrees that no portion of the premises will be
used initially or at any time during the letting which is in a
condition unsafe or improper for the conduct of the Lessee's
operations hereunder so that there is possibility of injury or
damage to life or property. All the obligations of the Lessee
under the Lease as hereby amended with respect to the aforesaid
responsibilities, risks, costs and expenses assumed by the Lessee
shall survive the expiration or termination of the Lease.
(2) In addition to and without limiting the
foregoing or any Section, term, provision, covenant or condition of
the Lease or any of the Lessee's obligations, duties or liabilities
thereunder, the Lessee expressly acknowledges that the Lessee shall
at its own cost and expense obtain, maintain and fully comply with
all governmental permits and approvals, including but not limited
to any and all approvals of the City of Newark, required or which
may at any time be required for or relating to Added Area 2 (Adams
Ditch) or the Lessee's use and occupancy thereof or the Lessee's
construction activities relating, affecting or in connection with
said Added Area 2 or any relocation or rerouting of the water flow
or drainage provided thereby, and that the Lessee shall not
commence any operations, filling in or any other construction
activities whatsoever on, in or upon or affecting said Adams Ditch
Area prior to the Lessee's obtaining all governmental permits and
approvals, including but not limited to the prior approval of the
City of Newark, including without limitation any approval which may
be required by the City of Newark under the Basic Lease; and
without limiting any term or provision of the Lease the Lessee
shall promptly submit to the Port Authority true and complete
executed copies of all such governmental permits and approvals
prior to the Lessee's performance of any such work, and such other
and further information as the Port Authority may require or
request. Without limiting Sections 10, 33, 93 or any other term,
covenant, condition or provision of the Lease, the Lessee hereby
expressly assumes all risks, costs and expenses in connection with
the letting hereunder of the said Adams Ditch Area to the Lessee
including without limitation the risk that the City of Newark may
not grant approval to any construction or use or alteration by the
Lessee of the said Adams Ditch Area or for any proposed
replacement, relocation or rerouting for said Adams Ditch and the
risks that the City of Newark or any other governmental authority
may not grant to the Lessee any necessary permits or approvals for
the construction, filling in or use or alteration by the Lessee of
the said Adams Ditch Area. Without limiting the foregoing, the
Lessee shall consult with the Port Authority in the application for
the required individual freshwater wetland permits and stream
encroachment permits.
(e) The additional areas added to the premises under
subparagraphs (a) and (b) of this Paragraph 1 shall be subject to
the height limitations set forth in paragraph (b) of Section 1 of
the Lease, and further subject to the restrictions on construction
and to the construction obligations of the Lessee under Section 93
of the Lease, as herein amended.
(f) Subject to the terms and provisions of the Lease and
the terms and conditions stated herein, the Port Authority hereby
grants to the Lessee the temporary right to access those portions
of Non-Exclusive Area D-2 (as defined in Section 3 (i) of the
Lease) which are located directly behind (airside) of Passenger
Terminal Building C solely for the purposes of performing those
certain parts of the Expansion Construction Work (as defined in
Section 93 of the Lease) which when completed would extend above
the said portions of Area D-2 subject to the approval of, and as
approved by, the Port Authority in accordance with Section 93 of
the Lease; provided that said temporary right of access shall not
continue beyond the period allowed to the Lessee for its
performance of the Expansion Construction work under Section 93 of
the Lease; that the Lessee shall not construct, install or place
any permanent improvements, equipment or facilities in any portion
of said Area D-2; that any temporary construction equipment or
devices may be placed by the Lessee on said portions of Area D-2
only in accordance with the prior approval of the Port Authority,
and that any and all of the same shall be immediately removed by
the Lessee upon the completion by the Lessee of the aforesaid parts
of the Expansion Construction Work and in any event not later than
the Expansion Construction Work Completion Date as defined in
paragraph (n) (2) of Section 93 of the Lease; that in its exercise
of said right of access the Lessee shall comply with the terms and
provisions of the Lease, including without limitation Sections 3,
8, 14 an 93 thereof, and all Port Authority requirements given in
connection with the applicable Construction Application(s) (as
defined in Section 93 of the Lease); that, without limiting
paragraph (j) of Section 93 of the Lease or any other term or
provision of the Lease, the Lessee shall not perform any
construction or other activity on said Area D-2 which shall impede,
restrict, prevent, or impair the flow of traffic therein or thereon
or the use of the said Area C-2 by the other Airline Lessees in the
Central Terminal Area Complex or by other persons, as such use is
described in Subdivision II of Section 8 of the Lease, or which
shall endanger any person or property therein or thereon; that the
Lessee expressly hereby assumes all risks in connection with its
exercise of said temporary right of access; and that nothing herein
nor any Port Authority approval or requirement given in connection
with said temporary right of access shall release or relieve the
Lessee from its obligations, liabilities and indemnities under the
Lease or otherwise.
(g) With respect to the portion of Added Area 1 shown in
diagonal hatch on Exhibit A-1 hereof and the portion of Added Area
4 shown in diagonal hatch on Exhibit B-1, it is expressly
understood and agreed that the same are let to the Lessee subject
to the right of the Port Authority, its officers, employees,
agents, representatives and contractors to enter upon the same at
any time and from time to time to construct thereon and therein,
and to maintain, all appropriate access stairways and other access
facilities (which shall not become part of the premises hereunder)
sufficient to provide ingress and egress to and from the parking
garage structure presently contemplated by the Port Authority to be
constructed in the area generally located in the front of, and
outside of, said portions of the premises; such right of entry for
said purposes shall be deemed included in and exercised pursuant to
and in accordance with Section 22 of the Lease. The reservation of
the said right of entry and the exercise thereof by the Port
Authority, its officers, employees, agents, representatives and
contractors shall not be or be construed to be an eviction of the
Lessee nor be made the grounds for any abatement of rental nor any
claim or demand for damages, consequential or otherwise.
2. (a) Effective as of the Effective Date, the term of the
letting of the Area C-3 portion of the premises under the Lease, as
said Area C-3 is defined in Paragraph 1 of Supplement No. 8 of the
Lease and including the additional areas added or to be added to
Area C-3 of the premises pursuant to subparagraph (a) of Paragraph
1 above, is hereby extended for the period ending on March 31,
2028, unless sooner terminated, at the Area C-3 rentals in
accordance with Paragraph 3 below and upon all the terms,
covenants, provisions and conditions of the Lease, as hereby
amended.
(b) It is expressly understood and agreed that the
extension of the term of Area C-3 covered by the foregoing
subparagraph (a) of this Paragraph 2 does not and shall not include
the C-1 and C-2 portions of the premises (as defined above) or any
other part of the premises or any other area. It is also
recognized that the expiration date of the letting of all portions
of the premises hereunder, other than Area C-3, is and shall remain
March 31, 2013 as set forth in Section 4 (b) of the Lease as
amended by paragraph 2 of Supplement No. 7 of the Lease and that
said expiration date is not being extended by this Seventeenth
Supplemental Agreement, and, further, that upon the said expiration
date of March 31, 2013 the term of the letting under the Lease of
all portions of the premises hereunder other than Area C-3 shall
expire.
3. Paragraph 12 of Supplement No. 15 of the Lease is hereby
amended to read as follows:
"I. It is hereby agreed that, from and after the Effective
Date of Supplement No. 17 of the Lease (as said Effective Date is
set forth on the first page thereof) and continuing up to and
including the expiration date of the term of the letting of the
Area C-3 portion of the premises (March 31, 2028), in addition to
the Base Annual Rental under Section 5 of the Lease and in addition
to all other rentals, fees and charges under the Lease, the Lessee
shall pay to the Port Authority rental for Area C-3 as follows:
Area C-3 rental: For the period commencing on the
Effective Date of Supplement No. 17 of the Lease (as said Effective
Date is set forth on the first page thereof) to and including
December 31, 2003, rental for Area C-3 at an annual rate consisting
of (i) a Facility Factor, as hereinafter defined, consisting of the
sum of (x) the amount of Seven Million Nine Hundred Ninety-eight
Thousand One Hundred Forty-five Dollars and No Cents
($7,998,145.00) plus (y) effective as of the Added Area 3 Effective
Date the Added Area 3 Amount as hereinafter defined, plus (ii) the
Airport Services Factor, as the same shall then have been adjusted
in accordance with Schedule A attached to the Lease, as herein
amended, based upon a 1998 final Airport Services Factor in the
amount of (x) One Million Eight Hundred Thirty-five Thousand One
Hundred Nineteen Dollars and No Cents ($1,835,119.00) plus (y)
effective as of the Added Area 3 Effective Date, Six Hundred Twenty
Thousand Two Hundred Forty-two Dollars and No Cents ($620,242.00),
which annual rate shall be increased from time to time as provided
in subdivision II below and Schedule A of the Lease, as herein
amended, ("Area C-3 rental"). The Lessee shall pay the Area C-3
rental, as the same shall then have been determined based upon the
aforesaid adjustments, monthly in advance on the Effective Date of
Supplement No. 17 of the Lease (as said Effective Date is set forth
on the first page thereof) and on the first day of each and every
succeeding month in equal installments until such time as the
aforesaid annual rate has been further increased in accordance with
subdivision II below and Schedule A of the Lease, as herein
amended, which adjusted annual rate shall remain in effect until
the next adjustment and the monthly installments payable after each
such adjustment shall be equal to one-twelfth (1/12th) of said
annual rate as so adjusted.
"Added Area 3 Amount" shall mean the component of the
Facility Factor of the Area C-3 rental which shall be included
therein effective as of the Added Area 3 Effective Date at the
initial annual rate of Four Hundred Thirty Four Thousand Dollars
and No Cents ($434,000.00), subject to the increases pursuant to
subdivision II below; provided, however, that in the event said
Added Area 3 Effective Date occurs subsequent to December 31, 2003
said Added Area 3 Amount shall commence at the annual rate equal to
the aforesaid initial rate increased in accordance with subdivision
II below and subject to the further increases called for therein.
The said initial rate of the Added Area 3 Amount is also subject to
adjustment based on the Port Authority's determination of the final
metes and bounds of Added Area 3 as more fully described in
Paragraph 3A of Supplement No. 17 of the Lease.
The Area C-3 rental amounts set forth above and in
subdivision II below are also subject to the adjustments based on
the Port Authority's determination of the final metes and bounds of
Added Area 1, Added Area 2 and Added Area 3 as more fully described
in Paragraph 3A of Supplement No. 17 of the Lease.
II. (a) For the aforesaid period from the Effective Date of
Supplement No. 17 of the Lease (as said Effective Date is set forth
on the first page thereof) to and including December 31, 2003, the
Area C-3 rental payable under subdivision I of this Paragraph 3 is
made up of two factors, one, a variable factor herein called the
"Facility Factor", presently represents sum of (x) the amount of
Seven Million Nine Hundred Ninety-eight Thousand One Hundred Forty-
five Dollars and No Cents ($7,998,145.00) plus (y) the Added Area
3 Amount, as above defined of the aforesaid annual rentals and the
other, a variable factor herein called the "Airport Services
Factor", represents the Airport Services Factor under the Lease, as
the same shall have then been adjusted in accordance with Schedule
A, as herein amended, based upon a total 1998 final Airport
Services Factor in the amount of (x) One Million Eight Hundred
Thirty-five Thousand One Hundred Nineteen Dollars and No Cents
($1,835,119.00) plus (y) effective as of the Added Area 3 Effective
Date, Six Hundred Twenty Thousand Two Hundred Forty-two Dollars and
No Cents ($620,242.00), of the total aforesaid annual rentals.
(b) On January 1, 2004 and on each succeeding fifth (5th)
anniversary of said date, the Facility Factor (each component) of
the Area C-3 rental payable by the Lessee under subdivision I above
shall be increased by multiplying the Facility Factor (each
component) in effect on December 31, 2003 and on each succeeding
fifth (5th) anniversary of said date, as the case may be, by a
percentage equal to 21.6653% plus 100%. Accordingly,
(i) for the period from January 1, 2004 to and
including December 31, 2008, the Facility Factor of the Area C-3
rental payable under subdivision I of this Paragraph 3, shall
represent the sum of (x) the amount of Nine Million Seven Hundred
Thirty Thousand Nine Hundred Sixty-seven Dollars and No Cents
($9,730,967.00), plus (y) the Added Area 3 Amount in effect on
December 31, 2003 increased by multiplying the same by a percentage
equal to 21.6653% plus 100%; and
(ii) for the period from January 1, 2009 to and
including December 31, 2013, the Facility Factor of the Area C-3
rental payable under subdivision I of this Paragraph 3 shall
represent the sum of (x) the amount of Eleven Million Eight Hundred
Thirty-nine Thousand Two Hundred Ten Dollars and No Cents
($11,839,210.00), plus (y) the Added Area 3 Amount in effect on
December 31, 2008 increased by multiplying the same by a percentage
equal to 21.6653% plus 100%; and
(iii) for the period from January 1, 2014 to and
including December 31, 2018, the Facility Factor of the Area C-3
rental payable under subdivision I of this Paragraph 3 shall
represent the sum of (x) the amount of Fourteen Million Four
Hundred Four Thousand Two Hundred Ten Dollars and No Cents
($14,404,210.00), plus (y) the Added Area 3 Amount in effect on
December 31, 2013 increased by multiplying the same by a percentage
equal to 21.6653% plus 100%; and
(iv) for the period from January 1, 2019 to and including
December 31, 2023, the Facility Factor of the Area C-3 rental
payable under subdivision I of this Paragraph 3 shall represent the
sum of (x) the amount of Seventeen Million Five Hundred Twenty-four
Thousand Nine Hundred Twenty-five Dollars and No Cents
($17,524,925.00), plus (y) the Added Area 3 Amount in effect on
December 31, 2018 increased by multiplying the same by a percentage
equal to 21.6653% plus 100%.
(v) for the period from January 1, 2024 to and including
March 31, 2028, the Facility Factor of the Area C-3 rental payable
under subdivision I of this Paragraph 3 shall represent the sum of
(x) the amount of Twenty-one Million Three Hundred Twenty-one
Thousand Seven Hundred Fifty-two Dollars and No Cents
($21,321,752.00), plus (y) the Added Area 3 Amount in effect on
December 31, 2023 increased by multiplying the same by a percentage
equal to 21.6653% plus 100%.
(c) After December 31, 1998 and after the close of each
calendar year, thereafter, the Port Authority will continue to
adjust the Airport Services Factor of the Area C-3 rental payable
by the Lessee under subdivision I of this Paragraph 3, such
adjustment to be made as provided in Schedule A, as herein amended.
(d) The Lessee shall pay the total Area C-3 rentals payable by
the Lessee under this Paragraph 3, as the same have been adjusted
in accordance with subparagraphs (b) and (c) of this subdivision II
of this Paragraph 3, monthly in advance on the Effective Date of
Supplement No. 17 of the Lease (as said Effective Date is set forth
on the first page thereof) and on the first day of each and every
succeeding month in equal installments until such time as the said
total Area C-3 rentals have been further adjusted in accordance
with this Paragraph 3 and Schedule A, as herein amended, which
adjusted total annual rentals shall remain in effect until the next
adjustment and the monthly installments payable after each such
adjustment shall be equal to one-twelfth (1/12th) of said total
annual rentals as so adjusted.
The Area C-3 rental amounts set forth above in subdivision
I above and in this subdivision II are also subject to the
adjustments based on the Port Authority's determination of the
final metes and bounds of Added Area 1, Added Area 2 and Added Area
3 as more fully described in Paragraph 3A of Supplement No. 17 of
the Lease.
(e) In the event the term of the letting of Area C-3 shall
expire on a day other than the last day of a month, the monthly
installment of rentals for Area C-3 for said month shall be the
monthly installment prorated on a daily basis using the actual
number of days in the said month.
(f) The Lessee understands and agrees that, while the term of
the letting of Area C-3 of the premises under the Lease as extended
under this Seventeenth Supplemental Agreement shall expire on March
31, 2028, the final Airport Services Factor for the year 2028 will
not be determined for some months after such expiration and that
the Lessee's obligation to pay any deficiency in the Area C-3
rental for the year 2028 or the Port Authority's obligation to pay
a refund in said rentals resulting from the determination of the
final Airport Services Factor for the year 2027 or the year 2028
shall survive such expiration of the Lease and shall remain in full
force and effect until such deficiency or refund, if any, is paid.
The Lessee hereby specifically acknowledges that neither the
survival of the obligation with respect to any such deficiency or
refund nor any other provision of this Supplemental Agreement shall
grant or shall be deemed to grant any rights whatsoever to the
Lessee to have the term of the letting of Area C-3 under the Lease,
or any portion of the premises thereunder, extended for any period
beyond March 31, 2028 or affect in any way the Port Authority's
right to terminate the Lease, or any portion of the premises
thereunder, as provided therein.
(g) If any installment of Area C-3 rental payable hereunder
shall be for less than a full calendar month, then the Area C-3
rental payment for the portion of the month for which said payment
is due shall be the monthly installment prorated on a daily basis
using the actual number of days in that said month.
(h) Upon any termination of the letting hereunder (even if
stated to have the same effect as expiration), the Lessee shall
within twenty (20) days after the effective date of such
termination, make a payment of the Area C-3 rental computed as
follows: if the letting hereunder is terminated effective on a date
other than the last day of a month the rental for the portion of
that month in which the letting remains effective shall be the
amount of the monthly installment of rental prorated on a daily
basis, and if the monthly installment due on the first day of that
month has not been paid the Lessee shall pay the prorated part of
the amount of that installment; if the monthly installment has been
paid, then the excess thereof shall be credited to the Lessee's
obligations.
(i) Nothing contained in the foregoing shall affect the
survival obligations of the Lessee as set forth in Section 27
hereof.
(j) For purposes of subparagraph (f) above with respect to any
deficiency or refund, any termination of the Lease, other than a
termination under Section 24 hereof, shall be deemed to have the
same effect as the expiration thereof.
3A. It is expressly recognized and agreed that Exhibits A-1
and B-1 attached to this Supplement No. 17 of the Lease are
preliminary exhibits, and are marked "Preliminary," and that said
Exhibits are based on a preliminary description of the areas (Added
Area 1, Added Area 2, Added Area 3 and Added Area 4, as defined in
Paragraph 1 of this Supplement No. 17) shown thereon and do not
contain precise and final metes and bounds descriptions of said
areas. The Port Authority and the Lessee hereby expressly agree
that upon the Port Authority's determination of the actual, final
metes and bounds of the said Added Area 1, Added Area 2, Added
Area 3 and Added Area 4, final versions of said Exhibits A-1 and
B-1 shall be prepared by the Port Authority and shall replace the
preliminary versions of the same attached hereto. The said final
versions of the said Exhibits A-1 and B-1 shall be attached to a
further supplemental agreement to the Lease, which supplemental
agreement shall also set forth adjustments of the Area C-3 rental
amounts under the Lease (stated in Paragraph 3 above) on the basis
of said determination of the final metes and bounds of said Added
Area 1, Added Area 2 and Added Area 3 and adjustments of the Base
annual Rental under the Lease (stated in Paragraph 7 below) on the
basis of said determination of the final metes and bounds of said
Added Area 4 and appropriate adjustments to Schedule A of the Lease
(as described in paragraph 4 (c) hereof); said supplemental
agreement and said adjustments to have retroactive effect to the
Effective Date of this Supplement No. 17, except as to Added Area 3
for which the adjustment shall be effective on the Added Area 3
Effective Date. The said supplemental agreement shall be prepared
by the Port Authority and submitted to the Lessee for its execution
and the Lessee shall, and hereby agrees to, provide that the
information set forth therein is accurate and the supplemental
agreement modifies the Lease for the aforesaid changes and
adjustments and no other modifications (but may also include such
other provisions which also relate to the finalization of the metes
and bounds of the aforesaid areas), execute the said supplemental
agreement and deliver the same to the Port Authority not later than
ten (10) business days after the Port Authority's sending of the
same to the Lessee; provided, however, that, in the event the
Lessee shall for any reason fail to so execute and deliver the said
supplemental agreement to the Port Authority, said supplemental
agreement and the said adjustments of the Area C-3 rental amounts
and said adjustments of the Base Annual Rental and of Schedule A
shall be deemed effective notwithstanding any such failure of the
Lessee to so execute and deliver the same.
4. Schedule A attached to the Lease, as the same has been
heretofore amended, shall be deemed further amended as follows:
(a) The second sentence of the first (1st) paragraph thereof
(as set forth in Paragraph 14 (a) of Supplement No. 15 of the
Lease) shall be deemed amended to read as follows:
"The Lessee shall pay the rentals for Area C-3 at the
rates and times stated in Paragraph 3 of Supplement No.
17 of the Lease until the said rates are adjusted as
hereinafter provided".
(b) The last six (6) lines of said first (1st) paragraph of
Schedule A as the same are set forth in Paragraph 14 (b) of
Supplement No. 15 of the Lease shall be deemed amended to read as
follows:
"further, after the close of calendar year 1998 and after
the close of each calendar year thereafter, the Port
Authority will adjust the Airport Services Factor of the
Area C-3 rental set forth in Paragraph 3 of Supplement
No. 17 of the Lease, upwards or downwards, as follows:"
(c) Paragraph III of Schedule A of the Lease as previously
amended shall be further amended by adding at the end thereof the
following:
"For the calendar year 1999 adjustment it is hereby agreed
that the denominator representing the actual percentage of
total developed land occupied by the Lessee's premises
excluding Area C-3 shall be 4.304%; and that the
denominator representing the actual percentage of total
developed land occupied by the Area C-3 portion of the
Lessee's premises shall be 2.498%. The said percentages
are subject to the adjustments based on the Port
Authority's determination of the final metes and bounds of
Added Area 1, Added Area 2, Added Area 3 and Added Area 4
as more fully described in Paragraph 3A of Supplement
No. 17 of the Lease. The aforesaid percentage to be used
for the Lessee's premises excluding Area C-3 shall be
increased to reflect the addition to the said Lessee's
premises of the Added Area 3 (as defined in Paragraph 1(a)
of Supplement No. 17 of the Lease) effective from and
after the Added Area 3 Effective Date (as defined in
Paragraph 1(a) of Supplement No. 17 of the Lease)."
5. Subparagraph (e) (1) of Paragraph 3 of Supplement No. 8 of
the Lease, as previously amended, shall be deemed further amended
to read as follows:
"(e) (1) Effective from and after the Effective Date of
Supplement No. 17 of the Lease (as said Effective Date is
set forth on the first page thereof), in the event the
Lessee shall at any time by the provisions of this
Agreement become entitled to an abatement of the Area C-3
rentals, the Facility Factor of the Area C-3 rental for
each square foot of floor space of the portion of the
Passenger Terminal Building which falls within Area C-3
shall be reduced for each calendar day or major fraction
thereof the abatement remains in effect, the use of which
is denied the Lessee, by the following amounts: (it being
understood that there shall be no abatement of Area C-3
rental under the Lease for any portion of Area C-3 or for
any portion of the term except as specifically provided
in this Agreement):
(i) for each square foot of floor
space in said portion of Area C-3 at
the following daily rate:
(aa) for the portion of the term of
the letting of Area C-3 from the
Effective Date of Supplement No. 17 of
the Lease (as said Effective Date is
set forth on the first page thereof)
to and including December 31, 2003 at
the daily rate of $0.1095890.
(bb) for the portion of the term of
the letting of Area C-3 from January
1, 2004 to and including December 31,
2008 at the daily rate of $0.1333318.
(cc) for the portion of the term of
the letting of Area C-3 from January
1, 2009 to December 31, 2013 at the
daily rate of $0.1622186.
(dd) for the portion of the term of
the letting of Area C-3 from January
1, 2014 to December 31, 2018 at the
daily rate of $0.1973637.
(ee) for the portion of the term of
the letting of Area C-3 from January
1, 2019 to December 31, 2023 at the
daily rate of $0.2401231.
(ff) for the portion of the term of
the letting of Area C-3 from January
1, 2024 to March 31, 2028 at the daily
rate of $0.2921464.
(ii) with respect to the Area D
portion of Area C-3 (as described in
Paragraph 1 (a) (vi) of Supplement No.
8 of the Lease): Any such abatement
shall be made on an equitable basis
giving effect to the amount and
character of the said Area D portion
of Area C-3 the use of which is denied
to the Lessee as compared with the
entire Area C-3.
For the purpose of this Agreement, the measurement of
interior building space in the aforesaid portion of Area
C-3 shall be computed (i) from the inside surface of
outer walls of the structure of which Area C-3 forms a
part; (ii) from the center of partitions separating Area
C-3 from areas occupied from or used by others."
6. The following new Section 93 shall be deemed inserted
after Section 92A of the Lease to read as follows:
"Section 93. The Expansion Construction Work by the
Lessee
(a) The Lessee shall, prior to its submission to the Port
Authority of the plans and specifications hereinafter provided
for, submit to the Port Authority for its consent, the
Lessee's comprehensive plan for the Expansion Construction
Work, as hereinbelow defined, including but not limited to
renderings, layouts, locations, models, estimated commencement
and completion dates, and preliminary functional plans
("Comprehensive Plan"). The Lessee shall keep the aforesaid
Comprehensive Plan covering all portions of the Expansion
Construction Work up to date and shall submit to the Port
Authority for its prior approval any amendments, revisions, or
modifications thereof, other than field changes (except field
changes relating to the relocation of Adams Ditch and any work
affecting the peripheral drainage ditch known as Peddie
Ditch.)
(b) (1) Without limiting the above, the Lessee agrees
that said Comprehensive Plan shall include the design and
construction by the Lessee in, on and under the premises and
off the premises, where required, of the following:
(i) All construction and installation of, and other
appropriate, necessary or required work for, airline terminal
facility capital improvements to Passenger Terminal Building
C to complete and decorate a completed passenger concourse
facility in Area C-3 of the premises (said Area C-3 being
defined in Paragraph 1 of Supplement No. 8 of the Lease and
including the areas added to Area C-3 pursuant to Paragraph 1
of the Seventeenth Supplemental Agreement to the Lease)
appropriate, necessary or required for the expansion of all of
the areas thereof and sufficient to handle both domestic and
international airline passenger traffic, including but not
limited to the installation of lavatories, stairwells,
stairways, escalators, elevators (including freight elevators)
("Area C-3 Concourse") and any alterations of and additions to
Passenger Terminal Building C required or appropriate in
connection with Area C-3 Concourse, and including without
limitation an expansion of the portion of Area D located in
Area C-3 so as to add thereto a minimum of twelve (12) new
aircraft gate positions for wide bodied aircraft;
(ii) The construction and installation of additions
and modifications to the Fuel System (as defined in Section 54
hereof), including but not limited to Distribution Facilities
and Terminal Distribution Units (as such terms are defined in
Section 54 hereof) and underground pipelines, fuel mains, and
stubs necessary or required to tie into the Fuel System at the
Airport to accommodate and serve Area C-3 Concourse and all
aircraft gate positions located or to be located thereat
including without limitation all of the aforesaid new aircraft
gate positions to be located in the portion of Area D located
in Area C-3, and also including all necessary, required, or
appropriate work to make said additions and modifications
fully operational as part of the Fuel System;
(iii)The construction and installation of a new
baggage handling system, including all related necessary or
appropriate work, sufficient to handle the entire Passenger
Terminal Building C including Concourse C-1, Concourse C-2 and
Area C-3 Concourse;
(iv) The construction and installation in the Area
C-3 Concourse of, including all appropriate, necessary or
required work for, United States government inspection areas
(as described in Section 95 hereof) sufficient to handle
therein at least 1,500 international passengers per hour (the
"FIS facilities");
(v) INTENTIONALLY OMITTED
(vi) The construction and installation of all
appropriate lines, pipes, mains, cables, manholes, wires,
tubes, ducts, assemblies, conduits and other facilities
required in connection with or relating to the
mechanical, utility, electrical, storm sewer, sanitary
sewer, water, telephone, fire alarm, fire protection,
gas, heating, ventilation and air conditioning, steam,
drainage, refrigerating, communications, and other
systems needed for the Expansion Construction Work and
necessary or required to tie the foregoing into the
utility access stubs now existing at or within the
Passenger Terminal Building C, which include water,
electrical power, and sanitary service lines, including
all necessary valves and other equipment and accessories
necessary to the use and operation of the heating,
electrical, water and other utility systems which are to
serve the premises;
(vii) All necessary or appropriate terminal
frontage improvements sufficient to align with the new
roadway configuration planned by the Port Authority for
the CTA; airside ground roadways; airside ramps; and also
sidewalks, vehicular service areas, and pedestrian
circulation areas, together with all related and
associated areas and facilities;
(viii) All grading and paving of ground areas,
including without limitation, all appropriate, necessary
and required work for the full-depth paving of all
unpaved portions of the aircraft maneuvering areas in the
Area C-3 portion of the premises, and for the design and
appropriate landscaping together with all related and
associated work;
(ix) All work necessary or required to construct
additional concession areas (as defined in Section 66 hereof)
in the Area C-3 Concourse to be made available for consumer
services as more fully set forth in Section 66 hereof
including the construction and installation of utility lines
which are to serve said concession areas;
(x) All work necessary or required to tie into Port
Authority supply lines for high temperature hot water for
heating and domestic use purposes only and chilled water for
air-conditioning purposes only, and in accordance with the
requirements and specifications as set forth in Section 49
hereof, including all work necessary or required to tie into
the contemplated expansion of the Port Authority's Central
Heating and Refrigeration Plant (the "Central Plant");
(xi) The grading and paving within Area C-3 of twelve
(12) aircraft gate positions and aircraft ramp and apron
areas, all taxilanes and all associated and related areas and
facilities (all of the foregoing to be and form part of the
Area D portion of Area C-3 under the Lease);
(xii) Construction and installation of all necessary
or required blast fences;
(xiii) All other appropriate or necessary work in
connection with or required by or for the foregoing including
without limitation all relamping in the premises, all
painting, all borings, surveys, route markers, signs,
obstruction lights and material inspections and all tie-ins to
utility lines and roadway access stubs;
(xiv) Subject to, and only if, and only to the
extent, expressly permitted by, all applicable
governmental permits and approvals, including but not
limited to the prior approval of the City of Newark, all
of which the Lessee shall, at its sole cost and expense,
obtain, maintain and comply with, without limiting any
other Section, term, provision, condition or covenant of
this Lease, all work necessary, required or appropriate
to reroute the flow of drainage and water of the Adams
Ditch Area, including without limitation the filling in
of the Adams Ditch Area, all associated relocations, all
associated disposal, remediation and treatment services,
and the construction of new drainage and facilities and
systems on the premises and off the premises and the
construction of such other facilities, systems and
improvements as may be required by and in accordance with
all Environmental Requirements and as may be required by
the City of Newark (and/ or any other governmental
authority) for its or their initial or continuing
approval of all of the said work; provided that the
Lessee shall submit to the Port Authority true and
complete executed copies of all such governmental permits
and approvals (the Lessee agreeing to consult with the
Port Authority in the application for the required
individual freshwater wetland permits and stream
encroachment permits) prior to the Lessee's performance
of any such work, and such other and further information
as the Port Authority may require or request;
(xv) As to all of the foregoing and any and all
other portions of the Expansion Construction Work,
subject to Section 12(p)(2) of the Lease, all
appropriate, necessary or required demolition, treatment,
disposal, and removal work, and including without
limitation all removal, clean-up and remediation and
off-Airport disposal, and all appropriate, required or
necessary related work, in accordance with all
Environmental Requirements, of all soil, asbestos, lead
and other Hazardous Substances, and including the
handling, transporting and off-Airport disposal thereof
in accordance with all Environmental Requirements
(including, if required, disposal of asbestos in an
off-Airport long-term asbestos-only disposal facility).
(2) All of the foregoing work shall be constructed
by the Lessee in, on and under the premises and outside of the
premises where required, and where constructed in the premises
shall be and become a part of the premises under the Lease
(except for the items covered in item (ii) of subparagraph (1)
above which shall not become part of the premises).
(c) (1) The Lessee agrees at its sole cost and expense
to design and to construct all of the foregoing described in
paragraph (b) above, such design and construction being herein
collectively referred to as the "Expansion Construction Work".
(2) Prior to the commencement of the Expansion
Construction Work, the Lessee shall submit to the Port
Authority for the Port Authority's approval complete plans and
specifications therefor. The Port Authority may refuse to
grant approval with respect to the Expansion Construction Work
if, in its opinion, any of the proposed Expansion Construction
Work as set forth in said plans and specifications (all of
which shall be in such detail as may reasonably permit the
Port Authority to make a determination as to whether the
requirements hereinafter referred to are met) would:
(i) Be unsafe, unsound, hazardous or improper
for the use and occupancy for which it is designed, or
(ii) Not comply with the Port Authority's
requirements for harmony of external architecture of similar
existing or planned future improvements at the Airport, or
(iii) Not comply with the Port Authority's
requirements with respect to external and interior
building materials and finishes of similar existing or
future improvements at the Airport, or
(iv) Not provide for sufficient clearances for
taxiways, runways and apron areas, or
(v) Be designed for use for purposes other than
those authorized under the Lease, or
(vi) Set forth ground elevations or heights
other than those prescribed by the Port Authority, or
(vii) Not provide adequate and proper roadways
and pedestrian circulation areas, or
(viii) Not be at locations or not be oriented
in accordance with the Lessee's approved Comprehensive Plan,
or
(ix) Not comply with the provisions of the
Basic Lease, including without limiting the generality
thereof, those provisions of the Basic Lease providing the
Port Authority will conform to the enactments, ordinances,
resolutions and regulations of the City of Newark and its
various departments, boards and bureaus in regard to the
construction and maintenance of buildings and structures and
in regard to health and fire protection which would be
applicable if the Port Authority were a private corporation to
the extent that the Port Authority finds it practicable so to
do, or
(x) Be in violation or contravention of any
other provisions and terms of this Lease, or
(xi) Not comply with all applicable
governmental laws, ordinances, enactments, resolutions, rules
and orders, or
(xii) Not comply with all applicable
requirements of the National Boardof Fire Underwriters and the
Fire Insurance Rating Organization of New Jersey, or
(xiii) Not comply with the Port Authority's
requirements with respect to landscaping, or
(xiv) Not comply with Port Authority's
requirements and standards with respect to noise, air
pollution, water pollution or other types of pollution, or
(xv) Not comply with the construction
limitations set forth in Exhibits A-1 and B-1 attached to
Supplement No. 17 of the Lease, if any; or
(xvi) Not comply with the Port Authority's plans
and policies with respect to ground transportation and traffic
control and frontage control and planned roadway improvements
within the Central Terminal Area of the Airport;
(xvii) Be in violation of the requirement
for the prior approvals and permits of governmental
authorities, including but not limited to the approval of
the City of Newark, or would not conform or comply with
any of the foregoing, with respect to the use,
construction, alteration, rerouting, filling in or other
work involving or in connection with Added Area 2 (Adams
Ditch) or any proposed replacement or relocation thereof;
(xviii) Be in violation of any requirements
of, the Federal Aviation Administration (and/or any other
governmental authority(ies) with respect to the C-1 C-2
Addition (as defined in Paragraph 1 (b) of Supplement No.
17 of the Lease.
(3) With respect to the Lessee's submission of its
comprehensive plan, plans and specifications and any other
submission in connection with the Expansion Construction Work,
after the Port Authority has been satisfied that any such
submission is complete, including, but not limited to, the
submission of all information requested by the Port Authority
in connection therewith, the Port Authority shall conduct its
review of such submission in a manner which takes into account
the fact that the Port Authority has in the Lease imposed upon
the Lessee the obligation to complete the Expansion
Construction Work within a particular timeframe.
(d) All Expansion Construction Work shall be done in
accordance with the following terms and conditions:
(1) As between the Lessee and the Port Authority,
the Lessee hereby assumes the risk of loss or damage to all of
the Expansion Construction Work prior to the completion
thereof and the risk of loss or damage to all property of the
Port Authority or others arising out of or in connection with
the performance of the Expansion Construction Work including
without limitation, subject to Section 12(p)(2) of the Lease,
any and all Environmental Requirements and Environmental
Damages. In the event of such loss or damage, the Lessee
shall forthwith repair, replace and make good the Expansion
Construction Work and the property of the Port Authority or
others without cost or expense to the Port Authority or
others. The Lessee shall itself and shall also require its
contractors to indemnify and hold harmless the Port Authority,
its Commissioners, officers, agents and employees from and
against all claims and demands, just or unjust, of third
persons (including employees, officers, and agents of the Port
Authority) arising or alleged to arise out of the performance
of the Expansion Construction Work and for all expenses
incurred by it and by them in the defense, settlement or
satisfaction thereof, including without limitation thereto,
claims and demands for death, for personal injury or for
property damage, direct or consequential, whether they arise
from the acts or omissions of the Lessee, of any contractors
of the Lessee, of the Port Authority, or of third persons, or
from acts of God or of the public enemy, or otherwise,
(including claims of the City of Newark against the Port
Authority pursuant to the provisions of the Basic Lease
whereby the Port Authority has agreed to indemnify the City
against claims), excepting only claims and demands which
result solely from the willful misconduct, or the sole
negligence, of the Port Authority, its Commissioners,
officers, agents and employees with respect to the Expansion
Construction Work.
If so directed, the Lessee shall at its own expense
defend any suit based upon any such claim or demand (even
if such suit, claim or demand is groundless, false or
fraudulent), and in handling such it shall not, without
obtaining express advance written permission from the
General Counsel of the Port Authority, raise any defense
involving in any way the jurisdiction of the tribunal
over the person of the Port Authority, the immunity of
the Port Authority, its Commissioners, officers, agents
or employees, the governmental nature of the Port
Authority, or the provisions of any statutes respecting
suits against the Port Authority.
(2) (i) Prior to engaging or retaining an architect
or architects for the Expansion Construction Work, the name or
names of said architect or architects shall be submitted to
the Port Authority for its approval. The Port Authority shall
have the right to disapprove any architect who may be
unacceptable to it. All Expansion Construction Work shall be
done in accordance with plans and specifications to be
submitted to and approved by the Port Authority prior to the
commencement of the Expansion Construction Work, and until
such approval has been obtained the Lessee shall continue to
resubmit plans and specifications as required. Upon approval
of such plans and specifications by the Port Authority, the
Lessee shall proceed diligently at its sole cost and expense
to perform the Expansion Construction Work. All Expansion
Construction Work, including workmanship and materials, shall
be of first class quality. The Lessee shall re-do, replace or
construct at its own cost and expense, any Expansion
Construction Work not done in accordance with the approved
plans and specifications, the provisions of this Section 93 or
any further requirements of the Port Authority.
(ii) The Lessee shall expend not less than Four
Hundred Million Dollars and No Cents ($400,000,000.00) with
respect to the Expansion Construction Work. If the Lessee
demonstrates to the satisfaction of the Port Authority that it
can perform and has performed the Expansion Construction Work
for an amount less than the above amount, doing so shall not
be a breach of this Agreement.
(iii) The Lessee shall complete all of the
Expansion Construction Work no later than June 30, 2002;
provided, however, that with respect to Added Area 3 (as
defined in Paragraph 1 of Supplement No. 17 to this Lease) the
Lessee shall complete the portion of the Expansion
Construction Work to be performed by the Lessee thereon by the
later of June 30, 2002 or the last day of the fourth (4th)
consecutive month following the Added Area 3 Effective Date.
(3) Prior to entering into a contract for any part
of the Expansion Construction Work, the Lessee shall submit to
the Port Authority for its approval the names of the
contractors to whom the Lessee proposes to award said
contracts. The Port Authority shall have the right to
disapprove any contractor who may be unacceptable to it. The
Lessee shall include in all such contracts such provisions and
conditions as may be reasonably required by the Port
Authority. Without limiting the generality of the foregoing
all of the Lessee's construction contracts shall provide as
follows: "If (i) the Contractor fails to perform any of his
obligations under the Contract, including his obligation to
the Lessee to pay any claims lawfully made against him by any
materialman, subcontractor or workman or other third person
which arises out of or in connection with the performance of
the Contract or (ii) any claim (just or unjust) which arises
out of or in connection with the Contract is made against the
Lessee or (iii) any subcontractor under the Contract fails to
pay any claims, lawfully made against him by any materialman,
subcontractor, workman or other third persons which arises out
of or in connection with the Contract or if in the Lessee's
opinion any of the aforesaid contingencies is likely to arise,
then the Lessee shall have the right, in its discretion, to
withhold out of any payment (final or otherwise and even
though such payments have already been certified as due) such
sums as the Lessee may deem ample to protect it against delay
or loss or to assume the payment of just claims of third
persons, and to apply such sums in such manner as the Lessee
may deem proper to secure such protection or satisfy such
claims. All sums so applied shall be deducted from the
Contractor's compensation. Omission by the Lessee to withhold
out of any payment, final or otherwise, a sum for any of the
above contingencies, even though such contingency has occurred
at the time of such payment, shall not be deemed to indicate
that the Lessee does not intend to exercise its right with
respect to such contingency. Neither the above provisions for
rights of the Lessee to withhold and apply monies nor any
exercise, or attempted exercise of, or omission to exercise
such rights by the Lessee shall create any obligation of any
kind to such materialmen, subcontractors, workmen or other
third persons. Until actual payment is made to the
Contractor, his right to any amount to be paid under the
Contract (even though such amount has already been certified
as due) shall be subordinate to the rights of the Lessee under
this provision."
The Lessee shall file with the Port Authority a
copy of its contracts with its contractors prior to start of
the Expansion Construction Work.
(4) The Lessee shall furnish or require its
architect to furnish a full time resident engineer during the
construction period. The Lessee shall require certification
by a licensed engineer of all pile driving data and of all
controlled concrete work and such other certifications as may
be requested by the Port Authority from time to time.
(5) As between the Lessee and the Port Authority,
the Lessee agrees to be solely responsible for any plans and
specifications used by it and for any loss or damages
resulting from the use thereof, notwithstanding that the same
have been approved by the Port Authority and notwithstanding
the incorporation therein of Port Authority recommendations or
requirements. Notwithstanding the requirement for approval by
the Port Authority of the contracts to be entered into by the
Lessee or the incorporation therein of Port Authority
requirements or recommendations, and notwithstanding any
rights the Port Authority may have reserved to itself
hereunder, the Port Authority shall have no liabilities or
obligations of any kind to any contractors engaged by the
Lessee or for any other matter in connection therewith and the
Lessee hereby releases and discharges the Port Authority, its
Commissioners, officers, representatives and employees of and
from any and all liability, claims for damages or losses of
any kind whether legal or equitable, or from any action or
cause of action arising or alleged to arise out of the
performance of any Expansion Construction Work pursuant to the
contracts between the Lessee and its contractors, except for
any of the foregoing which results solely from the willful
misconduct, or the sole negligence of, the Port Authority, its
Commissioners, officers, agents and employees. Any warranties
contained in any construction contract entered into by the
Lessee for the performance of the Expansion Construction Work
hereunder shall be for the benefit of the Port Authority as
well as the Lessee, and the contract shall so provide.
(6) The Port Authority shall have the right, through
its duly designated representatives, to inspect the Expansion
Construction Work and the plans and specifications thereof, at
any and all reasonable times during the progress thereof and
from time to time, in its discretion, to take samples and
perform testing on any part of the Expansion Construction
Work.
(7) The Lessee agrees that it shall deliver to the
Port Authority two (2) sets of "as built" drawings of the
Expansion Construction Work. One set of drawings shall be
printed on Mylar transparencies with the image of the New
Jersey seal of the Lessee's Architect or Engineer of Record on
each drawing. The associated Architect's or Engineer's
signature can also be imaged or signed in pencil on each
drawing. The second set of drawings shall consist of blue
line paper prints, each with the raised embossed New Jersey
seal of the Architect or Engineer of Record appropriately
signed in ink. The Lessee shall during the term of this Lease
keep said drawings current showing thereon any changes or
modifications which may be made. No changes or modifications
shall be made without prior Port Authority consent.
(8) The Lessee shall, if requested by the Port
Authority, take all reasonable measures to prevent erosion of
the soil and the blowing of sand during the performance of the
Expansion Construction Work, including but not limited to the
fencing of the premises or portions thereof or other areas and
the covering of open areas with asphaltic emulsion or similar
materials as the Port Authority may direct.
(9) Any soil, dirt, sand or other matter
(hereinafter in this item (9) collectively called "the
matter") excavated by the Lessee during the course of the
Expansion Construction Work and not used by the Lessee at the
premises in the Expansion Construction Work shall be delivered
and deposited by the Lessee in accordance with all
Environmental Requirements at its expense to any location on
the Airport as may be designated by the Port Authority prior
to the time of removal thereof from the Airport. The entire
proceeds, if any, of the sale or other disposition of the
matter shall belong to the Port Authority. Notwithstanding
the foregoing the Port Authority may elect by prior written
notice to the Lessee to waive any rights it may have hereunder
as to all or portions of the matter in which event the Lessee
at its sole expense shall, in accordance with all
Environmental Requirements, dispose of the same without
further instruction from the Port Authority.
(10) The Lessee shall pay or cause to be paid all
claims lawfully made against it by its contractors,
subcontractors, materialmen and workmen, and all claims
lawfully made against it by other third persons arising
out of or in connection with or because of the
performance of the Expansion Construction Work, and shall
cause its contractors and subcontractors to pay all such
claims lawfully made against them provided, however, that
nothing herein contained shall be construed to limit the
right of the Lessee to contest any claim of a contractor,
subcontractor, materialman, workman and/or other person
and no such claim shall be considered to be an obligation
of the Lessee within the meaning of this Section unless
and until the same shall have been finally adjudicated.
The Lessee shall use its best efforts to resolve any such
claims and shall keep the Port Authority fully informed
of its actions with respect thereto. Nothing herein
contained shall be deemed to constitute consent to the
creation of any liens or claims against the premises nor
to create any rights in said third persons against the
Port Authority or the Lessee.
(11) (i) The Lessee in its own name as insured and
including the Port Authority as an additional insured shall
procure and maintain Commercial General Liability insurance,
including but not limited to premises-operations, products
liability-completed operations, explosion, collapse and
underground property damages, bodily injury (including death),
personal injury and independent contractors, with a broad form
property damage endorsement and with a contractual liability
endorsement covering the obligations assumed by the Lessee
pursuant to subparagraphs (1) and (5) of this paragraph (d),
Comprehensive Automobile Liability insurance covering owned,
non-owned and hired vehicles, and automatically covering newly
acquired vehicles, and Environmental Liability Insurance. The
said Commercial General Liability insurance policy shall have
a limit of not less than $100,000,000 combined single limit
per occurrence for bodily injury (including death) and
property damage liability, said Comprehensive Automobile
Liability policy shall have a limit of not less than
$25,000,000 combined single limit per accident for bodily
injury (including death) and property damage liability, and
said Environmental Liability Insurance shall have a limit of
not less than $3,000,000.
Without limiting the provisions hereof, in the
event the Lessee maintains the foregoing insurance in limits
greater than aforesaid, the Port Authority shall be included
therein as an additional insured to the full extent of all
such insurance in accordance with all the terms and provisions
hereof.
The foregoing shall be in addition to all
policies of insurance otherwise required by this Agreement, or
the Lessee may provide such insurance by requiring each
contractor engaged by it for the Expansion Construction Work
to procure and maintain such insurance including such
contractual liability endorsement, said insurance, whether
procured by the Lessee or by a contractor engaged by it as
aforesaid, not to contain any exclusion for bodily injury to
or sickness, disease or death of any employee of the Lessee or
of any of its contractors which would conflict with or in any
way impair coverage under the contractual liability
endorsement. All of the aforesaid policy or policies of
insurance shall also provide or contain an endorsement
providing that the protections afforded the Lessee thereunder
with respect to any claim or action against the Lessee by a
third person shall pertain and apply with like effect with
respect to any claim or action against the Lessee by the Port
Authority, and shall also provide or contain an endorsement
providing that the protections afforded the Port Authority
thereunder with respect to any claim or action against the
Port Authority by the Lessee or its contractor(s) shall be the
same as the protections afforded the Lessee thereunder with
respect to any claim or action against the Lessee by a third
person as if the Port Authority were the named insured
thereunder; but such provision or endorsement shall not limit,
vary or affect the protections afforded the Port Authority
thereunder as an additional insured.
(ii) The Lessee shall also procure and maintain
in effect, or cause to be procured and maintained in effect
Workers' Compensation Insurance and Employer's Liability
Insurance in accordance with and as required by law.
(iii) The insurance required hereunder in this
subparagraph (11) shall be maintained in effect during the
performance of the Expansion Construction Work. As to the said
insurance a certified copy of the certificate or certificates
or binders, evidencing the existence thereof, shall be
delivered by the Lessee to the Port Authority upon execution
of the Seventeenth Supplemental Agreement to this Lease and
delivery thereof by the Lessee to the Port Authority. Each
policy, certificate or binder delivered as aforesaid shall
bear the endorsement of or be accompanied by evidence of
payment of the premium thereon. In the event a binder is
delivered, it shall be replaced within thirty (30) days by a
certified copy of the policy or a certificate. Each such copy
or certificate shall contain a valid provision or endorsement
that the policy may not be cancelled, terminated, changed or
modified without giving thirty (30) days' written advance
notice thereof to the Port Authority. Each such copy or
certificate shall contain an additional endorsement providing
that the insurance carrier shall not, without obtaining
express advance permission from the General Counsel of the
Port Authority, raise any defense involving in any way the
jurisdiction of the tribunal over the person of the Port
Authority, its Commissioners, officers, agents, or employees,
the immunity of the Port Authority, its Commissioners,
officers, agents or employees, the governmental nature of the
Port Authority or the provisions of any statutes respecting
suits against the Port Authority. Any renewal policy or
certificate shall be delivered to the Port Authority prior to
the expiration of each expiring policy, except for any policy
expiring after the date of expiration of the term of this
Agreement. The aforesaid insurance shall be written by a
company or companies approved by the Port Authority, the Port
Authority agreeing not to withhold its approval unreasonably.
If at any time any of the insurance policies shall be or
become unsatisfactory to the Port Authority as to the form or
substance or if any of the carriers issuing such policies
shall be or become unsatisfactory to the Port Authority, the
Lessee shall promptly obtain a new and satisfactory policy in
replacement, the Port Authority covenanting and agreeing not
to act unreasonably hereunder; the Port Authority agreeing to
provide written notice to the Lessee, upon the written request
of the Lessee, of the reasons it finds such policies or
carriers unsatisfactory. If the Port Authority at any time so
requests, a certified copy of each of the policies shall be
delivered to the Port Authority, provided that the Port
Authority shall keep such policies and the contents thereof
confidential except to the extent (i) required to respond to
a loss, damage, claim or suit or otherwise required by law or
Port Authority policy approved by its Board of Commissioners
from time to time, or (ii) that the policies or the contents
thereof are otherwise available in the public domain.
(12) The Lessee shall be under no obligation to
reimburse the Port Authority for expenses incurred by the Port
Authority in connection with its normal review and approval of
the original plans and specifications submitted by the Lessee
pursuant to this Section, which review and approval process is
generally described in the booklet entitled "Tenant
Construction Review Manual", dated March 1997, a copy of which
the Lessee hereby acknowledges it has received from the Port
Authority. The Lessee however agrees to pay to the Port
Authority upon its demand the expenses incurred by the Port
Authority in connection with any additional review for
approval of any substantial changes in scope or design to the
approved, plans and specifications which may be proposed by
the Lessee for the Port Authority's approval. The expenses of
the Port Authority for any such additional review and approval
shall be computed on the basis of direct payroll time expended
in connection therewith plus 100%. Wherever in this Lease
reference is made to "direct payroll time", costs computed
thereunder shall include a prorata share of the cost to the
Port Authority of providing employee benefits, including, but
not limited to, pensions, hospitalization, medical and life
insurance, vacations and holidays. Such computations shall be
in accordance with the Port Authority's accounting principles
as consistently applied prior to the execution of this Lease.
(13) The Lessee shall prior to the commencement of
construction and at all times during construction submit to
the Port Authority all engineering studies with respect to
construction and samples of construction materials as may be
required at any time and from time to time by the Port
Authority.
(14) The Lessee shall procure and maintain Builder's
Risk (All Risk) Completed Value Insurance covering the
Expansion Construction Work during the performance thereof
including material delivered to the site but not attached to
the realty. Such insurance shall name the Port Authority, the
City of Newark, the Lessee and its contractors and
subcontractors as additional assureds and such policy shall
provide that the loss shall be adjusted with and that the
proceeds shall be payable to the Lessee. Such proceeds shall
be used by the Lessee for the repair, replacement or
rebuilding of the Expansion Construction Work and any excess
shall be paid over to the Port Authority. The policies or
certificates representing insurance covered by this paragraph
(14) shall be delivered by the Lessee to the Port Authority at
least thirty (30) days prior to the commencement of
construction of the Expansion Construction Work, and each
policy or certificate delivered shall bear the endorsement of
or be accompanied by evidence of payment of the premium
thereof and, also, a valid provision obligating the insurance
company to furnish the Port Authority and the City of Newark
thirty (30) days' advance notice of the cancellation,
termination, change or modification of the insurance evidenced
by said policy or certificate. Renewal policies or
certificates shall be delivered to the Port Authority at least
thirty (30) days before the expiration of the insurance which
such policies are to renew.
The insurance covered by this paragraph (14) shall be
written by companies approved by the Port Authority, the Port
Authority covenanting and agreeing not to withhold its
approval unreasonably. If at any time any of the insurance
policies shall be or become unsatisfactory to the Port
Authority as to the form or substance or if any of the
carriers issuing such policies shall be or become
unsatisfactory to the Port Authority, the Lessee shall
promptly obtain a new and satisfactory policy in replacement,
the Port Authority covenanting and agreeing not to act
unreasonably hereunder; the Port Authority agreeing to provide
written notice to the Lessee, upon the written request of the
Lessee, of the reasons it finds such policies or carriers
unsatisfactory. If at any time the Port Authority so
requests, a certified copy of each of the said policies shall
be delivered to the Port Authority, provided that the Port
Authority shall keep such policies and the contents thereof
confidential except to the extent (i) required to respond to
a loss, damage, claim or suit or otherwise required by law or
Port Authority policy approved by its Board of Commissioners
from time to time, or (ii) that the policies or the contents
thereof are otherwise available in the public domain.
(15) The Lessee shall at the time of submitting the
Comprehensive Plan to the Port Authority as provided in
paragraph (a) hereof submit to the Port Authority its
forecasts of the number of people who will be working at
various times during the term of the Lease at the premises or
other areas of the Expansion Construction Work, the expected
utility demands of the premises, noise profiles and such other
information as the Port Authority may require from time to
time and at any time. The Lessee shall continue to submit its
latest forecasts and such other information as may be required
as aforesaid as the Port Authority shall from time to time and
at any time request.
(16) The Lessee shall execute and submit for the Port
Authority's approval a Tenant Construction or Alteration
Application or Applications in the form prescribed by the Port
Authority covering the Expansion Construction Work or portions
thereof (hereinafter collectively called "Construction
Application" or "Construction Applications"). The Lessee
shall comply with all the terms and provisions of the approved
Construction Applications. In the event of any inconsistency
between the terms of any Construction Application and the
terms of the Lease, the terms of this Lease shall prevail and
control.
(17) Nothing contained in this Lease shall grant or
be deemed to grant to any contractor, architect, supplier,
subcontractor or any other person engaged by the Lessee or any
of its contractors in the performance of any part of the
Expansion Construction Work any right or action or claim
against the Port Authority, its Commissioners, officers,
agents and employees with respect to any work any of them may
do in connection with the Expansion Construction Work.
Nothing contained herein shall create or be deemed to create
any relationship between the Port Authority and any such
contractor, architect, supplier, subcontractor or any other
person engaged by the Lessee or any of its contractors in the
performance of any part of the construction and the Port
Authority shall not be responsible to any of the foregoing for
any payments due or alleged to be due thereto for any work
performed or materials purchased in connection with the
Expansion Construction Work.
(18) (i) Without limiting any of the terms and
conditions of this Lease, the Lessee understands and agrees
that it shall put into effect prior to the commencement of any
Expansion Construction Work an affirmative action program and
Minority Business Enterprise (MBE) program and Women-owned
Business Enterprise (WBE) program in accordance with the
provisions of Schedule E (attached to the Seventeenth
Supplemental Agreement to this Lease) and hereby made a part
hereof. As used in Schedule E the term 'construction work'
shall be deemed to include the Expansion Construction Work.
The provisions of said Schedule E of this Lease shall be
applicable to the Lessee's contractor or contractors and
subcontractors at any tier of construction as well as to the
Lessee itself and the Lessee shall include the provisions of
said Schedule E within all of its construction contracts so as
to make said provisions and undertakings the direct obligation
of the construction contractor or contractors and
subcontractors at any tier of construction. The Lessee shall
and shall require its said contractor, contractors and
subcontractors to furnish to the Port Authority such data,
including but not limited to compliance reports relating to
the operation and implementation of the affirmative action,
Minority Business Enterprise (MBE) and Women-owned Business
Enterprise (WBE) programs called for hereunder as the Port
Authority may request at any time and from time to time
regarding the affirmative action, Minority Business
Enterprises (MBE) and Women-owned Business Enterprises (WBE)
programs of the Lessee and its contractor, contractors, and
subcontractors at any tier of construction, and the Lessee
shall and shall also require that its contractor, contractors
and subcontractors at any tier of construction make and put
into effect such modifications and additions thereto as may be
directed by the Port Authority pursuant to the provisions
hereof and said Schedule E to effectuate the goals of
affirmative action and Minority Business Enterprise (MBE) and
Women-owned Business Enterprise (WBE) programs.
(ii) In addition to and without limiting any terms
and conditions of this Lease, the Lessee shall provide in its
contracts and all subcontracts covering the Expansion
Construction Work or any portion thereof, that:
(aa) The contractor shall not discriminate against
employees and applicants for employment because of race,
creed, color, national origin, sex, age, disability or
marital status, and shall undertake or continue existing
programs of affirmative action to ensure that minority
group persons are afforded equal employment opportunity
without discrimination. Such programs shall include, but
not be limited to, recruitment, employment, job
assignment, promotion, upgrading, demotion, transfer,
layoff, termination, rates of pay or other forms of
compensation, and selections for training or retraining,
including apprenticeships and on-the-job training;
(bb) At the request of either the Port Authority or
the Lessee, the contractor shall request such employment
agency, labor union, or authorized representative of
workers with which it has a collective bargaining or other
agreement or understanding and which is involved in the
performance of the contract with the Lessee to furnish a
written statement that such employment agency, labor union
or representative shall not discriminate because of race,
creed, color, national origin, sex, age, disability or
marital status and that such union or representative will
cooperate in the implementation of the contractor's
obligations hereunder;
(cc) The contractor will state, in all solicitations
or advertisements foremployees placed by or on behalf of
the contractor in the performance of the contract, that
all qualified applicants will be afforded equal employment
opportunity without discrimination because of race, creed,
color, national origin, sex, age, disability or marital
status;
(dd) The contractor will include the provisions of
subparagraphs (aa) through (cc) of this paragraph in every
subcontract or purchase order in such a manner that such
provisions will be binding upon each subcontractor or
vendor as to its work in connection with the contract;
(ee) "Contractor" as used herein shall include each
contractor and subcontractor at any tier of construction.
(19) (i) The Lessee understands that there may be
communications and utility lines and conduits located on or
under the areas of the Expansion Construction Work which do
not, and may not in the future, serve the premises. The
Lessee agrees at its sole cost and expense, if directed by the
Port Authority so to do:
(A) within a reasonable period of time following
notice to or from the Port Authority of the existence
thereof (with respect to those of which the Lessee
notifies the Port Authority or the Port Authority notifies
the Lessee), but in no event later than the issuance of
the certificate called for in paragraph (n) (1) hereof;
(B) prior to the issuance of the certificate called
for in paragraph (n) (1) hereof (with respect to those of
which the Lessee does not have knowledge prior to the
issuance of the certificate called for in paragraph (n)(1)
hereof); or
(C) within a reasonable period of time following the
Port Authority becoming aware of the existence thereof
(with respect to those of which the Lessee has knowledge
prior to the issuance of the certificate called for in
paragraph (n)(1) hereof but does not notify the Port
Authority;
to relocate and reinstall such communication and utility lines
and conduits on the premises or off the premises as directed
by the Port Authority and to restore all affected areas (such
work being hereinafter collectively called "the relocation
work"); provided that nothing in this subparagraph (i) shall
limit the provisions of the following subparagraph (ii). The
Lessee shall perform the relocation work subject to and in
accordance with all the terms and provisions of this Section
93 and the relocation work shall be and become a part of the
Expansion Construction Work, it being understood, however,
that the relocation work shall not be or become a part of the
premises hereunder.
(ii) Prior to the commencement of any of the
Expansion Construction Work, the Lessee shall coordinate
the Expansion Construction Work with the Location of
Subsurface Utilities toll free information service
(1-800-272-1000) and ascertain the location of
underground utilities, if any, at the premises or other
area of any Expansion Construction Work. The Lessee
shall provide the Port Authority with written evidence of
such coordination.
(e) [INTENTIONALLY OMITTED]
(f) The Lessee may wish to commence construction of
portions of the Expansion Construction Work prior to the
approval by the Port Authority of its plans and specifications
pursuant to paragraph (c) hereof, and if it does it shall
submit a written request to the Port Authority setting forth
the work it proposes then to do. The Port Authority shall
have full and complete discretion as to whether or not to
permit the Lessee to proceed with any portion of the Expansion
Construction Work. If the Port Authority has no objection to
the Lessee's proceeding with any of the aforementioned work,
it shall do so by writing a letter to the Lessee to such
effect. If the Lessee performs the work covered by said
letter it agrees all such work shall be performed subject to
and in accordance with all of the provisions of the approval
letter and subject to and in accordance with the following
terms and conditions:
(1) The performance by the Lessee of the work
covered by any request as aforesaid will be, as between the
Lessee and the Port Authority, at the Lessee's sole risk and
if for any reason the plans and specifications for the
Expansion Construction Work are not approved by the Port
Authority or if the approval thereof calls for modifications
or changes in the work undertaken by the Lessee under any
approval granted by the Port Authority pursuant to this
paragraph (f), the Lessee will, as directed by the Port
Authority, at its sole cost and expense, either restore the
area affected to the condition existing prior to the
commencement of any such work or make such modifications and
changes in any such work as may be required by the Port
Authority.
(2) Nothing contained in any approval hereunder
shall constitute a determination or indication by the Port
Authority that the Lessee has complied with the applicable
governmental laws, ordinances, enactments, resolutions, rules
and orders, including but not limited to those of the City of
Newark, which may pertain to the work to be performed.
(3) The approved work will be performed in
accordance with and subject to the terms, indemnities and
provisions of the Lease covering the Expansion Construction
Work and with the terms and conditions of any Construction
Application which the Port Authority may request the Lessee to
submit even though such Construction Application may not have,
at the time of the approval under this paragraph (f), been
approved by the Port Authority. In the event of any
inconsistency between the terms of any Construction
Application and the terms of this Lease, the terms of this
Lease shall prevail and control.
(4) No work under any such approval shall
affect or limit the obligations of the Lessee under all prior
approvals with respect to its construction of the Expansion
Construction Work.
(5) The Lessee shall comply with all
requirements, stipulations and provisions as may be set forth
in the letters of approval.
(6) In the event that the Lessee shall at any
time during the construction of any portion of the Expansion
Construction Work under the approval granted by the Port
Authority pursuant to this paragraph (f) fail, in the opinion
of the General Manager of the Airport, to comply with all of
the provisions of this Lease with respect to the Expansion
Construction Work, the Construction Application or the
approval letter covering the same or be, in the opinion of the
General Manager, in breach of any of the provisions of this
Lease, the Construction Application or the approval letter
covering the same, the Port Authority shall have the right,
acting through said General Manager to cause the Lessee to
cease all or such part of the Expansion Construction Work as
is being performed in violation of this Lease, the
Construction Application or the approval letter. Upon such
written direction from the General Manager specifying such
non-compliance or breach (and without limiting any other
rights or remedies of the Port Authority hereunder or
otherwise) the Lessee shall promptly cease construction of the
portion of the Expansion Construction Work specified. The
Lessee shall thereupon submit to the Port Authority for its
written approval the Lessee's proposal for making
modifications, corrections or changes in or to the Expansion
Construction Work that has been or is to be performed so that
the same will comply with the provisions of this Lease, the
Construction Application and the approval letter covering the
Expansion Construction Work. The Lessee shall not commence
construction of the portion of the Expansion Construction Work
that has been halted until such written approval has been
received.
(7) It is hereby expressly understood and
agreed that neither the field engineer covered by paragraph
(g) hereof nor the Resident Engineer of the Port Authority at
the Airport has any authority to approve any plans and
specifications of the Lessee with respect to the Expansion
Construction Work, to approve the construction by the Lessee
of any portion of the Expansion Construction Work or to agree
to any variation by the Lessee from compliance with the terms
of this Lease, or the Construction Application or the approval
letter with respect to the Expansion Construction Work.
Notwithstanding the foregoing, should the field engineer or
the Resident Engineer give any directions or approvals with
respect to the Lessee's performance of any portion of the
Expansion Construction Work which are contrary to the
provisions of this Lease, the Construction Application or the
approval letter, said directions or approvals shall not affect
the obligations of the Lessee as set forth herein nor release
or relieve the Lessee from the strict compliance therewith.
It is hereby further understood and agreed that the Port
Authority has no duty or obligation of any kind whatsoever to
inspect or police the performance of the Expansion
Construction Work by the Lessee and the rights granted to the
Port Authority hereunder shall not create or be deemed to
create such a duty or obligation. Accordingly, the fact that
the General Manager has not exercised the Port Authority's
right to require the Lessee to cease its construction of all
or any part of the Expansion Construction Work shall not be or
be deemed to be an agreement or acknowledgment on the part of
the Port Authority that the Lessee has in fact performed such
portion of the Expansion Construction Work in accordance with
the terms of the Lease, the Construction Application or the
approval letter nor shall such fact be or be deemed to be a
waiver by the Port Authority from the requirement of strict
compliance by the Lessee with the provisions of the Lease, the
Construction Application and the approval letter with respect
to the Expansion Construction Work.
(8) Without limiting the discretion of the Port
Authority hereunder, the Port Authority hereby specifically
advises the Lessee that even if the Port Authority hereafter
in the exercise of its discretion wishes to grant approvals
under this paragraph (f), it may be unable to do so, so as to
permit the Lessee to continue work without interruption
following its completion of the work covered by any prior
approval hereunder. The Lessee hereby acknowledges that if it
commences work pursuant to this paragraph (f), it shall do so
with full knowledge that there may not be continuity by it in
the performance of its Expansion Construction Work under the
procedures of this paragraph (f).
(9) No prior approval of any work in connection
with the Expansion Construction Work shall create or be deemed
to create any obligation on the part of the Port Authority to
permit subsequent work to be performed in connection with such
Expansion Construction Work prior to the approval by the Port
Authority of the Lessee's complete plans and specifications
thereof. It is understood that no such prior approval shall
release or relieve the Lessee from its obligation to submit
complete plans and specifications for the Expansion
Construction Work and to obtain the Port Authority's approval
of the same as set forth in paragraph (c) hereof. It is
further understood that in the event the Lessee elects not to
continue to seek further approval letter(s) pursuant to this
paragraph (f), the obligations of the Lessee to restore the
area and to make modifications and changes as set forth in
subparagraph (1) above shall be suspended until the Lessee's
submission of its complete plans and specifications in
accordance with paragraph (c) hereof.
(g) The Lessee will give the Port Authority fifteen (15)
days' notice prior to the commencement of construction. The
Port Authority will assign to the Expansion Construction Work
a full time field engineer or engineers. The Lessee shall pay
to the Port Authority for the services of said engineer or
engineers the sum of Seven Hundred Dollars and No Cents
($700.00) for each day that the engineer or engineers are so
assigned during the 1999 calendar year, and for each and every
calendar year thereafter, the rate that the Port Authority
shall charge Aircraft Operators, or others, for the services
of such engineer or engineers during such calendar years for
each day or part thereof that the engineer or engineers are so
assigned. Nothing contained herein shall affect any of the
provisions of paragraph (n) hereof or the rights of the Port
Authority hereunder. This agreement for the services of said
field engineer may be revoked at any time by either party on
thirty (30) days' written notice to the other, but if revoked
by the Lessee it shall continue during the period construction
under any partial approvals pursuant to paragraph (f) hereof
is performed.
(h) The Expansion Construction Work shall be constructed
in such a manner as to minimize (considering the nature of the
Lessee's operations and the Expansion Construction Work) air
pollution, water pollution or any other type of pollution and
noise emanating from, arising out of or resulting from the
operation, use or maintenance thereof by the Lessee and from
the operations of the Lessee under this Agreement.
Accordingly, and in addition to all other obligations imposed
on the Lessee under this Agreement and without diminishing,
limiting, modifying or affecting any of the same, the Lessee
shall be obligated to construct as part of the Expansion
Construction Work hereunder such structures, fences,
equipment, devices and other facilities as may be reasonably
necessary or appropriate to accomplish the foregoing and each
of the foregoing shall be and become a part of Expansion
Construction Work it affects and all of the foregoing shall be
covered under the Comprehensive Plan of the Lessee submitted
under paragraph (a) hereof and shall be part of the Expansion
Construction Work hereunder. The obligations assumed by the
Lessee under this paragraph (h) are a special inducement and
consideration to the Port Authority in granting this Lease to
the Lessee.
(i) Title to the Expansion Construction Work which is
located within the territorial limits of the City of Newark
shall pass to the City of Newark as the same or any part
thereof is erected upon or under or affixed to the land or to
any existing structures and the Expansion Construction Work
shall be and become part of the premises under the Lease if
located within the premises hereunder (except for the items
covered in subparagraph (b) (1) (ii) of this Section 93 which
shall become part of the Fuel System, and except for any
personal property of the Lessee as described in Section 34
hereof); and title to such part, if any, of the Expansion
Construction Work which is located within the territorial
limits of the City of Elizabeth shall vest in the Port
Authority as the same or any part of thereof is erected upon
or under or affixed to the land or to any existing structures
and said Expansion Construction Work shall be and become part
of the premises under the Lease if located within the premises
hereunder (except for the items covered in subparagraph (b)
(1) (ii) of this Section 93 which shall become part of the
Fuel System, and except for any personal property of the
Lessee as described in Section 34 hereof); provided, however,
that title to the Schedule 1 Terminal Fixtures shall pass to
the Port Authority as provided in paragraph 53 of Supplement
No. 17 to the Lease.
(j) The parties acknowledge that the Lessee will be
continuing its operations at the existing premises under the
Lease during the period of time it is performing the Expansion
Construction Work hereunder. The Lessee further acknowledges
that this may involve among other things inconvenience, noise,
dust, interference and disturbance to the Lessee in its
operations at the premises as well as to its customers,
patrons, invitees and employees and possibly other risks as
well. As between the Lessee and the Port Authority, the
Lessee hereby expressly assumes all of the foregoing risks and
agrees that there will be no reduction or abatement of any of
the rentals, fees or charges payable by the Lessee under the
Lease or otherwise on account of its performance of the
Expansion Construction Work and that the performance of the
Expansion Construction Work shall not constitute an eviction
or constructive eviction of the Lessee nor be grounds for any
abatement of rentals, fees or charges payable by the Lessee
under the Lease or otherwise nor give rise to or be the basis
of any claim or demand by the Lessee against the Port
Authority, its Commissioners, officers, employees or agents
for damages, consequential or otherwise, under this Lease or
otherwise.
(k) (1) The Lessee acknowledges that the Port Authority
as well as other users, lessees, tenants, airport patrons and
invitees and others will be continuing their airport
operations in other portions of the Central Terminal Area of
the Airport ("CTA") during the period of time the Lessee is
performing the Expansion Construction Work hereunder and that
this will involve among other things inconvenience, noise,
dust, interference and disturbance to said airport operations
and possibly other risks as well. As between the Lessee and
the Port Authority, the Lessee hereby expressly assumes all of
the foregoing risks. Without limiting the foregoing, the
Lessee shall and expressly hereby agrees to perform, and to
require each of its contractors and subcontractors to perform,
the Expansion Construction Work and each portion thereof in
such a manner so as to minimize the impact and any disruption
resulting therefrom on said airport operations and on
passenger and traffic control and passenger and traffic flow
in the CTA. The Lessee shall, without limiting any other term
or provision hereof, communicate and cooperate (and require
each of its contractors to communicate and cooperate) with the
Port Authority and with each of the affected CTA users,
lessees, tenants, airport patrons, invitees and others in all
aspects of the Expansion Construction Work, and the Lessee
shall coordinate and work in harmony with all said persons and
Port Authority contractors. The Lessee shall include in each
of its contracts and subcontracts covering the Expansion
Construction Work or any portion thereof the foregoing
requirements for minimization of disruption and for contractor
cooperation, harmony and coordination.
(2) Without limiting the foregoing or any other term
or provision of this Agreement, with respect to those portions
of the Expansion Construction Work which will or may affect or
impact the Fuel System, the Lessee hereby expressly recognizes
the importance of the Fuel System to the operation of the
Airport and to all aircraft operations thereat and the
critical need to protect the same and the integrity of the
fuel in the Fuel System, and the Lessee shall use the highest
degree of safety and care in its design and performance of the
portions of the Expansion Construction Work which will or may
affect or impact the Fuel System, and the Lessee shall use its
best efforts and the highest degree of care and safety, and
shall require its contractors to use the highest degree of
care and safety and their best efforts, to coordinate and work
in harmony with the Port Authority and the Port Authority's
independent contractor who operates the Fuel System, as
described in Section 55 hereof, and to take all such actions,
precautionary measures and procedures, in addition to all
Environmental Requirements, so as to protect and safeguard the
structure, integrity, contents, safety, and operations of the
Fuel System. In addition to all other requirements, the
Lessee shall also include the foregoing requirements in each
of its applicable contracts and subcontracts covering the
Expansion Construction Work.
(l) [INTENTIONALLY OMITTED]
(m) In addition to any easements and rights as may
be elsewhere granted herein, the Port Authority hereby,
subject to the terms, conditions, covenants and
provisions of this Lease, grants to and agrees to make
available to the Lessee, as needed and as identified in
the Construction Application approval process by the
Lessee and approved by the Port Authority, temporary and
permanent (but not beyond the applicable expiration date
or earlier termination of this Lease) utility accesses to
those parts of the Airport (subject to the right of the
Port Authority to substitute such other reasonable
accesses as may be necessary because of future
construction and development of the Airport (which
substitution, together with the actual relocation of the
utilities thereto, shall as between the Lessee and the
Port Authority be at the Port Authority's sole cost and
expense if the Lessee shall have commenced to utilize the
accesses which it was permitted by the Port Authority to
utilize) and subject to the rights of others with respect
thereto) necessary to carry out the Lessee's Expansion
Construction Work as identified in the Construction
Application approval process and approved by the Port
Authority and, as to the permanent utility accesses,
those necessary to the Lessee to operate the premises.
(n) (1) When the Expansion Construction Work is
substantially completed and ready for use the Lessee shall
advise the Port Authority to such effect and shall deliver to
the Port Authority a certificate signed by an authorized
officer of the Lessee certifying that the Expansion
Construction Work has been constructed to substantial
completion strictly in accordance with the approved plans and
specifications and the provisions of this Lease and in
compliance with all applicable laws, ordinances and
governmental rules, regulations and orders, and in addition,
a certificate signed by either the Lessee's architect licensed
and registered in the State of New Jersey or by the Lessee's
engineer licensed and registered in the State of New Jersey
that the Expansion Construction Work has been constructed to
substantial completion in strictly in accordance with the
approved plans and specifications and in compliance with all
applicable laws, ordinances and governmental rules,
regulations and orders. Thereafter, the Expansion
Construction Work will be inspected by the Port Authority and
if the same has been constructed to substantial completion as
certified by the Lessee and the Lessee's licensed architect or
engineer, as aforesaid, a certificate to such effect shall be
delivered to the Lessee, subject to the condition that, as
between the Lessee and the Port Authority, all risks
thereafter with respect to the construction and installation
of the same and any liability therefor for negligence or other
reason shall be borne by the Lessee. The Lessee shall not use
or permit the use of the Expansion Construction Work or any
portion thereof for the purposes set forth in the Lease until
such certificate is received from the Port Authority and the
Lessee shall not use or permit the use of the Expansion
Construction Work or any portion thereof even if such
certificate is received if the Port Authority states in any
such certificate that the same cannot be used until other
specified portions are completed.
(2) The term "Expansion Construction Work
Completion Date" for the purposes of this Lease shall mean the
date appearing on the certificate issued by the Port Authority
pursuant to subparagraph (1) of this paragraph.
(3) In addition to and without affecting the
obligations of the Lessee under the preceding subparagraphs
(1) and (2), when an integral and material portion of the
Expansion Construction Work is substantially completed and is
properly usable the Lessee may advise the Port Authority to
such effect and may deliver to the Port Authority a
certificate signed by an authorized officer of the Lessee and
also signed by the Lessee's licensed architect or engineer
certifying that such portion of the Expansion Construction
Work has been constructed in accordance with the approved
plans and specifications and the provisions of this Lease and
in compliance with all applicable laws, ordinances and
governmental rules, regulations and orders, and specifying
that such portion of the Expansion Construction Work can be
properly used even though the Expansion Construction Work has
not been completed and that the Lessee desires such use. The
Port Authority may in its sole discretion deliver a
certificate to the Lessee with respect to each such portion of
the Expansion Construction Work permitting the Lessee to use
such portion thereof for the purposes set forth in the Lease.
In such event the Lessee may use such portion subject to the
condition that all risks thereafter with respect to the
construction and installation of the same and any liability
therefor for negligence or other reason shall be borne by the
Lessee, and subject to the risks as set forth in paragraph (f)
hereof in the event that the Port Authority shall not have
then approved the complete plans and specifications for the
Expansion Construction Work. Moreover, at any time prior to
the issuance of the certificate required in subparagraph (1)
above for the Expansion Construction Work, the Lessee shall
promptly upon receipt of a written notice from the Port
Authority setting forth the reasons therefor cease its use of
such portion of the Expansion Construction Work which it had
been using pursuant to permission granted in this subparagraph
(3).
(4) In addition to and without affecting the
obligations of the Lessee under the preceding
subparagraphs (1), (2) and (3), the Lessee may request that
the Port Authority issue a final certificate under
subparagraph (1) above with respect to any distinct and
separate component of the Expansion Construction Work which
has been substantially completed and which can be used
independently from any portion of the Expansion Construction
Work for which the Port Authority shall not have issued a
certificate under this paragraph (n). Such request shall be
accompanied by certificates from the Lessee, signed by an
authorized officer of the Lessee and also signed by the
Lessee's licensed architect or engineer, certifying, with
respect to said component, all of the matters as described in
the preceding subparagraph (3). In the event that the Port
Authority agrees with the Lessee's determination that such
distinct and separate component of the Expansion Construction
Work can be used independently from any portion of the
Expansion Construction Work for which the Port Authority shall
not have theretofore issued a certificate under this
subparagraph (n), said component of the Expansion Construction
Work will be inspected by the Port Authority and, if the same
has been constructed to substantial completion as certified by
the Lessee and the Lessee's licensed architect or engineer,
the Port Authority shall deliver to the Lessee a final
certificate under and subject to the provisions of paragraph
(n)(1) hereof with respect to such component of the Expansion
Construction Work permitting the use thereof for the purposes
set forth in the Lease. In such event the Lessee may use such
component subject to the condition that all risks thereafter
with respect to the construction and installation of the same
and any liability therefor for negligence or other reason
shall be borne by the Lessee, and subject to the risks as set
forth in paragraph (f) hereof in the event that the Port
Authority shall not have then approved the complete plans and
specifications for the Expansion Construction Work."
7. Section 5 of the Lease, as previously amended, is hereby
further amended as follows:
(a) The phrase "Base Annual Rental for the premises" as used
in Section 5 of the Lease and elsewhere in the Lease shall be
deemed amended to read "Base Annual Rental for the premises
(exclusive of Area C-3 and the Area C-3 rental)".
(b) Subparagraphs (3) and (4) of paragraph (b) of Section 5 of
the Lease, as previously amended and as set forth in Supplement No.
7 of the Lease shall be deemed amended to read as follows:
"(3) (i) For the portion of the term of
the Lease commencing on August 1, 1996 to the
day preceding the Effective Date of Supplement
No. 17 of the Lease (as said Effective Date is
set forth on the first page thereof), a Base
Annual Rental for the premises (exclusive of
Area C-3 and the Area C-3 rental) at an annual
rate consisting of two factors, one a constant
factor in the amount of Thirty-three Million
Five Hundred Eighty-Five Thousand Three Hundred
Forty-eight Dollars and No Cents
($33,585,348.00) subject to adjustment as
provided in paragraph (c) hereof, and the other
the Airport Services Factor which shall consist
of the Airport Services Factor in the amount set
forth in subparagraph (1) above as the same
shall have been adjusted in accordance with
paragraph (c) hereof for each calendar year
preceding the commencement date of the portion
of the term specified in this subparagraph (3),
and which shall be the Airport Services Factor
in effect on the date of the commencement of the
Base Annual Rental provided for in this
subparagraph (3) and which shall be subject to
further adjustment as provided in paragraph (c)
hereof.
(ii) For the portion of the term of the Lease
commencing on the Effective Date of Supplement No.
17 of the Lease (as said Effective Date is set forth
on the first page thereof) to November 30, 2004, a
Base Annual Rental for the premises (exclusive of
Area C-3 and the Area C-3 rental) at an annual rate
consisting or two factors, one a constant factor in
the amount of Thirty-three Million Nine Hundred
Sixty Thousand Four Hundred Forty-eight Dollars and
No Cents ($33,960,448.00) subject to adjustment as
provided in paragraph (c) hereof, and the other the
Airport Services Factor in the amount of Three
Million Sixty-four Thousand Eight Hundred Sixteen
Dollars and No Cents ($3,064,816.00), and which
shall be the Airport Services Factor in effect on
the date of the commencement of the Base Annual
Rental provided for in this subparagraph (3)(ii) and
which shall subject to further adjustment as
provided in paragraph (c) hereof.
The Base Annual Rental amounts (constant factor
and Airport Services Factor) set forth in this
subparagraph (b) (3) (ii) are also subject to the
adjustments based on the Port Authority's
determination of the final metes and bounds of Added
Area 4 as more fully described in Paragraph 3A of
Supplement No. 17 of the Lease.
"(4) For the portion of the term of the Lease
commencing on December 1, 2004 to March 31, 2013
(the expiration date of the term of the letting of
the premises exclusive of Area C-3) a Base Annual
Rental for the premises (exclusive of Area C-3 and
the Area C-3 rental) at an annual rate consisting of
two factors, one a constant factor in the amount of
Thirty-nine Million Six Hundred One Thousand Two
Hundred Seventy-nine Dollars and No Cents
($39,601,279.00) subject to adjustment as provided
in paragraph (c) hereof, and the other the Airport
Services Factor which shall consist of the Airport
Services Factor in the amount set forth in
subparagraph (3)(ii) above as the same shall have
been adjusted in accordance with paragraph (c)
hereof for each calendar year preceding the
commencement date of the portion of the term
specified in this subparagraph (4), and which shall
be the Airport Services Factor in effect on the date
of the commencement of the Base Annual Rental
provided for in this subparagraph (4) and which
shall subject to further adjustment as provided in
paragraph (c) hereof.
The Base Annual Rental amounts (constant factor
and Airport Services Factor) set forth in this
subparagraph (b)(4) above are also subject to the
adjustments based on the Port Authority's
determination of the final metes and bounds of Added
Area 4 as more fully described in Paragraph 3A of
Supplement No. 17 of the Lease."
(c) (i) The following sentence shall be deemed inserted after
the second sentence of subparagraph (1) of paragraph (c) of Section
5 of the Lease:
"For the calendar year 1999 and for each and
every calendar year thereafter the Airport
Services Factor set forth in
subparagraphs (b)(3)(ii) and (b)(4) above shall
be adjusted in accordance with said Schedule A."
(ii) The last five (5) lines of subparagraph (1) of
paragraph (c) of Section 5 of the Lease, as previously amended and
as set forth in Supplement No. 7 of the Lease shall be amended to
read as follows:
"of the term specified in subparagraph (b)(3)(i)
above the constant factor of $33,585,348 shall
remain unchanged; and for the portion of the
term specified in subparagraph (b)(3)(ii) above
the constant factor of $33,960,448.00, after the
adjustment of the same based on the Port
Authority's determination of final metes and
bounds for the Added Area 4 as more fully
described in Paragraph 3A of Supplement No. 17
of the Lease, shall remain unchanged; and for
the portion of the term specified in
subparagraph (b)(4) above the constant factor of
$39,601,279.00 after the adjustment of the same
based on the Port Authority's determination of
final metes and bounds for the Added Area 4 as
more fully described in Paragraph 3A of
Supplement No. 17 of the Lease, shall remain
unchanged."
(d) Subparagraph (2)(iii) of paragraph (c) of Section 5 shall
be deemed amended as follows: The amount set forth therein as
"Three Million Five Hundred Ninety-four Thousand Dollars and No
Cents ($3,594,000.00)" shall be deemed amended to read "Three
Million Nine Hundred Sixty-nine Thousand One Hundred Dollars and No
Cents ($3,969,100.00)".
(e) Subparagraph (2)(iv) of paragraph (c) of Section 5 shall
be deemed amended as follows: The amount set forth therein as
"Three Million Five Hundred Ninety-four Thousand Dollars and No
Cents ($3,594,000.00)" shall be deemed amended to read "Four
Million Fifty Thousand Three Hundred Sixty-seven Dollars and No
Cents ($4,050,367.00)".
8. Paragraph (a) of Subdivision I of Section 8 of the Lease
is hereby amended as follows:
(a) Subparagraph (vii) thereof is hereby amended to read
as follows:
"(vii) For the storage of repair parts,
supplies and other personal property of the
Lessee used by the Lessee in connection with its
operations permitted hereunder and for the
performance of reasonable minor repairs to said
personal property of the Lessee."
(b) Subparagraph (ix) thereof is hereby amended by
adding at the end thereof the following:
"and the occasional and temporary storage of said air
cargo transported or to be transported on aircraft
operated by the Lessee, provided said air cargo is
properly secured."
(c) New subparagraph (xiv) shall be deemed added at the end of
said paragraph (a) reading as follows;
"(xiv) With respect to the FIS facilities (as
defined in Section 93 hereof), for federal
inspection services by federal agencies (if the
United States Government makes the same
available to the Lessee) or others permitted by
law to perform such functions.
9. Paragraph (g) of subdivision I of Section 8 of the Lease
shall be deemed amended to read as follows:
"(g) It is understood and agreed that in
order to use Flight Station B-3 located at
Passenger Terminal B, it will be necessary from
time to time for the various Aircraft Operators
in Flight Station B-3 to pass over those
portions of Area D which lie between Concourse
C-1 and said Flight Station B-3, and the same
are hereby made expressly subject to such right
of access of such users. Similarly, it is
understood and agreed that in order to use
portions of Area D, it will be necessary for the
Lessee to pass over the aircraft maneuvering
areas associated with Flight Station B-3 which
lie between Concourse C-1 and said Flight
Station B-3 and the said areas shall be subject
to such right of access of the Lessee. In the
exercise of the use and rights of access
hereunder, the Lessee and the Airline Lessees in
Flight Station B-3 shall operate with due regard
to the rights and needs of all users of such
areas."
10. Section 10 of the Lease is hereby amended as follows:
(a) Paragraph (a) thereof is hereby amended to read
as follows:
"(a) The Lessee shall promptly comply with, observe
and execute all laws and ordinances and governmental
rules, regulations and orders now or at any time during
the term of this Agreement which as a matter of law are
applicable to or which affect (i) the premises, (ii) the
operations of the Lessee at the premises hereunder or the
Airport, (iii) the occupancy or use of the premises or
(iv) subject to Section 12(p)(2) of the Lease, with
regard to Environmental Requirements only, property
outside the premises as a result of the Lessee's use and
occupancy of the premises or a migration of Hazardous
Substances from the premises. The Lessee shall, in
accordance with and subject to the provisions of Section
23 hereof, make any and all structural and non-structural
improvements, alterations or repairs of the premises and,
subject to Section 12(p)(2) of the Lease, perform all
remediation work and clean up of Hazardous Substances
required in order to fully satisfy the compliance
obligations set forth herein, including without
limitation, the removal, containment, control or other
action with respect to asbestos-containing material. The
Lessee shall have the right to perform such structural
and non-structural improvements, alterations or repairs
that are required by any such law, rule, regulation,
order or direction; provided, however, that the same
shall be performed in compliance with and subject to the
terms, provisions, and conditions of this Agreement
including without limitation the procedures set forth in
Section 23 hereof."
(b) Paragraph (b) thereof shall be deemed amended by
adding at the end thereof the following:
"The Port Authority agrees to cooperate, if it may
lawfully do so, with the Lessee in the Lessee's
procurement of such consents, licenses, certificates,
permits or other authorization; such cooperation by the
Port Authority shall be limited to furnishing the Lessee
and the governmental authority with appropriate
information."
(c) Paragraph (d) thereof shall be deemed amended by adding at
the end of the first (1st) paragraph after the word "regulation"
the following:
", and the Lessee shall have no indemnity obligation with
respect to the aforementioned claims, actions, damages,
liabilities, fines, penalties, costs and expenses."
11. Section 11 of the Lease is hereby amended by adding at the
end thereof the following new paragraph:
"(e) Failure of the Lessee to observe and obey (and to
require its officers, employees, guests, invitees, and
those doing business with it to observe and obey) the
Port Authority Rules and Regulations shall not be a
breach of this Agreement as and to the extent compliance
therewith would constitute a violation of any
governmental law, rule, regulation, requirement, order or
direction."
12. (a) The first two (2) lines of paragraph (d) of Section
12 of the Lease shall be deemed amended to read as follows:
"The Lessee shall have the right and the obligation to
exercise reasonable control over the vehicular traffic
(including, but not limited to, vehicles operated by Port
Authority contractors and permittees) on the roadways or
other areas within the".
(b) The twenty-fourth (24th) through thirtieth (30th)
lines of paragraph (k) of Section 12 of the Lease shall be deemed
amended to read as follows:
" as set forth in the first sentence of this paragraph.
All locations, the manner, type and method of
construction and the size of any of the foregoing shall
be determined by the Port Authority with the Lessee to
have an opportunity to consult with the Port Authority
with respect to the foregoing. In making a judgment as
to whether any particular structures, fences, equipment,
devices or other facilities may be so necessary or
appropriate, the Port Authority shall take into account
the cost, among other factors, of such facility in
comparison to the expected benefits to be derived from
the construction thereof. The Lessee shall submit for
Port Authority approval its plans and specifications
covering the required work and upon receiving such
approval shall proceed diligently to construct the same."
(c) Section 12 of the Lease is hereby further amended by
adding at the end thereof the following new paragraphs "(o)" and
"(p)":
"(o) Without limiting any other of the Lessee's
obligations under the Lease, the Lessee shall provide the
General Manager of the Airport at the cost and expense of the
Lessee with such information, documentation, records,
correspondence, notices, reports, tests, results, and
certifications and any other information as the Port Authority
may request in connection with any Environmental Requirements
or Environmental Damages, and the Lessee shall promptly
acknowledge, swear to, sign or otherwise fully execute the
same. The Lessee agrees that any of the foregoing may be
filed by the Port Authority with the appropriate governmental
authority on behalf of the Lessee at the Lessee's cost and
expense. Further, the Lessee agrees unless directed otherwise
by the Port Authority, to provide the General Manager of the
Airport with copies of all information, documentation,
records, correspondence, notice, certifications, reports, test
results and all other submissions provided by the Lessee to a
governmental authority and by a governmental authority to the
Lessee within two (2) business days that the same are made
available to or received by the Lessee with respect to any
Environmental Requirements. Without limiting the foregoing or
any other term or provision of this Agreement, the Lessee
expressly understand and agrees that the foregoing shall
include without limitation the requirement that, with respect
to the Adams Ditch Area the Lessee shall submit to the Port
Authority true and complete executed copies of all
governmental permits and approvals (the Lessee agreeing to
consult with the Port Authority in the application for the
required individual freshwater wetlands permits and stream
encroachment permits), including but not limited to the
approval of the City of Newark, prior to the Lessee's
performance of any operations, filling in or any other
construction activities or work involving or related to said
Adams Ditch Area, and such other and further information as
the Port Authority may require or request.
(p) (1) In addition to and without limiting the
generality of the obligations of the Lessee set forth above
and elsewhere in the Lease, the Lessee shall at its sole cost
and expense and in accordance with and subject to the
provisions of Section 23 hereof, upon notice from the Port
Authority, promptly take all actions to completely remove,
clean-up and remediate all Hazardous Substances on the
premises or the Airport which result from the Lessee's use and
occupancy of the premises or, subject to Section 12(p)(2) of
the Lease, from the Lessee's performance of any construction
work or which have been disposed of, released, discharged or
otherwise placed on, under or about the premises during the
term of the letting hereunder, and, subject to
Section 12(p)(2) of the Lease, to cleanup and remediate all
other Hazardous Substances on, about or under the premises or
which have migrated from the premises to any adjoining
property, which any federal, state or local governmental
agency or political subdivision or any Environmental
Requirement or any violation thereof require to be remediated,
and to cleanup and remediate all Hazardous Substances
necessary to mitigate Environmental Damages. The foregoing
obligations of the Lessee shall include without limitation the
investigation of the environmental condition of the area to be
remediated, the presentation of feasibility studies, reports
and remedial plans, and the performance of any cleanup,
remediation, containment, operation, maintenance, monitoring
or restoration work; the standard for any of the foregoing to
be the applicable standard as required under Environmental
Requirements and, in the event that any Environmental
Requirement sets forth more than one standard, the standard to
be applied shall be that which requires the lowest level of a
Hazardous Substance unless the Port Authority consents to a
different standard being applied. Any actions of the Lessee
under the foregoing shall be performed in a good, safe and
workmanlike manner and shall minimize any impact on activities
off the premises. The Lessee shall promptly provide to the
Port Authority all copies of test results and reports
generated in connection with such actions. Promptly upon
completion of such investigation and remediation, the Lessee
shall seal or cap all monitoring wells and test holes, remove
all associated equipment and restore the remediated property.
(2) Notwithstanding anything to the contrary in the Lease
as herein amended, it is hereby agreed that, during the
performance of the Expansion Construction Work under Section
93 hereof and during the remainder of the letting hereunder,
the following specific limitations to the Lessee's
environmental obligations shall apply:
(i) the Lessee shall not be responsible
for contamination of soil and groundwater on,
about or under the premises caused by the acts
or omissions of the Port Authority;
(ii) the Lessee shall not be responsible for
contamination of soil or groundwater to the extent
that the same is caused by the flow of groundwater
or the leaching of soil from outside the premises if
the Lessee proves to the satisfaction of the Port
Authority that any such contamination was not caused
by the Lessee or by its, employees, agents,
contractors, sublessees, subtenants, invitees or by
others using or occupying the premises under this
Agreement, it being understood that the Lessee shall
have the burden of proof to establish that any
migration of a Hazardous Substance or said
contamination to the premises was not the result of
the Lessee's (or any of aforesaid other persons')
use and occupancy of the premises or any other areas
at the Airport; and
(iii) the Lessee shall not be responsible for
remediation and the cost of remediation of
Non-Hydrocarbon Contamination (as hereinafter
defined) in excess of the Non-Hydrocarbon Obligation
Amount (as hereinafter defined) provided that the
Lessee proves to the satisfaction of the Port
Authority that such Non-Hydrocarbon Contamination
was not caused by the Lessee or its employees,
agents, contractors, sublessees, subtenants,
invitees or others using or occupying the premises
under this Agreement, it being understood that the
Lessee shall have the burden of proof to establish
the same; and provided, further, however, that all
costs and expenses of or associated with the
removal, cleanup and any remediation of (aa) any and
all Hazardous Substances or any contamination (other
than Non-Hydrocarbon Contamination) other than any
caused by the acts or omissions of the Port
Authority; (bb) storage tanks for which the Lessee
is responsible, except as expressly provided in
paragraph (j) of Section 95 of the Lease; (cc) lead
and asbestos during any demolition, alteration or
construction on the premises; or (dd) any and all
contamination of any type whatsoever or any and all
Hazardous Substances in, on or under or from the
Adams Ditch area shall not apply against the
Non-Hydrocarbon Obligation Amount and the Lessee
shall be fully and solely responsible for the same
without such limitation. For purposes of this
clause (iii), the term "Non-Hydrocarbon
Contamination" shall mean contamination of soil or
groundwater the remediation of which is performed
due to the presence of Hazardous Substances other
than, or the methods for remediation of which exceed
those which would be required for the remediation
of, petroleum hydrocarbons; and the term
"Non-Hydrocarbon Obligation Amount" shall mean the
amount of Eight Million Dollars and No Cents
($8,000,000.00). The Port Authority shall be
responsible for the remediation of Non-Hydrocarbon
Contamination in excess of the Non-Hydrocarbon
Obligation Amount, which obligation shall survive
the expiration or termination of this Agreement.
Anything to the contrary in the foregoing
notwithstanding, it is expressly understood that with
respect to the said Adams Ditch area the Lessee shall be
fully responsible for all remediation, whether of
hydrocarbon contamination, Non-Hydrocarbon Contamination
or otherwise, and the cost of all remediation and all
Environmental Requirements and Environmental Damages.
(3) Nothing herein shall limit, modify, waive or
otherwise alter the rights, claims and remedies which the Port
Authority or the Lessee may have against third parties or
persons, whether at law, equity or otherwise."
13. Section 13 of the Lease shall be deemed amended as
follows:
(a) There shall be deemed added at the end of paragraph
(h) thereof the following:
"unless expressly approved by the Port Authority in
writing pursuant to Section 23 hereof and a tenant
Alteration Application signed and submitted by the Lessee
which has been fully approved by the Port Authority."
(b) There shall be deemed added at the end of paragraph
(l) thereof the following:
"except in accordance with Port Authority Rules and
Regulations."
(c) Paragraph (n) thereof shall be deemed amended by
inserting at the end of the sixth (6th) line thereof after the
words "ramp equipment" the following:
"(except as otherwise expressly allowed in Section 8
hereof)".
(d) Paragraph (n) thereof shall be deemed further amended
by inserting at the end of the seventh (7th) line thereof after the
word "than" the following:
"emergency or".
(e) There shall be deemed added at the end of said
Section 13 a new paragraph (r) reading as follows:
"(r) The Lessee shall not dispose of, release or
discharge nor permit anyone to dispose of,
release or discharge any Hazardous Substance on
or from the premises or at the Airport. In
addition to and without limiting any other term,
provision covenant or condition hereof, any
Hazardous Substance disposed of, released or
discharged by the Lessee (or permitted by the
Lessee to be disposed of, released or
discharged) on or from the premises or at the
Airport, shall upon notice by the Port Authority
to the Lessee and subject to the provisions of
this Agreement, be removed, cleaned-up and/or
remediated by the Lessee at the Lessee's sole
cost and expense. The obligations of the Lessee
pursuant to this paragraph shall survive the
expiration or termination of this Agreement."
14. Section 15 of the Lease, as previously amended, shall be
deemed further amended as follows:
(a) There shall be deemed added at the end of paragraph (a)
thereof the following:
"The foregoing shall not be deemed to waive any
rights or claims that the Lessee or the Port
Authority may have against third parties."
(b) Subparagraph (3) of paragraph (b) thereof shall be
amended by replacing the first four (4) lines thereof with the
following:
"(3) Take good care of the premises and maintain the
same at all times in good condition, except for reasonable
wear and tear resulting from the use of the premises to
the extent permitted elsewhere in this Agreement or
conditions solely due to the aging of the premises, which
reasonable wear and tear or aging do not adversely affect
in any material manner the efficient utilization thereof
and do not adversely affect the proper utilization
thereof;"
(c) Subparagraph (5) of paragraph (b) thereof shall be deemed
amended by inserting the word "reasonably" before the word
"require" on the last line thereof.
(d) There shall be deemed added at the end of subparagraph
(7) of paragraph (b) thereof the following:
"the foregoing not to be deemed to prohibit the
Lessee from recovering the cost of any such
repairs against any third party who has
responsibility therefor;"
(e) The last two (2) lines of paragraph (e) thereof shall be
deemed amended to read as follows:
"at such locations, or take other appropriate
measures as may be directed by the General
Manager of the Airport, to insure the safety of
the work performed thereat."
(f) The word and number "twenty (20)" appearing on the fourth
(4th) line of paragraph (f) thereof shall be deemed changed to
"thirty (30)".
15. Section 17 of the Lease, as previously amended and set
forth in Supplement No. 8 of the Lease, shall be deemed further
amended to read as follows:
(a) The words "nuclear property losses and" shall be deemed
deleted from the eighteenth (18th) line of paragraph (a) thereof.
(b) The following shall be deemed added at the end of
paragraph (a) thereof:
", provided that such insurance for this peril
is available within the commercial insurance
marketplace at the time of the Port Authority's
request."
(c) The fourth (4th) line of the second (2nd) subparagraph of
paragraph (c) shall be deemed amended to read as follows:
"16; and the word "insurance" and all other references to
insurance in".
(d) The second (2nd) sentence of the third (3rd) subparagraph
of paragraph (c) shall be deemed amended to read as follows:
"If at any time any of the said companies
issuing the policies shall be or become
unsatisfactory to the Port Authority or if at
any time any of the insurance policies shall be
or become unsatisfactory to the Port Authority
as to form or substance, the Lessee shall
promptly obtain a new and satisfactory in
replacement, the Port Authority agreeing to
provide written notice to the Lessee, upon the
written request of the Lessee, of the reasons it
finds such policies or companies unsatisfactory
and further covenanting and agreeing not to act
unreasonably hereunder."
(e) The following new paragraph (d) shall be added at the end
thereof:
"(d) With respect to the insurance required to be carried
pursuant to subparagraph (14) of paragraph (d) of Section
93 of the Lease and this Section 17, the Lessee recognizes
that the Port Authority is obligated under the Basic
Lease, to use the proceeds of such insurance in the manner
set forth in Section 16 of the Lease. In the event that
there shall be a casualty and (i) it shall become legally
impossible to rebuild all or any portion of the Expansion
Construction Work, or (ii) the Port Authority or the
Lessee shall be enjoined from or restricted under the
terms of any contract, law, judgment, ruling, rule,
regulation, or order of any Governmental Authority or
court of competent jurisdiction from rebuilding all or any
portion of the Expansion Construction Work, or (iii) the
Port Authority and the Lessee shall determine that all or
any portion of the Expansion Construction Work cannot be
rebuilt, the Port Authority shall deliver to and only to
the Trustee (as defined in Section 96), to the extent of
available insurance proceeds which the Port Authority is
entitled to retain as its own, if any, under the Basic
Lease, or which the City of Newark consents to the Port
Authority retaining or utilizing for such purpose, an
amount which, together with any reserves or similar
amounts available for such purpose, would be sufficient to
redeem at that time the then-outstanding Bonds and
Additional Bonds (as such terms are defined in Section 96)
issued in connection with the Expansion Construction Work,
in proportion to the portion of the Expansion Construction
Work that cannot be so rebuilt, were such Bonds and
Additional Bonds to be redeemed at that time, which amount
shall be applied against such Bonds and Additional Bonds
in accordance with their payment terms; provided, however,
that the provisions of the Indenture (as defined in
Section 96) shall govern as to whether the Bonds and
Additional Bonds or any portion thereof are required
actually to be redeemed at that time."
16. (a) Paragraph (a) of Section 18 of the Lease, as
previously amended by Supplement No. 6 of the Lease, shall be
deemed further amended by inserting after the word "Airport" which
appears on the fifteenth (15th) line thereof the following:
"(excepting only claims and demands which result
solely from the willful misconduct, or the sole
negligence, of the Port Authority);".
(b) The sentence preceding the last sentence of paragraph
(c) of Section 18 of the Lease shall be deemed amended to read as
follows:
"If at any time any of the said companies
issuing the policies shall be or become
unsatisfactory to the Port Authority or if at
any time any of the insurance policies shall be
or become unsatisfactory to the Port Authority
as to form or substance, the Lessee shall
promptly obtain a new and satisfactory in
replacement, the Port Authority agreeing to
provide written notice to the Lessee, upon the
written request of the Lessee, of the reasons it
finds such policies or companies unsatisfactory
and further covenanting and agreeing not to act
unreasonably hereunder."
17. Paragraph (b) of Section 19 of the Lease shall be deemed
amended by inserting after the word "Airport" on the fourth (4th)
line thereof the following:
"pertaining to the premises hereunder".
18. Paragraph (a) of Section 22 of the Lease shall be deemed
amended by inserting at the end thereof the following:
"The Port Authority shall, except in emergencies, spot
inspections or other cases of immediate need of the Port
Authority, give prior notice to the Lessee of such entry by
the Port Authority into areas of the premises not open to the
general public or to air passengers."
19. Paragraph (b) of Section 22 of the Lease shall be deemed
amended by inserting at the end of the next-to-last sentence
thereof the following:
"; and provided further, however, that the Lessee shall
not be responsible (notwithstanding any other provision
of the Lease as herein amended) for remediation of
contamination associated with or encountered in
connection with any such activities, unless the same was
caused by the Lessee"
20. Paragraph (a) of Section 23 of the Lease shall be deemed
amended by inserting after the word "Authority" on the tenth (10th)
line thereof the following:
", which may consist of, inter alia, the
submission by the Lessee to the Port Authority
for its approval of a tenant Alteration
Application in the form prescribed by the Port
Authority".
21. (a) Subparagraph (3) of paragraph (a) of Section 24 of
the Lease shall be deemed amended by changing the word and number
"thirty (30)" appearing in the ninth (9th) line thereof to "sixty
(60).
(b) Subparagraph (4) of paragraph (a) of Section 24 of the
Lease shall be deemed amended by inserting after the word
"operations" on the third (3rd) line thereof the following:
"(the term "operations" meaning any activities which are
permitted or required under this Agreement)"
(c) Subparagraph (4) of paragraph (a) of Section 24 of the
Lease shall be deemed amended by changing the word and number
"thirty (30)" appearing in the fifth (5th) line thereof to sixty
(60).
(d) Subparagraph (4) of paragraph (a) of Section 24 of the
Lease shall be deemed amended by inserting after the word "Lessee"
on the last line thereof the following:
", unless the same shall be or would become, with
the passage of time, an event on the basis of which
the Lessee may terminate this Agreement pursuant to
Section 61(a)(1) hereof".
(e) Subparagraph (5) of paragraph (a) of Section 24 of the
Lease shall be deemed amended by changing the word and number
"thirty (30)" appearing in the fourth (4th) line thereof to "sixty
(60).
(f) Subparagraph (7) of paragraph (a) of Section 24 of the
Lease shall be deemed amended by changing the word and number
"thirty (30)" appearing in the fifth (5th) line thereof to sixty
(60)".
(g) The word and number "twenty (20)" appearing at the end of
the second (2nd) line and the beginning of the third (3rd) line of
the last subparagraph of paragraph (a) of Section 24 shall be
deemed changed to "thirty (30)".
(h) Subparagraph (8) of paragraph (a) of Section 24 of the
Lease shall be deemed amended to read as follows:
"(8) If either (i) the Lessee shall, without the
prior written approval of the Port Authority, become
a merged (non-surviving) corporation in a merger, a
constituent corporation in a consolidation, or a
corporation in dissolution, except as otherwise
expressly permitted in paragraph (a) of Section 77
hereof, or (ii) the Lessee shall, without the prior
written approval of the Port Authority, become a
possessor (surviving) corporation in a merger
without complying with the provisions of
subparagraph (2) of paragraph (a) of Section 77
hereof;".
(i) Paragraphs (c) and (d) of Section 24 of the Lease shall
be deemed deleted therefrom and the following new paragraph (c)
shall be deemed inserted in lieu thereof:
"(c) No failure by the Port Authority to insist
upon the strict performance of any agreement, term,
covenant or condition of the Lease or to exercise
any right or remedy consequent upon a breach or
default thereof, and no extension, supplement or
amendment of the Lease during or after a breach
thereof, unless expressly stated to be a waiver, and
no acceptance by the Port Authority of rentals,
fees, charges or other payments in whole or in part
after or during the continuance of any such breach
or default, shall constitute a waiver of any such
breach or default of such agreement, term, covenant
or condition. No agreement, term, covenant or
condition of the Lease to be performed or complied
with by the Lessee, and no breach or default
thereof, shall be waived, altered or modified except
by a written instrument executed by the Port
Authority. No waiver by the Port Authority of any
default or breach on the part of the Lessee in
performance of any agreement, term, covenant or
condition of this Lease shall affect or alter the
Lease, but each and every agreement, term, covenant
and condition thereof shall continue in full force
and effect with respect to any other then existing
or subsequent breach or default thereof."
(j) Paragraph (e) of Section 24 shall be deemed redesignated
as paragraph "(d)".
22. Section 27 of the Lease, as previously amended, shall be
deemed further amended as follows:
(a) Subparagraph (1) of paragraph (b) thereof is hereby
amended by inserting after the word "and" at the end thereof the
following
"on account of the constant factor or the
Facility Factor, as the case may be, of the Area
C-3 annual rental obligations of the Lessee, the
amount of the total of the constant factor or
the Facility Factor, as the case may be, of all
annual Area C-3 rentals, less the amount
attributable to the constant factor or the
Facility Factor, as the case may be, in the
installments of said Area C-3 rental payable
prior to the effective date of the termination
except that the credit to be allowed for the
amount attributable to the constant factor or
the Facility Factor, as the case may be, in the
installment payable on the first day of the
month in which the termination is effective
shall be prorated for the part of the month the
letting remains in effect; on the basis of the
actual number of days in the month; and".
(b) Subparagraph (2) of paragraph (b) thereof is hereby
amended by inserting after the word "and" at the end thereof the
following:
"on account of the Airport Services Factor
of the Lessee's Area C-3 annual rental
obligation, an amount equal to the product
resulting from multiplying the tentative Airport
Services Factor in effect at the time such
termination or cancellation (or re-entry,
regaining or resumption of possession) occurs by
the number of full years remaining in the
balance of the term, provided, however, that if
only a portion of a year in addition to a number
of full years remains in the balance of the
term, an amount shall be added to the product
determined hereinabove which amount shall be
equal to the product resulting from multiplying
the aforementioned tentative Airport Services
Factor by a fraction the numerator of which is
the number of days in such portion of a year and
the denominator of which is the actual number of
days in the year, and".
(c) Subparagraph (3) of paragraph (b) of Section 27 of the
Lease shall be deemed amended by inserting after the word
"expenses" on the fifth (5th) line thereof the following:
"(including but not limited to the cost to the Port
Authority of in-house legal services)".
(d) A new subparagraph (4) of paragraph (b) of said Section 27
shall be deemed inserted immediately following subparagraph (3)
thereof (as renumbered in Supplement No. 6 of the Lease) to read as
follows:
"(4) On account of the Lessee's obligations to pay the
Cost of Assumable Maintenance and Repair set forth in Section
85 hereof, an amount equal to the total sum of the Capital
Cost under Section 85 hereof less the amount thereof payable
prior to the effective date of termination, except that the
credit to be allowed for the amount attributable to the
installment payable on the first day of the month in which the
termination is effective shall be prorated for the part of the
month the letting remains in effect or the actual number of
days in such month."
(e) Section 27 of the Lease is hereby further amended by
adding at the end thereof the following new paragraphs "(c)" "(d)"
and "(e)" reading as follows:
"(c) In addition to and without limiting the
foregoing or any other right, claim or remedy of the
Port Authority, legal or equitable, under this Lease
or otherwise, in the event this Lease shall be
terminated pursuant to Section 24 hereof and the
Lessee shall not have completed the Expansion
Construction Work, as defined in Section 93 hereof,
or any portion thereof, within the time period(s)
specified in paragraph (d) (2) of Section 93 hereof,
the Lessee shall and hereby agrees to pay to the
Port Authority any and all amounts, costs and
expenses, of any type whatsoever, paid or incurred
by the Port Authority by reason of the failure of
the Lessee so to complete the Expansion Construction
Work, or any portion thereof, including without
limitation all interest, completion and other costs,
damages, direct, indirect and consequential, losses
and penalties, and all of the same shall survive the
expiration or termination of this Agreement and
shall be deemed treated as survived damages
hereunder in addition to the foregoing.
(d) Notwithstanding anything to the contrary herein contained,
all of the obligations of the Lessee under this Lease with
respect to Environmental Damages and Environmental
Requirements shall survive the expiration or termination
of this Agreement.
(e) Without limiting any of the foregoing, the Port Authority
may at any time bring an action to recover all the damages
as set forth above not previously recovered in separate
actions, or it may bring separate actions to recover the
items of damages set forth in subparagraphs (1), (2), (3)
and (4) of paragraph (b) above and separate actions
periodically to recover from time to time only such
portion of the damages set forth in subparagraphs (1) and
(2) of paragraph (b) above as would have accrued as Base
Annual Rental and Area C-3 rental up to the time of the
action if there had been no termination or cancellation.
In any such action the Lessee shall be allowed a credit
against its survived damages obligations equal to the
amounts which the Port Authority shall have actually
received from any tenant, licensee, permittee or other
occupier of the premises or a part thereof during the
period for which damages are sought, and if recovery is
sought for a period subsequent to the date of suit a
credit equal to the market rental value of the premises
during such period (discounted to reflect the then present
value thereof). If at the time of such action the Port
Authority has used and occupied or relet the premises, the
rental for the premises obtained through such use and
occupancy or reletting shall be deemed to be the market
rental value of the premises or be deemed to be the basis
for computing such market rental value if less than the
entire premises were used or occupied or relet. In no
event shall any credit allowed to the Lessee against its
damages for any period exceed the then present value of
the annual rental which would have been payable under this
Agreement during such period if a termination or
cancellation had not taken place."
23. The last three (3) lines of Section 30 of the Lease shall
be deemed amended to read as follows:
"promptly and in as good condition as of the
commencement of the letting thereof (such
commencement in the case of new construction
being as of the completion thereof), except for
(1) reasonable wear and tear resulting from the
use of the premises to the extent permitted
elsewhere in this Agreement or (2) conditions
solely due to the aging of the premises, which
reasonable wear and tear or aging do not
adversely affect in any material manner the
efficient utilization of the premises or
adversely affect the proper utilization of the
premises for the purposes permitted hereunder or
the water-tightness or structural integrity of
the premises), but not resulting from any delay
or failure to maintain and repair hereunder. In
addition, all of the premises shall be free and
clear of all liens, encumbrances, and security
interests created by the Lessee, its sublessees,
contractors, subcontractors, or other persons
acting through, under or on behalf of the
Lessee.
In addition to and without limiting the
foregoing, it is recognized the expiration date of
the Area C-3 portion of the premises (as set forth
in Supplement No. 17 of the Lease) is March 31, 2028
and that the expiration date of the C-1 and C-2
portions of the premises is March 31, 2013, and it
is hereby understood and agreed, with respect to any
systems serving or common to both Area C-3 and the
C-1 and C-2 portions of the premises, that it shall
be the obligation of the Lessee, at its sole cost
and expense, to perform and complete, prior to said
March 31, 2013 expiration date, all alteration and
other work necessary or appropriate (subject to
Section 23 hereof) to separate each such system so
as to enable each such system to operate
independently in Area C-3, and that the Port
Authority will require any new tenant or lessee in
the C-1 and C-2 portions of the premises to perform
such work in its leasehold in the C-1 and C-2
portions of the premises. "
24. Section 33 of the Lease shall be deemed amended by adding
at the end thereof the following two (2) new subparagraphs reading
as follows:
"The Port Authority agrees that during the term
of the letting hereunder the Port Authority will
not take any action the taking of which, or omit
to take any action the failure of which to take,
would amount to or have the effect of canceling,
surrendering, terminating, modifying or amending
the Basic Lease prior to the date specified in
the Basic Lease for its expiration insofar as
such cancellation, surrender, termination,
modification, or amendment would in any manner
deprive the Lessee of any of its rights,
licenses or privileges under this Agreement.
Nothing herein shall prevent the Port Authority
from entering into an agreement with the City of
Newark pursuant to which the Basic Lease is
surrendered, cancelled or terminated provided
that the City of Newark, at the time of such
agreement, assumes the obligations of the Port
Authority under this Agreement."
25. Paragraph (d) of Section 36 of the Lease shall be deemed
amended by inserting at the end thereof the following:
"Subject to Section 12(p)(2) of the Lease, the
Lessee hereby further agrees to relieve the Port
Authority from and to assume all responsibility for
any and all risks, costs and expenses of any kind
whatsoever caused by, arising out of or in
connection with, the condition of the premises and
all parts thereof whether any aspect of such
condition existed prior to, on or after the
applicable effective date of the letting of each
part of the premises hereunder, including without
limitation all Environmental Requirements and
Environmental Damages, and to indemnify and hold
harmless the Port Authority for all such risks,
responsibilities, costs and expenses. If so
directed, the Lessee shall at its own expense defend
any suit based upon any such claim or demand (even
if such suit, claim or demand is groundless, false
or fraudulent), and in handling such it shall not,
without obtaining express advance written permission
from the General Counsel of the Port Authority,
raise any defense involving in any way the
jurisdiction of the tribunal over the person of the
Port Authority, the immunity of the Port Authority,
its Commissioners, officers, agents or employees,
the governmental nature of the Port Authority, or
the provisions of any statutes respecting suits
against the Port Authority. It is hereby understood
and agreed that whenever reference is made in this
Lease to the condition of the premises as of the
commencement of the term thereof, the same shall be
deemed to mean the condition of the premises as of
the applicable commencement date of the letting of
each part of the premises under this Lease, and as
to the improvements made and the alteration work
performed during the term of the Lease in the
condition existing after the completion of the same.
All the obligations of the Lessee under this Section
with respect to responsibilities, risks, costs and
expenses assumed by the Lessee shall survive the
expiration or termination of this Lease."
26. The last three (3) sentences of Section 37 of the Lease,
as previously amended, are hereby further amended to read as
follows:
"Until further notice, the Port Authority hereby
designates its Executive Director, and the Lessee
designates its Vice President of Corporate Real
Estate (or such other authorized officer as may be
designated by the Lessee by written notice to the
Port Authority) as their officers upon whom notices
and requests may be served, and the Port Authority
designates its office at One World Trade Center, New
York, New York 10048, and the Lessee designates its
office at Continental Airlines, Inc., 1600 Smith
Street, Houston, Texas 77002, as their respective
offices where notices and requests may be served.
The Port Authority shall for informational purposes
only send a copy by regular first class mail of all
such notices and requests to the Lessee's General
Counsel at Continental Airlines, Inc., P.O.
Box 4607, HQSEO, Houston, Texas 77210-4607.
Failure on the part of the Port Authority to send
the informational copy shall not however be or be
deemed to be a breach of this Agreement, or impair
or affect the validity of the notice or request
actually given."
27. Paragraph (c) of Section 38 of the Lease shall be deemed
amended by inserting after the word "Authority" on the eighth (8th)
line thereof the following:
"(except where fulfillment of the Lessee's
compliance obligations hereunder requires
activity over a period of time, and the Lessee
shall have commenced to perform whatever may be
required for fulfillment within twenty (20) days
after receipt of notice and continues such
performance without interruption)".
28. Section 41 of the Lease is hereby amended by adding at the
end thereof the following new paragraph (c) reading as follows:
"(c) If any clause, provision or section of this
Agreement shall be ruled invalid by any court of competent
jurisdiction, the invalidity of such clause, provision or
section or sections shall not affect any of the remaining
clauses, provisions or sections hereof."
29. Paragraph (d) of Section 49 of the Lease, as previously
amended, shall be deemed further amended by changing the "1998" in
the seventh (7th) and ninth (9th) lines thereof to "2018" and by
changing the "1999" in the last line thereof to "2019".
30. Section 53 of the Lease, as previously amended, shall be
deemed further amended as follows:
(a) The date appearing on the third (3rd) line of paragraph
(a) (1) thereof (as set forth in Supplement 15 of the Lease) as
"March 31, 2013" shall be deemed amended to read "December 31,
2018".
(b) Subparagraph (2) of paragraph (a) of Section 53 of the
Lease, as previously amended, shall be deemed further amended to
read as follows:
"(2) It is recognized that pursuant to Paragraph 2 of
Supplement No. 17 to the Lease the term of the letting of
only the Area C-3 portion of the premises is extended to
March 31, 2028, and that flight fee provisions contained
in Schedule C are effective through December 31, 2018.
It is hereby agreed that for the portion of the term of
the letting of said Area C-3 hereunder subsequent to
December 31, 2018, the Port Authority and the Lessee
shall negotiate in good faith toward the establishment of
provisions covering the determination of the flight fees
payable by the Lessee for the portion of the term of said
Area C-3 commencing January 1, 2019 through the
expiration date of the term of the letting of said Area
C-3 hereunder (March 31, 2028), and upon the
establishment of the same the Lessee shall pay flight
fees in accordance with said provisions for said portion
of the term. If the parties do not reach such agreement,
the Lessee shall pay flight fees in accordance with the
Port Authority's Schedule of Charges for said portion of
the term of said Area C-3 commencing January 1, 2019."
31. The last line of the seventh (7th) subparagraph of
paragraph (a) of Section 54 of the Lease is hereby amended to read
as follows:
"additions, and also including the modifications and
additions to the Fuel System which the Lessee shall
perform as part of the Expansion Construction Work
under Section 93 hereof, shall be and become part of
the Fuel System."
32. Section 56 of the Lease, as previously amended, shall be
deemed further amended to as follows:
(a) The date appearing on the second (2nd) line of paragraph
(a) thereof (as set forth in Supplement 15 of the Lease) as "March
31, 2013" shall be deemed amended to read "December 31, 2018".
(b) The second (2nd) subparagraph of paragraph (a) of Section
56 of the Lease, as previously amended, shall be deemed further
amended to read as follows:
"It is recognized that pursuant to Paragraph 2
of Supplement No. 17 to the Lease the term of
the letting of only the Area C-3 portion of the
premises is extended to March 31, 2028, and that
the fuel gallonage fee provisions contained in
Schedule D are effective through December 31,
2018. It is hereby agreed that for the portion
of the term of the letting of said Area C-3
hereunder subsequent to December 31, 2018, the
Port Authority and the Lessee shall negotiate in
good faith toward the establishment of
provisions covering the determination of the
fuel gallonage fees payable by the Lessee for
the portion of the term of said Area C-3
commencing January 1, 2019 through the
expiration date of the term of the letting of
said Area C-3 hereunder (March 31, 2028), and
upon the establishment of the same the Lessee
shall pay fuel gallonage fees in accordance with
said provisions for said portion of the term.
If the parties do not reach such agreement, the
Lessee shall pay fuel gallonage fees in
accordance with the Port Authority's Schedule of
Charges for said portion of the term of said
Area C-3 commencing January 1, 2019."
33. Paragraph (a) of Section 59 of the Lease shall be deemed
amended to add the following at the end thereof:
"Notwithstanding the foregoing, the Lessee, utilizing a
vendor holding a permit from the Port Authority to perform
such services at the Airport (which permit shall, among
its other terms, contain the obligation of such vendor to
pay to the Port Authority the Port Authority's then-
prevailing fee for such activities), may install, maintain
or operate, or permit the installation, maintenance or
operation, in the non-public areas of the premises of
vending-machines or devices designed to dispense or sell
food, beverages, tobacco, and tobacco products, solely for
its employees and the employees of others doing business
with the Lessee."
34. Paragraph (c) of Section 61 of the Lease shall be deemed
amended by adding at the end thereof before the final period the
following:
"provided that the Lessee shall not have the
right to terminate the Lease as to the Mortgaged
Premises (as defined in Section 96 hereof)
without the consent of the Leasehold Mortgagee
(as defined in Section 96 hereof) so long as the
Leasehold Mortgage or the Reletting Rights (as
defined in said Section 96) of the Leasehold
Mortgagee remain in effect".
35. The Lease is hereby amended to add the following Section
61A immediately following Section 61 of the Lease as herein
amended:
"Section 61A. Effect of Termination by Lessee
(a) If the Lessee terminates the letting pursuant to the
provisions of Section 61(a)(1), subject to the proviso at the
end of Section 61(c) hereof, then the Port Authority may, at
its option, pay to the Lessee the amount of the Lessee's
investment in the premises (excluding any investment by the
Port Authority and further excluding any personal property)
arising out of the performance of the Expansion Construction
Work pursuant to and as set forth in Section 93 of the Lease,
after deducting therefrom an amount equivalent to an allowance
for depreciation and amortization to be computed on a
straight-line basis over a period equal to the applicable
lease term hereunder, not taking into consideration the effect
of any accelerated amortization granted to or taken by the
Lessee on its books or otherwise under any applicable law (for
purposes of this Section 61A, the "Unamortized Capital
Investment"). For purposes of this Section 61A, the Lessee's
investment in the premises arising out of the performance of
the Expansion Construction Work shall be limited to that
portion of the amount of the Bonds (as defined in
Section 96(a)(8) of the Lease) allocated to the Expansion
Construction Work and the Lessee's out-of-pocket payments to
third parties and other direct costs relating to the Expansion
Construction Work. Such option shall be evidenced by notice
in writing to the Lessee by the Port Authority within sixty
(60) days after the Lessee has given notice of termination.
The failure of the Port Authority to exercise the said option
will impose no obligation upon it to relet the premises.
(b) If the Lessee terminates the letting pursuant to the
provisions of Section 61(a)(2), subject to the proviso at the
end of Section 61(c), then the Port Authority may, at its
option, pay to the Lessee the Unamortized Capital Investment,
if any. Such option shall be evidenced by notice in writing
to the Lessee by the Port Authority within sixty (60) days
after the Lessee has given notice of termination. If the Port
Authority fails to exercise such option, then the Port
Authority shall use commercially reasonable efforts to relet
the premises.
(c) Subject to Section 96 hereof, if the Port Authority
relets the premises prior to the date upon which this
Agreement would have expired but for such termination, then
the net rent paid by the new tenant(s) to the Port Authority
(after deducting any costs or expenses incurred by the Port
Authority in securing said new tenant(s) and in complying with
the terms of this Agreement to such tenant(s), including but
not limited to the costs of alteration and decoration of such
premises, in the event of termination pursuant to the
provisions of Section 61(a)(1), and after deducting any costs
or expenses incurred by the Port Authority for any new
improvements to said premises made by the Port Authority prior
to the date of such termination, the maintenance of said
premises, or services furnished to the new tenant, and after
deducting the amounts which would have been payable as rent by
the Lessee but for such termination) shall be paid over by the
Port Authority to the Lessee until said amounts paid over
equal the Unamortized Capital Investment of the Lessee in the
premises as of the date of termination. The obligation of the
Port Authority to pay over to the Lessee any net rent received
from such new tenant(s) shall endure only while such new
tenant(s) continues to pay rent and occupy such premises, and
only while the Unamortized Capital Investment of the Lessee in
such premises is unamortized, and in no event is such
obligation to pay over to endure beyond the date upon which
this Agreement would have expired but for such termination.
(d) The Lessee shall, with respect to its investment in
the premises arising out of the performance of the Expansion
Construction Work, maintain at all times during the term of
this Agreement and for two (2) years after the termination
thereof, in accordance with accepted accounting practice,
records and books of account, such records and books to be
available for audit and inspection by the Port Authority, its
representatives and employees upon request at all reasonable
times and to be kept at all times in the Port of New York
District; provided, however, that the Lessee may produce all
such records and books to the satisfaction of the Port
Authority in the Port of New York District, or, on the
condition that the Lessee shall pay to the Port Authority all
travel costs and expenses as determined by the Port Authority
for Port Authority auditors and other representatives in
connection with an audit at locations outside the Port of New
York District, the Lessee may maintain said records and books
and make them available to the Port Authority at the Lessee's
principal office, which currently is located at 1600 Smith
Street, Houston, Texas 77002."
36. Section 62 of the Lease shall be deemed amended as
follows:
(a) The words "at its option" shall be added following
the word "Lessee" in the eighth (8th) line thereof.
(b) The word "The" at the beginning of the last sentence
thereof shall be replaced by the words "In the event that the
Lessee shall exercise such option, the".
37. The second (2nd), third (3rd) and fourth (4th) sentences
of Section 63 of the Lease shall be deemed amended to read as
follows:
"The Lessee agrees that any food, alcoholic or
non-alcoholic beverages and similar items sold or
furnished to the passengers, guests or invitees of the
Lessee in any such rooms or space shall, where a
charge or other money payment for such item or items
is imposed on or collected from such passengers,
guests or invitees, be obtained by the Lessee from an
Operator who has been authorized by the Port Authority
to operate establishments for the sale of food,
alcoholic and non-alcoholic beverages and similar
items for consumption in passenger terminal facilities
at the Airport; provided that as to any such item
which is supplied to said passengers, guests or
invitees in such club rooms and at no charge by the
Lessee (or any sublessee) or the operator, no fee
shall apply to such item. All monies paid or payable
to the Operator for such sales shall be included in
the gross receipts of the Operator. In the event the
Lessee wishes to use its own personnel for serving
food, alcoholic or non-alcoholic beverages and similar
items it may do so; provided that where a charge or
other money payment for such item or items is imposed
on or collected from such passengers, guests or
invitees the food, alcoholic and non-alcoholic
beverages are obtained by the Lessee from an Operator
authorized by the Port Authority and provided that
monies paid therefor, in that event, shall be included
in the gross receipts of the Operator. If the Lessee
uses its own personnel for serving food, alcoholic or
non-alcoholic beverages and similar items where a
charge or other money payment for such item or items
is imposed on or collected from its passengers, guests
or invitees, the Lessee will pay a fee to the Port
Authority as shall be specified by the Port Authority
which will not be greater than the fee that would be
retained by the Port Authority if the food, alcoholic
or non-alcoholic beverages and similar items were
served by the Operator."
38. Paragraph (a) of Section 64 of the Lease shall be deemed
amended by inserting at the end thereof the following:
"or under Section 62 hereof".
39. Subparagraph (i) of paragraph (g) of Section 66 of the
Lease, as previously amended, shall be deemed further amended by
deleting the words "at present" in the fourth (4th) line thereof.
40. Section 69 of the Lease shall, as previously amended, be
deemed further amended to read as follows:
(a) (1) The title of said Section 69 shall be deemed amended
to read "Section 69. Rights of Accommodation by the Port
Authority".
(2) Paragraph (a) thereof, as previously amended, shall
be deemed further amended as follows:
(i) The number appearing (as set forth in
Supplement No. 6 of the Lease) as "57,200" shall be deemed
amended to read "36,000, increased to 46,800 effective on the
Expansion Construction Work Completion Date, (each of the said
numbers during the said respective periods of time being
hereinafter called "the Lessee's Commencement Basic Schedules"
and the number 10,800 being hereinafter called "the Lessee's
Concourse C-3 Commencement Basic Schedule")".
(ii) The following shall be deemed added at the end
thereof:
"The Lessee's FIS Basic Schedule shall be calculated as
thirty percent (30%) of the Lessee's Concourse C-3
Commencement Basic Schedule."
(b) Paragraphs (c) and (d) of said Section 69 are hereby
amended to read as follows:
"(c) (1) (i) As of January 1, 1999 and as of January 1
of each succeeding calendar year in the event that for
reasons within the Lessee's control the Lessee's Basic
Schedules for the immediately preceding calendar year for
the Airport are less than sixty percent (60%) of the
Lessee's Commencement Basic Schedules or (ii) as of
January 1, 1999 and as of January 1 of each succeeding
calendar year in the event that because of reasons beyond
the control of the Lessee the Lessee's Basic Schedules
for the immediately preceding two calendar years are less
than sixty percent (60%) of the Lessee's Commencement
Basic Schedules, or (iii) as of January 1, 1999 in the
event that for any reason whatsoever, other than an event
of force majeure as covered by Section 64 hereof, the
Lessee fails to operate a minimum of three (3) aircraft
flight turnaround operations per aircraft gate position
at the premises each and every calendar day for the
immediately preceding three (3) calendar months (with
aircraft no smaller than jet aircraft capable of
utilizing the loading bridges thereat with a minimum
seating capacity of 43 seats), then in any of such events
and without limiting each and every other right of the
Port Authority under this Agreement or otherwise, the
Port Authority shall have the right, upon six (6) months'
prior written notice to the Lessee, to require the
Lessee, and the Lessee hereby agrees, to make available
Gate Accommodations (as hereinafter defined) at the
premises as directed by the Port Authority, to Scheduled
Aircraft Operators (as said term is defined in Section 72
hereof) and also including Scheduled Commuter Aircraft
Operators (hereinafter in this Section 69 collectively
called the "Scheduled Aircraft Operators"). For purposes
of this Section 69, upon the expiration or termination of
the term of the letting of the C-1 and C-2 portions of
the premises under the Lease, the term "Lessee's
Commencement Basic Schedules" shall be replaced by the
term "Lessee's Concourse C-3 Commencement Basic
Schedule."
(2) The Lessee shall make such Gate Accommodations
available from time to time during the entire period
commencing on the effective date set forth in the aforesaid
notice and ending when the Lessee's Basic Schedules for a
calendar year, determined in accordance with the foregoing
shall have been sixty percent (60%) or more of the Lessee's
Commencement Basic Schedules (hereinafter called "a period of
underutilization"). The term "Gate Accommodations" as used in
this Section 69 shall mean aircraft ramp and gate position
capacity and related passenger terminal facilities including,
but not limited to passenger ticketing, passenger check-in,
baggage handling systems and flight information systems,
passenger lounge and waiting areas and appropriate signage and
public identification. Such Gate Accommodations may be
accomplished by the Lessee by making available and providing
non-exclusive use of gate positions and other related
facilities to Scheduled Aircraft Operators pursuant to
handling agreements (as described in Section 72 (o) hereof)
between the Lessee and any such Scheduled Aircraft Operator
(hereinafter called 'the Handled Airline').
(3) As of the first (1st) day of the seventh (7th)
calendar month following the issuance of the certificate
called for in paragraph (n)(1) of Section 93 of the Lease, in
the event that the daily average number of passengers
processed through the FIS facilities for the immediately
preceding six (6) calendar months is less than sixty percent
(60%) of the Lessee's FIS Basic Schedule, then the Port
Authority shall have the right, upon six (6) months' prior
written notice to the Lessee, to require the Lessee, and the
Lessee hereby agrees, to make available FIS Accommodations (as
hereinafter defined; Gate Accommodations and FIS
Accommodations being sometimes collectively referred to herein
as "Accommodations") at the premises as directed by the Port
Authority, to Scheduled Aircraft Operators (as said term is
defined in Section 72 hereof) and also including Scheduled
Commuter Aircraft Operators (hereinafter in this Section 69
collectively called the 'Scheduled Aircraft Operators').
(4) The Lessee shall make such FIS Accommodations
available from time to time during the entire period
commencing on the effective date set forth in the aforesaid
notice and ending when the Lessee's daily average number of
passengers processed through the FIS facilities for the
immediately preceding six (6) calendar months shall have been
sixty percent (60%) or more of the Lessee's FIS Basic
Schedules (hereinafter called "a period of underutilization").
The term "FIS Accommodations" as used in this Section 69 shall
mean aircraft ramp and gate position capacity and related
passenger terminal facilities including, but not limited to
use of the FIS facilities, passenger ticketing, passenger
check-in, baggage handling systems and flight information
systems, passenger lounge and waiting areas and appropriate
signage and public identification. Such FIS Accommodations
may be accomplished by the Lessee by making available and
providing non-exclusive use of gate positions and other
related facilities to Scheduled Aircraft Operators.
(5) The Lessee shall negotiate in good faith the terms of
any such Accommodations with the Handled Airline; provided,
however, in no event shall the Lessee be required to provide
Accommodations for a rental that is less than the total costs
(including a pro rata share of construction, financing and
operations and maintenance costs) of providing such
Accommodations. Without limiting any other term or provision
of this Lease, each such handling agreement shall be subject
to the prior and continuing approval of the Port Authority and
the execution among the Port Authority, the Lessee, and the
Handled Airline of a form of consent agreement prepared by the
Port Authority. Moreover, and without limiting the foregoing,
the Lessee will at all times keep the Port Authority informed
and advised and will consult with the Port Authority from time
to time as to all aspects of its Accommodations of Scheduled
Aircraft Operators hereunder.
(6) It is understood furthermore that the
Accommodations contemplated hereunder may involve the use
of subleases of exclusive areas of the premises in
addition to or in lieu of handling agreements. Without
limiting any other term or provision of this Lease, any
sublease with a Scheduled Aircraft Operator (hereinafter
called a "Section 69 Sublessee Airline") will similarly
be subject to the prior and continuing approval of the
Port Authority and the execution of a consent agreement
prepared by the Port Authority, and executed by the Port
Authority, the Lessee and the Section 69 Sublessee
Airline. Nothing contained herein shall in any way
affect the discretion of the Port Authority in granting
or withholding its consent to a handling agreement or a
sublease with a Section 69 Sublessee Airline, proposed by
the Lessee or directed by the Port Authority whether or
not during a period of underutilization, and, without
limiting Section 77 or any other term hereof, such
consent may contain such terms and conditions including
but not limited to such financial or other conditions
which may include a fixed charge or a charge based upon
a percentage of the Lessee's gross receipts arising
therefrom, as the Port Authority may, at that time,
elect, and all provisions of the Lease requiring the
prior written consent or approval of the Port Authority
and requiring the payment by the Lessee of the handling
percentage fees and the subletting percentage fees shall
in no way be waived, impaired, limited or affected.
(7) Notwithstanding anything to the contrary
contained herein the Lessee understands and agrees that
the Lessee shall not perform any services and functions
pursuant to any handling agreement or sublease with a
Handled Airline or a Section 69 Sublessee Airline with
respect to which the Port Authority has specifically
withheld consent and approval in the consent agreement to
such handling agreement or sublease. The Handled Airline
and the Section 69 Sublessee Airline may either perform
said services and functions themselves or use the
services of the authorized service organization,
including but not limited to in-flight caterers, aircraft
fuelers, and ramp handlers performing such services or
functions at the Airport. The Lessee however may make
the necessary arrangements with the authorized service
organization performing such services and functions at
the Airport to have such services and functions performed
for the Handled Airline or the Section 69 Sublessee
Airline.
(8) Without limiting any Section, term or provision
of the Lease, the Lessee shall, with respect to each and
every handling agreement, sublease or other agreement
covering any Accommodations, maintain in accordance with
accepted accounting practice during the term of this
Agreement and for one year thereafter and for such period
until the Lessee shall receive written permission from
the Port Authority to do otherwise, records and books of
account recording all transactions, at through or in
anywise connected with said handling agreements,
subleases and other agreements and shall use and maintain
such systems for recording transactions under or in
connection with the handling agreements and subleases all
to the end that accurate and complete records of gross
receipts be maintained including identification of the
gross receipts of the Lessee pertaining to any particular
handling agreement, sublease or other agreement, all of
the foregoing to be kept at all times in the Port of New
York District; provided, however, that the Lessee may
produce all such records to the satisfaction of the Port
Authority in the Port of New York District, or, on the
condition that the Lessee shall pay to the Port Authority
all travel costs and expenses as determined by the Port
Authority for Port Authority auditors and other
representatives in connection with any audit at locations
outside the Port of New York District, the Lessee may
maintain said records and books and make them available
to the Port Authority at the Lessee's principal office,
which currently is located at 1600 Smith Street, Houston,
Texas 77002.
(9) Without limiting any Section, term, or provision
of the Lease, the Lessee shall permit in ordinary
business hours during the term of this Agreement and for
one year thereafter and during such further period as is
mentioned in the preceding subparagraph, the examination,
inspection and audit by the officers, employees and
representatives of the Port Authority of such books of
account and systems mentioned above and also any records
and books of account, and systems of any company which is
owned or controlled by the Lessee or by any partner of
the Lessee, if said company performs services, similar to
those performed by the Lessee anywhere in the Port of New
York District. The Lessee shall furnish to the Port
Authority from time to time (but not more often than once
a month) statements of the Lessee setting forth its gross
receipts as required hereunder, and such further
itemization, details and information pertaining to the
handling agreements and subleases as the Port Authority
may from time to time request.
(10) The Lessee agrees that all handling agreements
and subleases shall be at reasonable and at not
discriminatory rates, fees and charges which shall be
based upon the recovery by the Lessee of a pro rata share
of the Lessee's costs of (i) operation and maintenance of
the premises, (ii) the services provided to the Handled
Airline or the Section 69 Sublessee Airline and (iii) the
Lessee's investment in the premises not otherwise
included in the above, provided, however, that it is
understood and agreed that the following shall not be a
reason for the Lessee to refuse a sublease or handling
agreement or to impose any conditions or limitations on
operations in connection therewith under this Section 69:
(aa) possible or potential labor disharmony with a
Handled Airline or sublessee, (bb) compatibility of
schedules and operations between the Lessee or another
user or occupant of the premises and a Handled Airline or
sublessee, or (cc) competitive nature of the routes,
schedules or type of air transportation service to be
provided by a Handled Airline or sublessee, provided,
further, however, that with respect to item (aa) above
if, after notice from the Port Authority to provide
Accommodations to a specific Scheduled Aircraft Operator,
the Lessee shall, in good faith, believe that the
operations of such specific Scheduled Aircraft Operator
on the premises would cause significant, immediate and
unremediable labor disharmony which would seriously
affect the operations of the Lessee on the premises then,
upon request by the Lessee to the Port Authority setting
forth in specific detail satisfactory to the Port
Authority the nature of the anticipated labor disharmony
and requesting that the Lessee not be obligated under
this Section to provide Accommodations for such specific
Scheduled Aircraft Operator, the Port Authority shall, in
good faith, consider the Lessee's request and if the Port
Authority finds that the labor disharmony described by
the Lessee is reasonably likely to result if the Lessee
were to provide Accommodations to such Scheduled Aircraft
Operator on the premises then the Port Authority shall
notify the Lessee that the Port Authority's direction to
provide Accommodations to such Scheduled Aircraft
Operator is rescinded and, provided further, however,
with respect to (bb) above the Lessee will not have to
provide or continue to provide FIS Accommodations if
doing so would result in a number of passengers being
processed through the FIS facilities in excess of the
design capacity of said facilities or if such FIS
Accommodations would require Lessee to cancel or retime
a scheduled international arriving flight. The Lessee's
obligation to provide Accommodations to Scheduled
Aircraft Operators shall be effective on the date set
forth in a notice from the Port Authority to such effect,
as aforesaid. Upon such notice the Lessee shall use its
best efforts to secure an arrangement with a Scheduled
Aircraft Operator as directed by the Port Authority for
Accommodations in the terminal and shall in good faith
negotiate with any such Scheduled Aircraft Operator as
the Port Authority shall direct for Accommodations in the
premises, all in accordance herewith.
(11) The Port Authority shall give thirty (30) days' prior
notice of its intention to give the notice set forth above and
it is expressly agreed that the Port Authority shall not
exercise the aforesaid right with respect to any portion or
portions of the premises if and for which the Lessee has
submitted to the Port Authority definite plans for the
utilization of said portion or portions of the premises by the
Lessee provided the Lessee in fact commences such use of said
portion or portions of the premises within thirty (30) days
after the submission of the said plans.
(12) The failure of the Port Authority to exercise its
rights under this Section 69 during any year in which it may
have such a right, shall not affect, waive or limit its right
to exercise said rights in any subsequent year."
(c) The third (3rd) and fourth (4th ) lines of paragraph (e)
thereof are hereby amended to read as follows:
"do so as follows: based upon the Official Airline Guide
or such other appropriate report of airline schedules as the
Port Authority may substitute therefor (any such report being
herein called "the Guide") the Port Authority shall ascertain
the total"
(d) The seventeenth (17th) line of paragraph (e) thereof is
hereby amended by adding after the word "Airlines" the words ", or
are otherwise accommodated in the premises with the consent of the
Port Authority,".
(e) Subparagraph (g) of Section 69 of the Lease (as set forth
in Supplement No. 6 of the Lease) shall be deemed deleted from the
Lease.
41. The last sentence of paragraph (a) of Section 71 of the
Lease, as previously amended, shall be deemed further amended to
read as follows:
"The Port Authority shall have the right upon
prior notice to inspect and audit such books and
records during regular business hours."
42. (a) The first (1st) line of paragraph (n) of Section 72 of
the Lease is hereby amended to read as follows:
"(n) "Gross Receipts", for purposes of Sections
63 and 66 hereof, shall mean and include such".
(b) Section 72 of the Lease, as previously amended, is
hereby further amended by adding at the end thereof the following
new paragraphs:
"(AA) "Environmental Damages" shall mean any one or more
of the following: (i) the presence on, about or under the
premises of any Hazardous Substance and/or (ii) the disposal,
release or threatened release of any Hazardous Substance from
the premises, and/or (iii) the presence of any Hazardous
Substance on, about or under other property at the Airport as
a result of the Lessee's use and occupancy of the premises or
a migration of a Hazardous Substance from the premises, and/or
(iv) any personal injury (including wrongful death) or
property damage arising out of or related to any such
Hazardous Substance, and/or (v) the violation of any
Environmental Requirements pertaining to any such Hazardous
Substance, the premises and/or the activities thereon.
(BB) "Environmental Requirements" and "Environmental
Requirement" shall mean all applicable present and future
laws, statutes, enactments, resolutions, regulations, rules,
ordinances, codes, licenses, permits, orders, approvals,
plans, authorizations, concessions, franchises, requirements
and similar items, of all governmental agencies, departments,
commissions, boards, bureaus, or instrumentalities of the
United States, states and political subdivisions thereof
(other than the Port Authority) and all applicable judicial,
administrative, and regulatory decrees, judgments, and orders
relating to the protection of human health or the environment,
and in the event that there shall be more than one compliance
standard, the standard for any of the foregoing to be that
which requires the lowest level of a Hazardous Substance
unless the Port Authority consents to a different standard
being applied, the foregoing to include without limitation:
(i) All requirements pertaining to reporting,
licensing, permitting, investigation, and
remediation of emissions, discharges, releases,
or threatened releases of Hazardous Substances
into the air, surface water, groundwater, or
land, or relating to the manufacture,
processing, distribution, use, treatment,
storage, disposal, transport, or handling of
Hazardous Substances; and
(ii) All requirements, pertaining to the
protection of the health and safety of employees
or the public arising out of or in connection
with environmental conditions.
(CC) "Hazardous Substances" and "Hazardous Substance"
shall mean and include without limitation any pollutant,
contaminant, toxic or hazardous waste, dangerous substance,
potentially dangerous substance, noxious substance, toxic
substance, flammable, explosive, radioactive material, urea
formaldehyde, foam insulation, asbestos, polychlorinated
biphenyls (PCBs), chemicals known to cause cancer or
reproductive toxicity, petroleum and petroleum products and
other substances declared to be hazardous or toxic, or the
removal of which is required, or the manufacture, preparation,
production, generation, use, maintenance, treatment, storage,
transfer, handling or ownership of which is restricted,
prohibited, regulated or penalized by any Environmental
Requirement."
43. (a) The ninth (9th) through thirteenth (13th) lines of
paragraph (b) of Section 73 of the Lease shall be deemed amended to
read as follows:
"to and use good faith efforts to implement an extensive
program of affirmative action, including specific affirmative
action steps to be taken by the Lessee, to ensure maximum
opportunities for employment and contracting by minorities and
women, and by Minority Business Enterprises and Women-owned
Business Enterprises. In meeting said commitment the Lessee
agrees".
(b) Paragraph (c) of Section 73 of the Lease shall be deemed
amended to read as follows:
"(c) (1) "Minority" as used herein includes:
(i) Black (all persons having origins in any of
the Black African racial groups not of Hispanic
origin);
(ii) Hispanic (all persons of Mexican, Puerto
Rican, Dominican, Cuban, Central or South
American culture or origin, regardless of race);
(iii) Asian and Pacific Islander (all persons
having origins in any of the original peoples of
the Far East, Southeast Asia, the Indian
Subcontinent, or the Pacific Islands); and
(iv) American Indian or Alaskan Native (all
persons having origins in any of the original
peoples of North America and maintaining
identifiable tribal affiliations through
membership and participation or community
identification).
(2) "Minority Business Enterprise" (MBE) as used
herein shall mean any business enterprise which is at
least fifty-one percentum owned by, or in the case of a
publicly owned business, at least fifty-one percentum of
the stock of which is owned by citizens or permanent
resident aliens who are minorities and such ownership is
real, substantial and continuing.
(3) "Women-owned Business Enterprise" (WBE) as used
herein shall mean any business enterprise which is at
least fifty-one percentum owned by, or in the case of a
publicly owned business, at least fifty-one percentum of
the stock of which is owned by women and such ownership is
real, substantial and continuing.
(4) Good faith efforts to include meaningful
participation by MBEs and WBEs shall include at least the
following:
(i) Dividing the work to be subcontracted into
smaller portions where feasible.
(ii) Actively and affirmatively soliciting bids for
subcontracts from MBEs and WBEs, including
circulation of solicitations to minority and female
contractor associations. The Lessee shall maintain
records detailing the efforts made to provide for
meaningful MBE and WBE participation as called for
in paragraph (b) above, including the names and
addresses of all MBEs and WBEs contacted and, if any
such MBE or WBE is not selected as a joint venturer
or subcontractor, the reason for such decision.
(iii) Making plans and specifications for
prospective work available to MBEs and WBEs in
sufficient time for review.
(iv) Utilizing the list of eligible MBEs and WBEs
maintained by the Port Authority or seeking
minorities and women from other sources for the
purpose of soliciting bids for subcontractors.
(v) Encouraging the formation of joint ventures,
partnerships or other similar arrangements among
subcontractors, where appropriate, to insure that
the Lessee will meet its obligations hereunder.
(vi) Insuring that provision is made to provide
progress payments to MBEs and WBEs on a timely
basis.
(vii) Submitting quarterly reports to the Port
Authority (Office of Business and Job Opportunity)
detailing its compliance with the provisions
hereof."
(d) Paragraph (d) of Section 73 of the Lease shall be deemed
amended by inserting after the word "Authority" on the seventh
(7th) line thereof the following:
"(except where fulfillment of the Lessee's
compliance obligations hereunder requires
activity over a period of time, and the Lessee
shall have commenced to perform whatever may be
required for fulfillment within twenty (20) days
after receipt of notice and continues such
performance without interruption)".
(e) Paragraph (d) of Section 73 of the Lease shall be deemed
amended by inserting at the end thereof the following:
"The Lessee shall not be required to take any action, or
omit to take any action, under this Section, Section 2 (c)
(18), 38 or 39 or Schedule E hereof, to the extent that
such action or omission would be in violation of any
applicable law."
44. (a) The fourth (4th) and fifth (5th) lines of
Section 76 of the Lease, as previously amended, shall be deemed
further amended to read as follows:
"payment of Base Annual Rental, Area C-3 rental or other
rental, fee".
(b) Section 76 of the Lease, as previously amended, shall
be deemed further amended by inserting at the end thereof the
following:
"No late charges shall be due under this Section
76 in the event the Lessee timely pays to the
Port Authority amounts due to the Port Authority
as stated in invoices from the Port Authority
which amounts are thereafter adjusted by the
Port Authority in accordance with the Lease.
The foregoing, however, shall not be construed
to prevent late charges on unpaid amounts owing
to the Port Authority as a result of the
adjustment in the event the Lessee then fails to
timely pay the same or on amounts found to be
due to the Port Authority as a result of an
audit of the Lessee, as provided above."
45. Section 77 of the Lease, as previously amended, shall be
deemed further amended to read as follows:
(a) Paragraph (a) thereof is hereby amended to read as
follows:
"(a) (1) The Lessee covenants and agrees that it
will not sell, convey, transfer, mortgage, pledge or
assign this Agreement or any part thereof, or any rights
created thereby or the letting thereunder or any part
thereof without the prior written consent of the Port
Authority; provided, however, that this Agreement may be
assigned in its entirety (by operation of law or
otherwise) without such consent to any successor in
interest of the Lessee which is or is to be a Scheduled
Aircraft Operator hereof, and into which the Lessee may
merge or with which the Lessee may consolidate, or which
may succeed to the assets of the Lessee or the major
portion of its assets related to its air transportation
system, if immediately following the merger,
consolidation or assignment the entity which then is the
Lessee has a financial standing at least as good as that
of the Lessee immediately preceding the merger,
consolidation or assignment (by which is meant that its
current assets, its ratio of current assets to current
liabilities, its ratio of fixed assets to fixed
liabilities and its net worth shall each be at least as
favorable as that of the Lessee immediately preceding the
merger, consolidation or assignment) (the "Financial
Tests"), or, in the event the Financial Tests are not
satisfied, if the Lessee prior to the effectuation of
such assignment submits to the Port Authority the Consent
Security Deposit (as hereinafter defined); but in any of
said events, such assignment shall not take effect before
the assignee is actually engaged in the business of
scheduled transportation by Aircraft; and provided,
further that such succeeding entity or purchaser executes
and delivers to the Port Authority an instrument in form
satisfactory to the Port Authority assuming the
obligations of the Lessee as if it were the original
tenant hereunder, including without limitation the
submission of the Consent Security Deposit.
(2) In the event that the Lessee becomes the possessor
(surviving) corporation in a merger without the prior written
approval of the Port Authority and the Financial Tests are not
satisfied, the Lessee shall submit to the Port Authority
within five (5) days following such merger all appropriate
information and documentation sufficient to allow the Port
Authority to determine whether the Financial Tests are
satisfied. Thereafter if the Port Authority determines that
the Financial Tests are not satisfied the Port Authority shall
by written notice advise the Lessee of the same and the Lessee
shall submit the Consent Security Deposit to the Port
Authority not later than five (5) business days following said
notice from the Port Authority (the 'Consent Security Deposit
Deliver Date'). The Consent Security Deposit required under
this subparagraph (2) shall be subject to the following
subsubparagraphs (i) and (ii) as well as to subparagraph (4)
below:
(i) Upon the Consent Security Deposit Delivery Date, the
Lessee shall deposit with the Port Authority and shall keep
deposited throughout the term of this Agreement, the Consent
Security Deposit (as defined in subparagraph (3) hereof) in
cash, or bonds of the United States of America, or of the Port
Authority of New York and New Jersey, having a market value of
that amount, as security for the full, faithful and prompt
performance of and compliance with, on the part of the Lessee,
all of the provisions, terms, covenants and conditions of this
Agreement on its part to be fulfilled, kept, performed or
observed and as security for the payment of all other rentals,
fees, charges and obligations owed or which may become due and
owing to the Port Authority arising from the Lessee's
operations at the Airport, whether covered by a written
agreement or otherwise. Bonds qualifying for deposit
hereunder shall be in bearer form but if bonds of that issue
were offered only in registered form, then the Lessee may
deposit such bond or bonds in registered form, provided,
however, that the Port Authority shall be under no obligation
to accept such deposit of a bond in registered form unless
such bond has been reregistered in the name of the Port
Authority (the expense of such re-registration to be borne by
the Lessee) in manner satisfactory to the Port Authority. The
Lessee may request the Port Authority to accept a registered
bond in the Lessee's name and if acceptable to the Port
Authority the Lessee shall deposit such bond together with a
bond power (and such other instruments or other documents as
the Port Authority may require) in form and substance
satisfactory to the Port Authority. In the event the Consent
Security Deposit is returned to the Lessee, any expenses
incurred by the Port Authority in re-registering a bond to the
name of the Lessee shall be borne by the Lessee. In addition
to any and all other remedies available to it, the Port
Authority shall have the right, at its option, at any time and
from time to time, with or without notice to use the said
Consent Security Deposit or any part thereof in whole or
partial satisfaction of any of its claims or demands against
the Lessee. There shall be no obligation on the Port
Authority to exercise such right and neither the existence of
such right nor the holding of the Consent Security Deposit
itself shall cure any default or breach of the Agreement on
the part of the Lessee. In the event that the Port Authority
shall at any time or times so use the Consent Security
Deposit, or any part thereof, or if bonds shall have been
deposited and the market value thereof shall have declined
below the above-mentioned amount, the Lessee shall, on demand
of the Port Authority and within two (2) days thereafter,
deposit with the Port Authority additional cash or bonds so as
to maintain the Consent Security Deposit at all times to the
full amount above stated, and such additional deposits shall
be subject to all the conditions of paragraph (a)(2) of this
Section. After the later to occur of (x) expiration or
earlier termination of the Agreement or any extension thereof
and (y) the cessation of activity of the Lessee at the Airport
and upon condition that the Lessee shall then be in no wise in
default under any part of the Agreement, as this Agreement may
have been amended or extended, or other obligations to the
Port Authority, and upon written request therefor by the
Lessee, the Port Authority will return the said Consent
Security Deposit to the Lessee less the amount of any and all
unpaid claims and demands (including estimated damages) of the
Port Authority by reason of any default or breach by the
Lessee of this Agreement or any part thereof, or any of them,
or any other obligation of the Lessee to Port Authority and
less any other fees, charges and obligations owed to the Port
Authority arising from the Lessee's operations at the Airport.
The Lessee agrees that it will not assign or encumber the said
Consent Security Deposit and any such assignment or
encumbrances shall be void as to the Port Authority. The
Lessee may collect or receive annually any interest or income
earned on bonds and interest paid on cash deposited in
interest bearing bank accounts less any part thereof or amount
which the Port Authority is or may hereafter be entitled or
authorized by law to retain or to charge in connection
therewith, whether as or in lieu of administrative expense or
custodial charge, or otherwise, provided, however, that the
Port Authority shall not be obligated by this provision to
place or to keep cash deposited hereunder in interest bearing
bank accounts. Without limiting the foregoing provisions of
this Section, with respect to any bonds deposited by the
Lessee, the Port Authority shall have the right, in order to
satisfy any of its claims or demands against the Lessee, to
sell the same in whole or in part, at any time and from time
to time, with or without prior notice, at public or private
sale, all as determined by the Port Authority together with
the right to purchase the same at such sale free of any
claims, equities or rights of redemption of the Lessee. The
Lessee hereby waives all right to participate therein and all
right to prior notice or demand of the amount or amounts of
the Port Authority's claims or demands against the Lessee.
The proceeds of any such sale shall be applied by the Port
Authority first to the costs and expenses of the sale
(including but not limited to any advertising or commission
expenses) and then to the amounts due the Port Authority from
the Lessee. Any balance remaining shall be retained in cash
toward bringing the Consent Security Deposit to the sum
specified in subparagraph (3) hereof provided that this shall
not relieve the Lessee from maintaining the Consent Security
Deposit in the full amount stated in subparagraph (3) hereof.
(ii) in lieu of the cash or bonds Consent Security Deposit
described in subsubparagraph (i) hereof, the Lessee may, at
its option cause to be delivered to the Port Authority on the
Consent Security Deposit Delivery Date as security for the
full, faithful and prompt performance of and compliance with,
on the part of the Lessee, all of the provisions, terms,
covenants and conditions of this Agreement on its part to be
fulfilled, kept, performed or observed, and as security for
the payment of all rentals, fees, charges and obligations owed
or which may become due and owing to the Port Authority
arising from the Lessee's operations at the Airport, whether
covered by a written agreement or otherwise, a clean
irrevocable letter of credit issued to and in favor of the
Port Authority, by a banking institution having its main
office within the Port of New York District and acceptable to
the Port Authority, payable in the Port of New York District,
the amount of the Consent Security Deposit. The form and
terms of such letter of credit, as well as the institution
issuing it, shall be subject to the prior and continuing
approval of the Port Authority. Such letter of credit shall
provide that it shall continue during the term of this
Agreement and for a period of not less than six (6) months
thereafter; such continuance may be by provision for automatic
renewal or by substitution of a subsequent satisfactory clean
irrevocable letter of credit. If requested by the Port
Authority, said letter of credit shall be accompanied by a
letter expressing the opinion of counsel for the banking
institution that the issuance of said clean, irrevocable
letter of credit is an appropriate and valid exercise the
banking institution of the corporate power conferred upon it
by law. Upon notice of cancellation of a letter of credit the
Lessee agrees that unless, by a date twenty (20) days prior to
the effective date of cancellation, the letter of credit is
replaced by security in accordance with subsubparagraph (i)
above or another letter of credit satisfactory to the Port
Authority, the Port Authority may draw down the full amount
thereof without statement of default and thereafter the Port
Authority will hold the same as Consent Security Deposit under
subsubparagraph (i) of this paragraph (a)(2) of this Section.
Failure to provide such a letter of credit at any time during
the term of this Agreement, valid and available to the Port
Authority, including any failure of any banking institution
issuing any such letter of credit previously accepted by the
Port Authority to make one or more payments as may be provided
in such letter of credit shall be deemed to be a breach of
this Agreement on the part of the Lessee. Upon acceptance of
such letter of credit by the Port Authority, and upon request
by the Lessee made thereafter, the Port Authority will return
the Consent Security Deposit, if any, theretofore made under
and in accordance with the provisions of subsubparagraph (i)
of this paragraph (a)(2) of this Section. The Lessee shall
have the same rights to receive such Consent Security Deposit
during the existence of a valid letter of credit as it would
have to receive such sum upon expiration of the letting under
this Agreement and fulfillment of the obligations of the
Lessee hereunder and thereunder. If the Port Authority shall
make any drawing under a letter of credit held by the Port
Authority hereunder, the Lessee on demand of the Port
Authority and within two (2) days thereafter, shall bring the
letter of credit back up to its full amount. No action by the
Port Authority pursuant to the terms of any letter of credit,
or receipt by the Port Authority of funds from any bank
issuing any such letter of credit, shall be or be deemed to be
a waiver of any default by the Lessee under the terms of this
Agreement and all remedies of this Agreement and of the Port
Authority consequent upon such default shall not be affected
by the existence of a recourse to any such letter of credit.
(iii) For purposes of the foregoing, the Lessee hereby
certifies that its I.R.S. Employee Identification No. is
74-2099724; and in the event of a change in said I.R.S.
Employee Identification No. resulting from a merger the Lessee
shall immediately certify its new I.R.S. Employee
Identification No. in writing to the Port Authority.
(3) For purposes of this paragraph (a) the term
'Consent Security Deposit' shall mean an aggregate amount
equal to (x) the sum of all of the monetary obligations
(including without limitation rent, fees, and charges of
any type whatsoever) payable to the Port Authority by the
Lessee arising out of or in connection with or due from
its activities, operations, leases, permits or other
agreements at each and every Port Authority facility,
during the twelve (12) month period immediately preceding
the anticipated date of the merger, consolidation or
assignment, such sum under this clause (x) being limited
however to the aggregate of the three (3) highest monthly
totals of said monetary obligations for any three (3)
months during said twelve (12) month period with said sum
to be determined by the Port Authority; plus (y) the sum
of all of the monetary obligations (including without
limitation rent, fees, and charges of any type
whatsoever), if any, payable to the Port Authority by the
entity with which the Lessee merges or consolidates or to
which the Lease is assigned arising out of or in
connection with or due to its activities, operations,
leases, permits or other agreements, if any, at each and
every Port Authority facility, during the twelve (12)
month period immediately preceding the anticipated date
of the merger, consolidation or assignment, such sum
under this clause (y) being limited however to the
aggregate of the three (3) highest monthly totals of said
monetary obligations for any three (3) months during said
twelve (12) month period, with said sum to be determined
by the Port Authority. In the event the Consent Security
Deposit is delivered pursuant to subparagraph (1) above,
the terms, provisions and conditions governing the use of
said Consent Security Deposit shall be set forth in the
assumption instrument referred to therein.
(4) In the event that a Consent Security Deposit is
required to be posted under this Lease and at any time
thereafter the Lessee does satisfy the Financial Tests and
provides to the Port Authority satisfactory evidence thereof,
the Port Authority promptly shall refund the Consent Security
Deposit to the Lessee, less any amounts that then may remain
unpaid under the Lease beyond the due date thereof."
(b) Subparagraph (1) of paragraph (b) thereof, as previously
amended in Supplement No. 6 of the Lease, is hereby further amended
by inserting before the period at the end thereof the following:
"including the payment to the Port Authority of the then
appropriate Port Authority fee(s) at the rates determined
by the Port Authority."
(c) The first (1st) sentence of subparagraph (2) of paragraph
(b) thereof (as previously amended and set forth in Supplement No.
6 of the Lease) is hereby further amended to read as follows:
"The Lessee hereby represents to the Port Authority that
Continental Express, Inc. (a corporation of the State of
Delaware, 'Continental Express') is the Lessee Affiliated
Company as defined in Section 84 hereof. Notwithstanding
any provision of this Lease and in addition thereto, and
without the requirement for any permit, consent to
sublease or other use agreement from the Port Authority,
the Port Authority hereby grants its consent to the use
of the premises by Continental Express in accordance with
the terms and conditions of the Lease, such use being
without payment of the Port Authority fee therefor for so
long as Continental Express shall remain the Lessee's
wholly owned subsidiary. In the event Continental
Express shall cease to be the Lessee's wholly owned
subsidiary, the Lessee shall immediately so inform the
Port Authority and thereafter a document shall be
prepared by the Port Authority and sent to Continental
Express for its execution which document shall include,
among other things, provisions which may be requested by
the Lessee or Continental Express and agreed to by the
Port Authority, the right of Continental Express to
continue to use the premises on the terms and conditions
of the Lease, and the joint and several obligation of the
Lessee and Continental Express to pay to the Port
Authority the then appropriate Port Authority fee
therefor."
I. Section 84 of the Lease (as set forth in Supplement No. 6
of the Lease) is hereby amended to read as follows:
(a) The words "The Lessee Affiliated Companies" in the
heading thereof shall be deemed changed to read "The Lessee
Affiliated Company".
(b) Paragraph (a) thereof is hereby amended to read as
follows:
"(a) The Lessee hereby represents to the Port
Authority that the Lessee is the absolute and
unconditional owner of all of the issued and outstanding
capital stock of Continental Express, Inc., a corporation
of the State of Delaware (herein called 'Continental
Express'). It is hereby agreed that for purposes of this
Lease the term 'the Lessee Affiliated Company' shall mean
solely Continental Express."
II. (a) Subdivision II of Section 85 of the Lease is hereby
amended as follows:
(1) Paragraphs (a) and (b) thereof shall be deemed
deleted therefrom and the following paragraph shall be
deemed inserted in lieu thereof:
"The 'Assumable Maintenance and Repair Effective
Date' shall be the date, from time to time,
determined as follows:".
(2) The last sentence of subparagraph (ii) shall be deemed
amended to read as follows:
"Such date as the same may be established from time to
time shall be the 'Assumable Maintenance and Repair
Effective Date'."
(3) Paragraph (c) thereof shall be deemed deleted therefrom.
(b) The word "on" appearing at the end of the third (3rd)
line of paragraph (c) of Subdivision V of said Section 85 of the
Lease shall be deemed amended to read "or".
(c) There shall be deemed inserted after Subdivision V of
said Section 85 of the Lease a new subdivision VI reading as
follows:
"Subdivision VI.
Return of the Assumable Maintenance and Repair
to the Lessee
At any time and from time to time after the Port
Authority may have exercised its rights under Subdivision
II to perform the Assumable Maintenance and Repair the
Port Authority shall have the right, upon notice to the
Lessee to return the obligation to perform the Assumable
Maintenance and Repair to the Lessee commencing on a date
to be specified in such notice which date shall be not
less than thirty (30) nor more than ninety (90) days from
the giving of such notice. Such date shall be 'the
Return Date of the Assumable Maintenance and Repair'.
From and after the Return Date of the Assumable
Maintenance and Repair the Lessee shall perform the
Assumable Maintenance pursuant to and in accordance with
all the terms and provisions of the Lease including, but
not limited to, this Section 85.
From and after the Return Date of the Assumable
Maintenance and Repair the Lessee shall continue to pay
the Cost of Assumable Maintenance and Repair, it being
understood, that nothing herein shall release or be
deemed to release the Lessee from the payment to the Port
Authority of the Cost of Assumable Maintenance and Repair
including that portion thereof consisting of the Annual
Capital Cost in accordance with Subdivision IV hereof
arising prior to the Return Date of the Assumable
Maintenance and Repair; nor shall anything herein require
the Port Authority to make any calculation or
determination with respect to the Cost of Assumable
Maintenance and Repair prior to the time specified
therefor in Subdivision IV hereof."
48. The provisions of Section 88 and Section 91 of, and
Exhibit X-1 to, the Lease as herein amended shall apply solely with
respect to the C-1 and C-2 portions of the premises hereunder, and
shall not apply in any manner to the Mortgaged Premises (as defined
in Section 96 of the Lease).
49. The Section of the Leased entitled "Entire Agreement"
shall be deemed renumbered as Section 98 and the reference in the
first sentence thereof to Section 93 shall be deemed amended to
read "Section 98", and in addition to the Section added as new
Section 93 in Paragraph 6 of this Seventeenth Supplemental
Agreement, new Sections 94, 95, 96 and 97 are hereby added to the
Lease reading as follows:
"Section 94. Federal Inspection
(a) The Lessee has advised the Port Authority that it
intends to make available to the United States a portion or
portions of the premises for the inspection of the passengers
of the Lessee and their baggage by the United States for
United States customs, immigration, public health and other
governmental purposes, if the United States will accept and
use the same. The Port Authority shall have no obligation or
responsibility of any kind with respect to the foregoing or
the arrangements that must be made by the Lessee with the
United States and any agencies thereof having jurisdiction.
(b) From and after the Effective Date of Supplement No.
17 of the Lease, the Lessee shall be entitled to utilize the
number of slots at the international arrivals facilities of
Terminal B at the Airport held by, assigned to or utilized by
the Lessee as of the Effective Date of Supplement No. 17 of
the Lease. Further, the Lessee hereby expressly covenants and
agrees that, following the issuance of the certificate called
for in paragraph (n)(1) of Section 93 of the Lease, any
requirement for slots above the number of slots held by,
assigned to or utilized by the Lessee for its international
air passenger operations at Terminal B at the Airport on the
Effective Date of Supplement No. 17 of the Lease shall be
handled by the Lessee at the FIS facilities at the premises
hereunder at all times and only such operations that exceed
the design capacity of the said FIS facilities at the premises
may then be handled by additional slots of the Lessee at the
international arrivals facilities of Terminal B at the
Airport, if otherwise permitted.
Section 95. Storage Tanks
(a) All aboveground storage tanks and underground storage
tanks, if any, installed in the premises as of the effective
date of Supplement No. 17 to this Lease and its or their
appurtenances, pipes, lines, fixtures and other related
equipment, together with all aboveground storage tanks and
underground storage tanks installed in the premises during the
term of the letting subsequent to the said date and its or
their appurtenances, pipes, lines, fixtures and other related
equipment are hereinafter collectively called the 'Tanks' and
singularly called a 'Tank'. The Lessee hereby agrees that
title and ownership of the Tanks shall be and remain in the
Lessee, notwithstanding anything to the contrary in any
construction or alteration application. The Port Authority
has made no representations or warranties with respect to the
Tanks or their location and shall assume no responsibility for
the Tanks. All Tanks installed subsequent to said date shall
be installed pursuant to the terms and conditions of the Lease
including without limitation Section 23 hereof and nothing in
this Section 95 shall or shall be deemed to be permission or
authorization to install any Tanks.
(b) Without limiting the generality of any of the
provisions of the Lease, the Lessee agrees that it shall be
solely responsible for maintaining, testing and repairing the
Tanks. The Lessee shall not perform any servicing, repairs or
non-routine maintenance to the Tanks without the prior written
approval of the Port Authority.
(c) It is hereby agreed that title to and ownership of
the Tanks shall remain in the Lessee until the earlier to
occur of (1) receipt by the Lessee of notice from the Port
Authority that title to the Tanks shall vest in the Port
Authority or in the City of Newark or (2) receipt by the
Lessee of notice from the Port Authority that the Port
Authority waives its right to require the Lessee to remove the
Tanks from the premises as set forth in paragraph (i) below.
The vesting of title to the Tanks in the Port Authority or in
the City of Newark, if at all, in accordance with the
foregoing item (1) shall in no event relieve the Lessee from
the obligation to remove the Tanks from and restore the
premises in accordance with paragraph (i) below.
(d) Without limiting the generality of any other term or
provision of the Lease, the Lessee shall at its cost and
expense comply with all Environmental Requirements pertaining
to the Tanks and any presence, pumping, pouring, venting,
emitting, emptying, leakage, deposit, spill, discharge or
other release of Hazardous Substances from the Tanks or in
connection with their use, operation, maintenance, testing or
repair (any such presence, pumping, pouring, venting,
emitting, emptying, leakage, deposit, spill, discharge or
other release during the period the Lessee shall use or occupy
the premises or use the Tanks being hereinafter called a
'Discharge') including without limitation registering and
testing the Tanks, submitting all required clean-up plans,
bonds and other financial assurances, performing all required
clean-up and remediation of a Discharge and filing all
reports, making all submissions to, providing all information
required by, and complying with all requirements of, all
governmental authorities pursuant to the Environmental
Requirements.
Nothing in the foregoing shall be construed as a
submission by the Port Authority to the application to itself
of the Environmental Requirements, provided, however, no
immunity or exemption of the Port Authority from the
Environmental Requirements shall excuse the compliance
therewith by the Lessee or shall be grounds for non-compliance
therewith by the Lessee.
(e) Without limiting the terms and provisions of Section
18 of the Lease, the Lessee hereby assumes all risks arising
out of or in connection with the Tanks and all Discharges
whether or not foreseen or unforeseen and shall indemnify and
hold harmless the Port Authority, its Commissioners, officers,
agents and employees from and against (and shall reimburse the
Port Authority for their costs and expenses including without
limitation penalties, fines, liabilities, settlements,
damages, attorney and consultant fees, investigation and
laboratory fees, clean-up and remediation costs, court costs
and litigation expenses), all claims and demands, just or
unjust, of third persons (such claims and demands being
hereinafter in this Section 95 referred to as 'Claims' and
singularly referred to as a 'Claim') including but not limited
to those for personal injuries (including death), property
damages, or environmental impairment, arising or alleged to
arise out of or in any way related to, the failure of the
Lessee to comply with each and every term and provision of the
Lease, or the Tanks, or any Discharge, or any lawsuit brought
or threatened, settlement reached or any governmental order
relating to the Tanks or a Discharge, or any violation of any
Environmental Requirements or demands of any governmental
authority based upon or in any way related to the Tanks or a
Discharge, and whether such arise out of the acts or omissions
of the Lessee or of customers or contractors of the Lessee or
of third persons or out of the acts of God or the public enemy
or otherwise including claims by the City of Newark against
the Port Authority pursuant to the provisions of the Basic
Lease (as defined in the Lease) whereby the Port Authority has
agreed to indemnify the City against claims. It is understood
the foregoing indemnity shall cover all claims, demands,
penalties, settlements, damages, fines, costs and expenses of
or imposed by any governmental authority under the
Environmental Requirements.
If so directed the Lessee shall at its expense defend any
suit based upon any such Claim (even if such Claim is
groundless, false or fraudulent) and in handling such it shall
not without first having express advance permission from the
General Counsel of the Port Authority raise any defense
involving in any way the jurisdiction of the tribunal over the
person of the Port Authority, the immunity of the Port
Authority, its Commissioners, officers, agents or employees,
the governmental nature of the Port Authority or the
provisions of any statutes respecting suits against the Port
Authority.
(f) The Lessee's obligations under this Section 95 shall
survive the expiration or earlier termination of the Lease.
(g) In addition to the requirements of Section 10 of the
Lease and paragraph (d) hereof, the Port Authority shall have
the right upon notice to the Lessee to direct the Lessee, at
the Lessee's sole cost and expense, (i) to perform such
reasonable testing of the Tanks as the Port Authority shall
direct and to perform such testing of the soil, subsoil and
ground water of the premises and of such surrounding area as
the Port Authority shall direct, and (ii) to clean-up and
remediate any Discharge, regardless of whether any
Environmental Requirement or governmental authority shall
require such testing, clean-up or remediation, which testing,
clean-up and remediation shall be performed pursuant to an
alteration application prepared by the Lessee and submitted to
the Port Authority for the Port Authority's approval.
(h) In the Lessee's use and operation of the Tanks, the
Lessee shall not permit any Hazardous Substance from entering
the ground including without limitation (subject to Section 23
hereof) installing appropriate spill and overfill devices and
placing an impervious material, such as asphalt or concrete,
over the ground area above and in the vicinity of the Tanks.
(i) (1) The Lessee shall remove the Tanks from the
premises on or before the applicable expiration date of the
Lease and dispose of the Tanks off the Airport in accordance
with all Environmental Requirements.
(2) Without limiting the foregoing or any other term or
provision of this Agreement, any removal of the Tanks shall be
performed pursuant to an alteration application prepared by
the Lessee and submitted to the Port Authority for the Port
Authority's approval and, in connection with such removal, the
Lessee shall restore the premises to the same condition
existing prior to the installation of the Tanks, shall perform
such testing of the Tanks and of the soil, sub-soil and ground
water in the vicinity of the Tanks as may be required by the
Port Authority and shall clean-up and remediate contamination
disclosed by said testing. In the event the Lessee does not
remove the Tanks as required by subparagraph (1) above, the
Port Authority may enter upon the premises and effect the
removal and disposal of the Tanks, restoration of the premises
and such remediation and the Lessee hereby agrees to pay all
costs and expenses of the Port Authority arising out of such
removal, disposal, restoration and remediation.
(j) Notwithstanding the foregoing or any other provision of
the Lease to the contrary, (i) the costs of remediation of any Non-
Hydrocarbon Contamination (as defined in Section 12(p) hereof)
resulting from a Discharge from any Tank which was not installed by
the Lessee shall count towards the Non-Hydrocarbon Obligation
Amount (as defined in Section 12(p) hereof) except to the extent
the substance(s) causing such costs was placed on or introduced to
the premises by the Lessee, and the standard for remediation
thereof shall be the applicable standard as required under
Environmental Requirements and, in the event that any Environmental
Requirement sets forth more than one standard, the standard to be
applied shall be that which requires the lowest level of a
Hazardous Substance unless the Port Authority consents to a
different standard being applied; and (ii) the Lessee shall have no
obligation or liability with respect to the cost of remediation of
any Discharge caused by the acts or omissions of the Port
Authority, and the Port Authority shall be responsible therefor;
provided, however, that the Port Authority does not hereby waive
any claims or rights which it may have against any third parties
with respect to such costs of remediation.
Section 96. Reletting Rights-Leasehold Mortgagee
(a) As used in this Section 96 the following terms shall have
the following meanings:
(1) "Act" shall mean Chapter 80 of the Pamphlet Laws of
1974 of the State of New Jersey, as amended and supplemented.
(2) "Activity Based Fees and Charges" shall mean and
include flight fees, fuel gallonage fees, Monorail Fees, charges
under Schedule B of this Agreement, in-flight meal fees pursuant to
Section 60 hereof, all fees and charges payable by the Lessee under
Sections 63, 76, and any other fees and charges under this
Agreement which are based or calculated on the activities of the
Lessee at the premises or the Airport.
(3) "Allocated Activity Based Fees and Charges" shall
mean Activity Based Fees and Charges allocated to the Mortgaged
Premises in accordance with paragraph (n)(2)(iii) of this Section.
(4) "Approved Successor Lessee" shall mean a major
domestic or international Scheduled Aircraft Operator, or a
consortium of such major domestic or international Scheduled
Aircraft Operators each of which would be jointly and severally
obligated to the Port Authority with respect to all of the
consortium's obligations under this Lease, who shall each meet all
of the requirements set forth in paragraphs (t) and (u) of this
Section including but not limited to the entering into with the
Port Authority of the Lease Assignment/Assumption and Consent
Agreement (as defined in paragraph (t) of this Section), and
thereby become the assignee/purchaser of this Lease with respect to
the Mortgaged Premises resulting from the exercise by the Leasehold
Mortgagee of its Reletting Rights whether by foreclosure and sale
or by assignment in lieu of foreclosure.
(5) "Additional Bonds" shall mean bonds issued by the
NJEDA pursuant to the Indenture subsequent and additional to the
issuance of the Bonds, the proceeds of which are to be used for the
payment of additional costs of the Expansion Construction Work (and
associated personal property) with respect to the Mortgaged
Premises under Section 93 hereof paid or incurred by the Lessee
prior to the Expansion Construction Work Completion Date as defined
in paragraph (n) of Section 93 hereof and for the payment of
issuance costs; provided that, for purposes of this Section, the
amount of the Additional Bonds shall be limited to a maximum amount
of $150,000,000; "Additional Bond" shall mean any one of the
Additional Bonds.
(6) "Bankruptcy Code" shall mean the United States
Bankruptcy Reform Act of 1978, as amended, including without
limitation amendments made by the Bankruptcy Reform Act of 1994,
and as the same may be further amended or supplemented, or any
federal bankruptcy law or laws replacing the foregoing.
(7) "Bankruptcy Rejection Date" shall have the meaning as
defined in paragraph (r)(1)(i)(C) of this Section.
(8) "Bonds" shall mean the bonds issued by the NJEDA
pursuant to the Indenture for the payment of the costs of the
Expansion Construction Work (and associated personal property)
under Section 93 hereof and issuance costs; "Bond" shall mean any
one of the Bonds; after the issuance of Additional Bonds, the term
"Bonds" shall include the Additional Bonds.
(9) "Bondholder" and "Bondholders" shall mean,
respectively, each holder of the Bonds and the holders of all the
Bonds.
(10) "Bonds Default" and "Bonds Default Date" shall have
the meaning as defined in paragraph (m) of this Section.
(11) "Bond Resolution" shall mean the resolutions adopted
by the NJEDA on December 8, 1998 and July 13, 1999 as the same may
be modified or amended, authorizing the issuance and sale of the
initial series of Bonds.
(12) "Deferred Reletting Fee" shall mean the fee payable
by the Trustee or the Approved Successor Lessee to the Port
Authority at the times and in the amounts as set forth in and
pursuant to paragraph (u) of this Section.
(13) "Deferred Reletting Fee Rental" shall mean the
additional rental payable by the Approved Successor Lessee to the
Port Authority as set forth in and pursuant to paragraph (u)(4) of
this Section; "Deferred Reletting Fee Rental Commencement Date",
"Deferred Reletting Fee Rental Period" and "Monthly Factor" shall
each have the respective meaning as set forth in paragraph (u)(4)
of this Section.
(14) "Financing Documents" shall mean all the agreements
and documents which relate to or are a part of the Financing
Transaction including but not limited to the NJEDA Sublease
Agreement, the Indenture, the Bonds, the Bond Resolution, the
Lessee Guaranty, the Leasehold Mortgage, and the other documents as
described in paragraph 1 (j) of the Port Authority Consent to NJEDA
Subleases (but such term shall not include the Basic Lease, this
Agreement, the Port Authority Consent to NJEDA Subleases or the
Other Lease).
(15) "Financing Transaction" shall mean the financing
transaction undertaken by the NJEDA, the Lessee and the Trustee
with respect to the Bonds, the NJEDA Sublease Agreement and the
NJEDA Subleases which are a part thereof.
(16) "Foreclosure Period " shall mean an initial period of
270 days subject to the conditions applicable to said initial
period as set forth in paragraph (n) of this Section, and
extendable to an aggregate total maximum period, including all such
extensions, of seven hundred and twenty (720) days, subject to the
conditions set forth in paragraph (n) of this Section, and which
shall commence on the Reletting Election Notice Service Date after
the first to occur of any of the following (i) the Notice of
Termination Service Date (defined in paragraph (1)(2) of this
Section); (ii) the Bankruptcy Rejection Date (defined in paragraph
(r)(1)(i)(C) of this Section); and (iii) the Bonds Default Date
(defined in paragraph (m) of this Section); and said Foreclosure
Period shall expire, unless sooner terminated, on the earlier to
occur of (x) the ninetieth consecutive day following such
commencement if the conditions for the extension of the same under
paragraph (n)(4) of this Section are not satisfied or, if there are
one or more extensions thereof as provided in and subject and
pursuant to subparagraphs (4), (5) and (6) of paragraph (n) of this
Section, the last day of the final extension, or (y) the Lease
Assignment/Assumption Commencement Date; the foregoing to be
subject, however to the provisions set forth in paragraphs (r)(1)
and (q) of this Section; provided, however, that the Foreclosure
Period shall not in any event continue after the transfer of title
to the Lessee's interest in the Mortgaged Premises under the Lease
pursuant to the issuance of a final judgment of foreclosure by a
court of competent jurisdiction or after any termination or
expiration of the Leasehold Mortgage as provided in this Section;
and provided that the Foreclosure Period shall be subject to
earlier termination as provided in paragraph (o) of this Section.
Notwithstanding anything herein to the contrary, if, during the
pendancy of any Foreclosure Period, the Bonds Default and/or Lease
Default giving rise to such Foreclosure Period, or any subsequent
Bonds Defaults or Lease Defaults thereafter occurring, are cured,
or waived by the Port Authority, as applicable, in accordance with
the applicable agreement(s) prior to the Lease Assignment/
Assumption Commencement Date and any pleading/proceedings based
upon such Bonds Defaults or Lease Defaults are dismissed with
prejudice, then such Foreclosure Period shall be deemed not to have
occurred (provided that any fees or other amounts paid or owing to
the Port Authority as of the date thereof shall be retained by, or
continue to be owing to, the Port Authority, as applicable). In
addition, as of the date and during the pendency of any Lessee
Bankruptcy, notwithstanding anything herein to the contrary, the
counting of days and the Leasehold Mortgagee's Foreclosure Period
Obligations in connection with any then-pending Foreclosure Period
shall be deemed suspended and held in abeyance until the earlier of
(i) the conclusion of the Lessee Bankruptcy or (ii) the Bankruptcy
Rejection Date.
(17) "Foreclosure Period Extension Fee" shall mean the fee
payable to the Port Authority by the Trustee as Leasehold Mortgagee
for each applicable extension, and collectively for any and all
applicable extensions, of the Foreclosure Period at the times and
in the amounts as set forth in and pursuant to paragraph (n) of
this Section.
(18) "Indenture" shall mean that certain Indenture of
Trust dated as of September 1, 1999 and entered into between NJEDA
and the Trustee with respect to the Bonds.
(19) "Lease Assignment/Assumption and Consent Agreement"
shall have the meaning as defined in paragraph (t)(2) of this
Section.
(20) "Lease Assignment/Assumption Commencement Date" shall
have the meaning as defined in paragraph (t)(2) of this Section.
(21) "Lease ANB-056" shall mean that certain agreement of
lease dated August 1, 1999 and bearing Port Authority
identification number ANB-056 (as the same has been or may be
amended or supplemented) whereby the Port Authority leased to
Continental Airlines, Inc. certain premises in Concourse A-2 at the
Airport (as more specifically described therein) for a term
commencing on August 1, 1999 and expiring on December 31, 2018.
(22) "Lease Termination" shall mean a breach of or default
under the Lease for which the Port Authority has delivered a Notice
of Termination in accordance with paragraph (l) of this Section 96.
(23) "Lessee Bankruptcy" shall mean the filing by the
Lessee of a voluntary petition under the Bankruptcy Code or the
filing of an involuntary petition against the Lessee under the
Bankruptcy Code, and the pendency of proceedings pursuant thereto.
(24) "Lessee Guaranty" shall mean that certain agreement
of guaranty dated as of September 1, 1999 entered into between the
Lessee and the Trustee pursuant to which the Lessee guarantees the
payment of the principal of, redemption premium, if any, and
interest on the Bonds.
(25) "Leasehold Mortgage" shall mean a mortgage granted by
the Lessee to the Trustee of (i) the Lessee's leasehold interest in
the Mortgaged Premises under this Lease and (ii) the Lessee's
subleasehold interests with respect to the Mortgaged Premises under
the NJEDA Sublease Agreement, for an amount not to exceed the
Mortgage Amount and for a term commencing on the date of the
issuance of the initial Bonds and not to extend beyond the first to
occur of (x) the date of the redemption, cancellation, defeasance,
discharge or payment of all of the Bonds in accordance with the
Indenture and (y) the expiration date of the of the term of the
letting of the Mortgaged Premises as set forth in Paragraph 3 of
Supplement No. 17 of this Lease, subject in any event to the
termination provisions of paragraph (d) of this Section, and given
by the Lessee as security for the Lessee's obligations under the
Lessee Guaranty with respect to the payments by the Lessee of the
principal of, redemption premium, if any, and interest on the
Bonds. There shall only be one Leasehold Mortgage with respect to
the Mortgaged Premises.
(26) "Leasehold Mortgagee" shall mean Chase Bank of Texas,
National Association, appointed as the Trustee, and any Successor
Trustee as defined in paragraph (f) of this Section, under the
Indenture during such times as the Trustee, or such Successor
Trustee, shall be the holder of the Leasehold Mortgage in
accordance with the terms hereof.
(27) "Leasehold Mortgagee's Foreclosure Period
Obligations" shall have the meaning as defined in paragraph (n) of
this Section including but not limited to the Leasehold Mortgagee
Foreclosure Period Payments.
(28) "Leasehold Mortgagee's Foreclosure Period Payments"
shall mean the payments required to be made by the Leasehold
Mortgagee to the Port Authority as set forth in paragraph (n) of
this Section including the Leasehold Mortgagee's Foreclosure Period
Commencement Payments, the Leasehold Mortgagee's Foreclosure Period
Current Basis Payments and the Foreclosure Period Extension Fees as
defined and set forth in said paragraph (n).
(29) "Mortgage Amount" shall mean (i) the amount of Five
Hundred Fifty Million Dollars and No Cents ($550,000,000.00) which
constitutes a portion of the proceeds of the initial Bonds issued
for the payment of the costs of the Expansion Construction Work
under Section 93 hereof to the extent located on the Mortgaged
Premises, together with the costs of the baggage system (whether or
not located on the Mortgaged Premises) plus (ii) subject to the
prior written consent of the Port Authority, the additional amount
of all or a portion of the proceeds of the Additional Bonds issued
for the payment of costs of the Expansion Construction Work under
Section 93 hereof to the extent located on the Mortgaged Premises
provided that said additional amount shall not exceed $150,000,000
and provided further that said additional amount is to be used for
the payment of costs of the said Expansion Construction Work
incurred or paid by the Lessee prior to the Expansion Construction
Work Completion Date (as defined in paragraph (n) of Section 93
hereof); provided, however, that the Mortgage Amount shall not
include (i) any of the costs associated with the construction work
under the Other Lease or any costs associated with the C-1 and C-2
portions of the premises or any other areas at the Airport not
specifically included as above provided, (ii) any bonds issued to
refund the Bonds, or (iii) the costs of any personal property
(other than the Schedule 1 Terminal Fixtures, as defined in
paragraph 53 of Supplement No. 17 of the Lease, to the extent
located on the Mortgaged Premises and the baggage system portion
thereof whether or not located on the Mortgaged Premises).
(30) "Mortgaged Premises" shall mean solely that portion
of the premises which constitutes Area C-3, including the areas
added or to be added to said Area C-3 pursuant to Paragraph 3 of
this Supplement No. 17, leased to the Lessee under this Lease and
which Area C-3 shall constitute the subject premises of the
Leasehold Mortgage.
(31) "NJEDA" shall mean the New Jersey Economic
Development Authority, a public body corporate and politic created
and existing under and by virtue of the Constitution and laws of
the State of New Jersey.
(32) "NJEDA Sublease Agreement" shall mean that certain
agreement dated September 1, 1999 and entered into between the
Lessee and the NJEDA whereby (i) the Lessee subleases the Mortgaged
Premises to the NJEDA and (ii) the NJEDA sub-sub-subleases the
Mortgaged Premises back to the Lessee subject to the Port Authority
Consent to NJEDA Sublease Agreement ( (i) and (ii) collectively,
"NJEDA Subleases").
(33) [INTENTIONALLY OMITTED]
(34) "Other Lease" shall mean Lease ANB-056.
(35) "Port Authority Consent to NJEDA Subleases" shall
mean that certain agreement dated September 1, 1999 entered into
among the Port Authority, the Trustee, the NJEDA and the Lessee
whereby the Port Authority grants its consent to the NJEDA Sublease
Agreement and the Leasehold Mortgage and whereby the Trustee
expressly states its acknowledgment and agreement to the terms and
provisions of this Section 96 with respect to its Reletting Rights
as Leasehold Mortgagee and its rights and obligations with respect
thereto, including without limitation its rights and obligations to
perform the Leasehold Mortgagee's Foreclosure Period Obligations
and to pay to the Port Authority the Leasehold Mortgagee's
Foreclosure Period Payments, the Foreclosure Period Extension Fees
and the Deferred Reletting Fee as set forth in this Section 96.
(36) "Reletting Election Notice" shall mean the written
notice required to be given by the Leasehold Mortgagee to the Port
Authority pursuant to paragraph (1)(2), (m)(1) or (r)(l)(i)(C) of
this Section affirmatively stating the Leasehold Mortgagee's
election to (i) exercise its Reletting Rights hereunder and (ii) to
exercise its rights under the Leasehold Mortgage to foreclose upon
the Leasehold Mortgage or to have the Lease with respect to the
Mortgaged Premises assigned to an Approved Successor Lessee in
accordance with the provisions of this Section.
(37) "Reletting Election Notice Service Date" shall mean
the actual date of the service on the Port Authority by the
Leasehold Mortgagee of its Reletting Election Notice provided that
such service is duly and timely made in accordance with the terms
and provisions of this Lease.
(38) "Reletting Election Period" shall mean the thirty
(30) day period during which the Leasehold Mortgagee must decide
whether it shall exercise its Reletting Rights hereunder and serve
its Reletting Election Notice on the Port Authority prior to the
expiration thereof, and which shall commence on the earliest to
occur of (i) the Notice of Termination Service Date, (ii) the
Bankruptcy Rejection Date, and (iii) the Bonds Default Date and
which shall expire on the thirtieth (30th) consecutive day
following said commencement.
(39) "Reletting Rights" shall mean the rights of the
Trustee as Leasehold Mortgagee with respect to the Mortgaged
Premises and the Leasehold Mortgage to obtain an Approved Successor
Lessee as provided in this Section.
(40) "Subsequent Notice of Termination" and "Subsequent
Notice of Termination Date" shall have the meaning as set forth in
paragraph (1) (3) of this Section.
(b) (1) The Lessee hereby represents to the Port Authority
that the Lessee intends to finance (i) the costs of the Expansion
Construction Work under this Lease (as defined in and required
under Section 93 hereof) (together with associated personal
property) and (ii) the costs of the construction work under the
Other Lease as required under Section 4 thereof (together with
associated personal property), with the proceeds of the Bonds
issued by the NJEDA pursuant to the Financing Transaction, and that
contemporaneously with the execution of Supplement No. 17 to the
Lease and the Other Lease the Lessee will be executing the
Financing Documents subject to the consent of the Port Authority
and the execution by the Port Authority, the Trustee and the NJEDA
of the Port Authority Consent to NJEDA Subleases.
(2) It is expressly acknowledged that the intent of the
parties hereto is that the Leasehold Mortgage is to be granted by
the Lessee to the Trustee pursuant to the provisions hereof solely
for the purposes of allowing the Trustee in its capacity as
Leasehold Mortgagee to exercise its Reletting Rights solely with
respect to the Mortgaged Premises, as the implementation of the
security afforded to the bondholders solely with respect to the
Mortgaged Premises by virtue of the Leasehold Mortgage, and to
obtain an Approved Successor Lessee during the Foreclosure Period
if it elects to do so pursuant to this Section.
(c) Notwithstanding the provisions of Section 77 of this
Agreement, and without otherwise limiting the generality thereof,
the Lessee, as part of the Financing Transaction only and
contemporaneously with its execution of Supplement No. 17 to this
Lease, shall have the right (exercisable one time only) to make a
single mortgage of the Lessee's leasehold interest in the Mortgaged
Premises under this Agreement (including the Lessee's subleasehold
interests with respect to the Mortgaged Premises under the NJEDA
Sublease Agreement) in an amount not in excess of the Mortgage
Amount under a Leasehold Mortgage to the Trustee approved by the
Port Authority in advance. In determining whether to approve or
disapprove a proposed Trustee, the Port Authority shall consider
all relevant factors, including but not limited to, the following
(but it is agreed that the Port Authority shall analyze all such
factors in a reasonable manner):
(i) whether the proposed Trustee and each officer,
director or partner thereof and each person, firm or
corporation having an outright or beneficial interest in
twenty percent (20%) or more of the monies invested in the
proposed Trustee, if said Trustee is a corporation,
association or partnership, by loans thereto, stock ownership
therein or any other form of financial interest, has, as, of
the date of the proposed financing, a good reputation for
integrity and financial responsibility and has not been
convicted of or under current indictment for any crime within
five (5) years preceding the date of the Financing Transaction
and is not currently involved in civil anti-trust or fraud
litigation (other than as a plaintiff);
(ii) whether the Port Authority has had any "unfavorable
experience" with the proposed Trustee, or any of its officers,
directors, or partners, or any person, firm or corporation
(such officers, directors, partners, person, firm and
corporation, being herein in this item (ii) individually and
collectively referred to as a "Person") having an outright or
beneficial interest in twenty percent (20%) or more of the
monies invested in the proposed Trustee if said Trustee is a
corporation, association or partnership, by loans thereto,
stock ownership therein or any other form of financial
interest; "unfavorable experience" as used herein shall mean
any one or more of the following: (A) a material default by
said proposed Trustee or any such Person of any obligation
(monetary or non-monetary) to the Port Authority; (B) any
assertion made by said proposed Trustee or any such Person
against the Port Authority of any frivolous, false, malicious,
or unsupportable claim, demand or allegation or suit or
proceeding; (C) any act or omission of said proposed Trustee
or any such Person causing or resulting in any loss, damage or
injury to the Port Authority or the imposition or threatened
imposition of any fine or penalty on the Port Authority or the
commencement or threatened commencement of any action, suit or
proceeding against the Port Authority; (D) any failure or
refusal of said proposed Trustee or any such Person to comply
with any law, governmental order, directive, ordinance or
requirement, including without limitation, Environmental
Requirements, at any Port Authority facility; (E) any failure
to comply with, or breach of, the Port Authority's Code of
Ethics and Financial Disclosure by said proposed Trustee or
any such Person; or (F) any breach by said proposed Trustee or
any such Person of any fiduciary obligation, trust, confidence
or other duty to the Port Authority or of any confidentiality
agreement with the Port Authority;
(iii) whether the proposed Trustee or any officer,
director or partner thereof or any person, firm or corporation
having an outright or beneficial interest in twenty percent
(20%) or more of the monies invested in the proposed Trustee,
if said Trustee is a corporation, association or partnership,
by loans thereto, stock ownership therein or any other form of
financial interest is in conflict of interest, as defined
under the laws of the States of New York and New Jersey or
Port Authority policy, with any Commissioner of the Port
Authority as of the date of the proposed financing;
(iv) whether there are liens of any kind on the Mortgaged
Premises; and
(v) whether the Lessee shall be in default for non-
payment of rent, fees or charges or other required payments
under this Agreement or in default under any of the terms,
covenants or provisions of this Agreement on its part to be
performed, in either case remaining uncured after the
expiration of any applicable notice and cure period(s), and
whether this Agreement shall be in full force and effect and
the Port Authority shall have served a notice of termination
pursuant to Section 24 of this Agreement.
In addition, the Port Authority shall have delivered to the
Lessee and the Trustee the fully executed Port Authority Consent to
NJEDA Subleases and there shall not have been a previous assignment
of this Agreement and the letting hereunder pursuant to Section 77
of this Agreement.
(d) Notwithstanding anything herein or in the Financing
Documents, the Leasehold Mortgage or any consent or approval of the
Port Authority thereto to the contrary, the Leasehold Mortgage and
the Reletting Rights shall become effective only upon the issuance
of the initial Bonds in an amount not less than the initial
Mortgage Amount, and the Leasehold Mortgage and the Reletting
Rights shall automatically terminate and end in any event upon the
earliest to occur of (1) the expiration, surrender or termination
of the Lease as to the Mortgaged Premises; it being understood
that, as set forth in Section 61 hereof (as amended in this
Supplement No. 17 to this Lease), the Lessee shall not have the
right to terminate the Lease without the consent of the Leasehold
Mortgagee so long as the Leasehold Mortgage is outstanding; (2) the
expiration, revocation or termination of the Port Authority Consent
to NJEDA Subleases as to the Mortgaged Premises pursuant to the
terms of such Consent, except (but only so long as the Lease and
the Lessee Guaranty remain in full force and effect) in the case of
revocation or termination by reason of the Lessee's rejection of
the said NJEDA Subleases, or any of them, in a Lessee Bankruptcy;
(3) the expiration or earlier termination or surrender of the NJEDA
Subleases as to the Mortgaged Premises, except (but only so long as
the Lease and the Lessee Guaranty remain in full force and effect)
in the case of termination by reason of the Lessee's rejection of
the said NJEDA Subleases in a Lessee Bankruptcy; (4) the expiration
or earlier termination or surrender of the NJEDA Financing Sublease
as to the Mortgaged Premises, except (but only so long as the Lease
and the Lessee Guaranty remain in full force and effect) in the
case of termination by reason of the Lessee's rejection of the said
NJEDA Financing Sublease in a Lessee Bankruptcy; (5) the expiration
or earlier termination or surrender of the NJEDA Sublease Agreement
as to the Mortgaged Premises, except (but only so long as the Lease
and the Lessee Guaranty remain in full force and effect) in the
case of termination by reason of the Lessee's rejection of the said
NJEDA Sublease Agreement in a Lessee Bankruptcy; (6) the date on
which a redemption, cancellation, defeasance, discharge or payment
of all the Bonds shall occur or on any other event which shall
result in none of the Bonds being Outstanding (within the meaning
of the Indenture); (7) the termination, surrender or expiration of
the Basic Lease; (8) the expiration of the Reletting Election
Period without the timely exercise by the Trustee in its capacity
as Leasehold Mortgagee of its election to exercise its Reletting
Rights by service of its Reletting Election Notice on the Port
Authority in accordance with the terms hereof; (9) the date of any
notice given by the Trustee in its capacity as Leasehold Mortgagee
stating its election not to exercise its Reletting Rights
hereunder; (10) the effective date of the letting of the Mortgaged
Premises hereunder, or any portion thereof, to an Approved
Successor Lessee, whether resulting from a foreclosure of the
Leasehold Mortgage, the exercise by the Leasehold Mortgagee of its
Reletting Rights, an assignment in lieu of foreclosure or
otherwise; (11) the Lease Assignment/Assumption Commencement Date;
and (12) the expiration or earlier termination or cancellation of
the Foreclosure Period.
(e) Without limiting Section 77 or any other term or provision
of this Agreement or any term or provision of the Port Authority
Consent to NJEDA Subleases, not less than five (5) business days
prior to the effective date of the proposed Leasehold Mortgage, the
Lessee shall submit to the Port Authority for its approval a copy
of the form of the proposed Leasehold Mortgage and of the Indenture
and the Lessee Guaranty with respect to the Bonds which the
Leasehold Mortgage is being given to secure. The Port Authority
will promptly advise the Lessee in writing whether or not the Port
Authority will consent to such proposed Leasehold Mortgage. On the
date of its execution of the Port Authority Consent to NJEDA
Subleases the Lessee shall deliver to the Port Authority a
conformed copy of the executed Leasehold Mortgage and of the
executed Lessee Guaranty and the executed Indenture.
(f) The Leasehold Mortgagee shall not assign or transfer the
Leasehold Mortgage to any entity or person whatsoever other than to
a trustee appointed pursuant to and in accordance with and subject
to the Indenture to replace the Trustee ("Successor Trustee");
provided that the Successor Trustee shall hold the Leasehold
Mortgage as Leasehold Mortgagee subject to all the terms and
provisions of this Section as if it were the original Trustee.
(g) Notwithstanding anything contained in the Leasehold
Mortgage or any consent or approval of the Port Authority thereto,
it is understood and agreed that the rights of the Leasehold
Mortgagee shall in all respects be as specified, and shall be
subject and subordinate to the terms, covenants, conditions and
provisions set forth, in this Agreement and to the terms, covenants
and conditions of the Port Authority Consent to NJEDA Subleases.
The terms, covenants, conditions and provisions of this Agreement
shall govern as between the Port Authority and the Lessee. As
between the Port Authority and the Leasehold Mortgagee, in the
event of any inconsistency between the terms, covenants, conditions
and provisions of this Agreement and the terms, covenants,
conditions and provisions of the Leasehold Mortgage or the
Indenture or any of the Financing Documents, the terms, covenants,
conditions and provisions of this Agreement shall control.
Notwithstanding any provisions of the Leasehold Mortgage to the
contrary, the Lessee for all purposes shall be deemed to be the
Lessee hereunder (subject to the Leasehold Mortgagee's Reletting
Rights herein granted) unless and until the Leasehold Mortgagee
shall have obtained an Approved Successor Lessee. The Leasehold
Mortgage shall make reference to the provisions of this Agreement
and shall provide that the Leasehold Mortgage and the Indenture and
the rights of the Leasehold Mortgagee thereunder with respect to
the Port Authority are and shall be in all respects subject and
subordinate to this Agreement.
(h) (1) Any approval or consent by the Port Authority
hereunder whether to the Leasehold Mortgage or to any assignment
thereof shall apply only to the specific transaction thereby
authorized and shall not relieve the Lessee or the Leasehold
Mortgagee from the requirement of obtaining the prior approval or
consent of the Port Authority to each and every further assignment
of the Leasehold Mortgage (except if otherwise expressly permitted
hereunder without such approval).
(2) Neither this Section nor the Leasehold Mortgage shall
prevent the Lessee hereunder from amending this Agreement without
the approval of the Leasehold Mortgagee; provided no amendment
shall impair the rights granted to Continental Airlines, Inc. as
the named Lessee hereunder to grant the Leasehold Mortgage to the
Leasehold Mortgagee or any of the Leasehold Mortgagee's Reletting
Rights hereunder or any of the Leasehold Mortgagee's rights and
obligations with respect thereto.
(i) (1) Except as expressly authorized in above paragraph (c)
of this Section 96 the
Lessee shall not mortgage the Lessee's interest in this Agreement
or the letting hereunder in whole or in part, or any portion of the
premises other than the portion which would constitute the
Mortgaged Premises, or the Lessee's subleasehold interests under
the NJEDA Subleases or the NJEDA Sublease Agreement in whole or in
part.
(2) Neither the Approved Successor Lessee nor any other
entity or person purchasing or succeeding to the leasehold
hereunder shall have any right to pledge or mortgage the leasehold
hereunder.
(j) If the Leasehold Mortgagee shall have given to the Port
Authority a written notice specifying its name and address together
with a conformed copy of the Leasehold Mortgage, the Port Authority
shall send to the Leasehold Mortgagee a copy of each notice of
default given under the Section of this Agreement entitled
"Termination by the Port Authority" or otherwise at the same time
as and whenever any such notice of default shall have been sent to
the Lessee, such copy to be addressed to the Leasehold Mortgagee at
the address last furnished by it to the Port Authority, and no
notice of default shall be deemed to have been given by the Port
Authority unless and until a copy thereof shall have been so given
to the Leasehold Mortgagee. The Lessee irrevocably directs that
the Port Authority accept, and the Port Authority agrees to accept,
the curing of such default with respect to the Mortgaged Premises
by the Leasehold Mortgagee as if and with the same force and effect
as though cured by the Lessee.
(k) Unless and until such time as it becomes the Lessee
hereunder or the "deemed Lessee" as described in paragraph (r) (2)
of this Section, the Leasehold Mortgagee, except to the extent
provided in paragraphs (j), (n)(2)(C) and (n)(3)(i) of this
Section, shall not have any right in or to the occupancy or use of
the Mortgaged Premises for the purposes set forth in this Agreement
or for any other purpose whatsoever, except to the extent necessary
to cure Lessee defaults in accordance with paragraphs (j),
(n)(2)(i)(C) and (n)(3)(i) of this Section. The Leasehold
Mortgagee shall not enter into or be entitled to enter into
possession of the Mortgaged Premises under this Agreement except to
the extent afforded to it under this Agreement.
(1) Lease Termination-Service of Notice of Termination:
(1) If the Port Authority shall elect to terminate the
letting of the premises under this Agreement pursuant to Section 24
of this Agreement entitled "Termination by the Port Authority" or
otherwise, then the Port Authority shall at the same time send a
copy of the written notice of such termination ("Notice of
Termination") to the Leasehold Mortgagee if it shall have become
entitled to notice as provided in paragraph (j) of this Section
(the date of the sending of such copy of said notice by the
Leasehold Mortgagee being herein called the "Notice of Termination
Service Date"). The Notice of Termination shall specify the
effective date of such termination (the "Notice of Termination
Effective Date"), which date must not be before the 31st day after
the Notice of Termination Service Date.
(2) The serving of the Notice of Termination by the Port
Authority on the Leasehold Mortgagee in accordance with the
foregoing shall trigger the Leasehold Mortgagee's Reletting Rights
solely with respect to the Mortgaged Premises and the commencement
of the Reletting Election Period (unless the Leasehold Mortgagee
has previously exercised its Reletting Rights and the Reletting
Election Period has previously commenced based on a Bonds Default
pursuant to paragraph (m) of this Section or a Bankruptcy Rejection
Date pursuant to paragraph (r) of this Section). The Leasehold
Mortgagee shall have the right to extend the Notice of Termination
Effective Date for a period constituting the initial ninety (90)
days of the Foreclosure Period (subject to the extensions thereof
as provided in paragraph (n) of this Section) provided that the
Leasehold Mortgagee shall serve its Reletting Election Notice on
the Port Authority on or prior to the end of the Reletting Election
Period stating the Leasehold Mortgagee's affirmative election to
exercise its Reletting Rights with respect to the Mortgaged
Premises, and provided, further, that the Leasehold Mortgagee
simultaneously with the giving of its Reletting Election Notice to
the Port Authority shall pay to the Port Authority the Leasehold
Mortgagee's Foreclosure Period Commencement Payments as defined and
set forth in paragraph (n) of this Section.
(3) In the event that prior to the Notice of Termination
Service Date there has previously occurred a Bonds Default pursuant
to paragraph (m) of this Section or a Bankruptcy Rejection Date
pursuant to paragraph (r) of this Section such subsequent
occurrence of the Notice of Termination Service Date ("Subsequent
Notice of Termination Service Date") shall not commence a new
Reletting Election Period or, if applicable, a new Foreclosure
Period and the subsequent Notice of Termination shall be deemed
stayed during the balance of the previously commenced Foreclosure
Period and such Foreclosure Period may continue (as the same may be
extended under paragraph (n) of this Section) if and only if the
Leasehold Mortgagee shall, in addition to its continued compliance
with all of the Leasehold Mortgagee's Foreclosure Period
Obligations including its continued payments of the Leasehold
Mortgagee's Foreclosure Period Payments, pay to the Port Authority
the Foreclosure Period Extension Fees as set forth in paragraph (n)
of this Section.
(m) Bonds Default:
(1) In the event the Lessee shall fail to make payment of
any and all amounts required when due under the Lessee Guaranty to
be paid by the Lessee as and for the payment of the principal,
premium and interest on the Bonds and said failure results in a
default under the Bonds ("Bonds Default"), the Leasehold
Mortgagee's Reletting Election Period shall be deemed to commence
upon the date of said Bonds Default ("Bonds Default Date"), but
only if such Bonds Default also constitutes an event of default
under the Leasehold Mortgage giving the Leasehold Mortgagee the
right to foreclose the Leasehold Mortgage and the Leasehold
Mortgagee serves its Reletting Election Notice on the Port
Authority prior to the expiration of said Reletting Election
Period; provided, further, however, that in the event either a
Notice of Termination Service Date or a Bankruptcy Rejection Date
occurs prior to a Bonds Default, such Bonds Default shall not
trigger a new Reletting Election Period or Foreclosure Period.
(2) After the written request of the Leasehold Mortgagee
to the Port Authority which may be made from time to time (but not
more frequently than once per calendar month) during the term of
the letting to the Lessee of the Mortgaged Premises up to the
occurrence of the earlier of (i) a Notice of Termination Service
Date and (ii) a Bankruptcy Rejection Date or Bonds Default Date,
the Port Authority shall promptly provide to the Leasehold
Mortgagee a statement of amounts invoiced by the Port Authority to
the Lessee during the sixty (60) day period preceding the date of
each request and setting forth the unpaid amounts, if any, owing or
estimated to be owing to the Port Authority by the Lessee under the
Lease at the date of the request; provided that the Port Authority
in supplying any such statement or statements to the Leasehold
Mortgagee shall do so without any warranty or representation to the
Leasehold Mortgagee and the Port Authority shall not be liable to
the Leasehold Mortgagee, the Lessee, Bondholders or any other party
or person with respect to any information contained or not
contained therein or the accuracy of the same provided it has
submitted such information in good faith (each such statement of
amounts invoiced, an "Information Statement"). In the event the
Indenture and the other Financing Documents expressly authorize the
Leasehold Mortgagee to declare a default under the Leasehold
Mortgage on the basis of (x) the failure of the Lessee to duly pay
to the Port Authority rentals, fees, charges and other amounts due
and owing under the Lease (y) the receipt by the Leasehold
Mortgagee of one or more Information Statements showing that the
said total unpaid amount exceeds Seven Million One Hundred Thousand
Dollars and No Cents ($7,100,000.00), and (z) the continued failure
of the Lessee to pay the said unpaid amount to the Port Authority
within twenty (20) days after the Lessee has received from the
Leasehold Mortgagee a written warning notice of Leasehold
Mortgagee's intention to declare a default under the Leasehold
Mortgage based on said failure of the Lessee, the declaration of
such default under the Leasehold Mortgage by the Leasehold
Mortgagee shall, for purposes hereof, constitute a Bonds Default
which shall trigger the Leasehold Mortgagee's Reletting Rights and
its Reletting Election Period as defined in and subject to the
foregoing subparagraph (1) of this paragraph (m). Neither the
provisions of this paragraph (m) nor any Information Statement
shall be deemed to impair, restrict, limit, alter or affect any
claim, right or remedy of the Port Authority under the Lease or
otherwise, including without limitation the right to serve a Notice
of Termination under the Lease, or to limit the amounts forming the
basis for any termination of the Lease by the Port Authority or for
which the Lessee may be liable under Section 27 of the Lease
entitled "Survival of the Obligations of the Lessee", nor shall the
same impose or create any liability on the Port Authority to, or be
the basis of any claim against the Port Authority by, the Lessee,
the Leasehold Mortgagee, the Bondholders or any of them, or any
other party or person with respect to the Information Statement
provided the Port Authority has provided the same in good faith,
nor shall any such Information Statement be binding on the Port
Authority or constitute or be deemed to constitute any waiver or
estoppel of any claim, right or remedy of the Port Authority.
(n) Leasehold Mortgagee's Foreclosure Period
Obligations/Foreclosure Period Extensions. The Trustee as
Leasehold Mortgagee shall have the following obligations upon the
commencement of and during the Foreclosure Period including all
extensions thereof (collectively," Leasehold Mortgagee's
Foreclosure Period Obligations"):
(1) Leasehold Mortgagee's Foreclosure Period Commencement
Payments/ delivery of Reletting Election Notice:
Any commencement of the Foreclosure Period whether
triggered by the delivery of a Reletting Election Notice following
a Notice of Termination Service Date or a Bankruptcy Rejection Date
or a Bonds Default shall be further conditioned on the payment of
the following by the Leasehold Mortgagee, and the Leasehold
Mortgagee shall pay, to the Port Authority simultaneously with the
Leasehold Mortgagee's service of the Reletting Election Notice the
following amounts ("Leasehold Mortgagee's Foreclosure Period
Commencement Payments") (provided that the Port Authority shall be
obligated to give the Leasehold Mortgagee at least ten (10) days'
prior written notice of the amounts due under this subparagraph
(n)(1) and all other subparagraphs under this Paragraph (n) except
as otherwise expressly provided herein):
(i) All amounts due and owing to the Port Authority
which have accrued for any and all periods up to the Reletting
Election Notice Service Date for Area C-3 rentals (Facility
Factor and Airport Services Factor) and Phase 1A Charges and
other similar charges for further roadway development under
this Agreement and any and all other amounts due and owing to
the Port Authority by the Lessee for services provided under
this Agreement by the Port Authority, including without
limitation utility, extermination and incineration services
and maintenance and repair services, if any, under Section 85
hereof or as additional rent and charges under Section 21
hereof; to the extent such amounts have not been paid to the
Port Authority by the Lessee prior to the commencement of the
Foreclosure Period.
(ii) All Allocated Activity Based Fees and Charges
due and owing to the Port Authority under this Agreement and
which have accrued for a period not in excess of sixty (60)
days up to the Reletting Election Notice Service Date;
provided that the Allocated Activity Based Fees and Charges
Triggering Date (as defined in subparagraph (2)(ii) of this
paragraph (n)) shall have occurred, to the extent all such
Allocated Activity Based Fees and Charges have not been paid
to the Port Authority by the Lessee prior to the commencement
of the Foreclosure Period.
(2) Leasehold Mortgagee's Foreclosure Period Current
Basis Payments/from and after the first (1st) day of the
Foreclosure Period:
(i) After the initial commencement of the
Foreclosure Period and at all times during the continuation of
the Foreclosure Period including any and all extensions
thereof (and in addition to the Foreclosure Period
Commencement Payments set forth in subparagraph (1) of this
paragraph (n) and in addition to the Foreclosure Period
Extension Fees set forth in subparagraphs (4), (5) and (6) of
this paragraph (n)) the Leasehold Mortgagee shall pay to the
Port Authority the following amounts on a current basis, as
and when due under this Agreement ("Leasehold Mortgagee's
Foreclosure Period Current Basis Payments"), to the extent
such amounts are not paid by Lessee:
(A)All Area C-3 rentals (Facility Factor and
Airport Services Factor) and Phase 1A Charges and other
similar charges for further roadway development under this
Agreement on a current basis as the same become due and
payable to the Port Authority under this Agreement
commencing as of the first day of the Foreclosure Period
with respect to the Mortgaged Premises and any and all
other amounts due and payable to the Port Authority under
this Agreement with respect to the Mortgaged Premises for
services provided by the Port Authority, including without
limitation utility, extermination and incineration
services and maintenance and repair services, if any under
Section 85 hereof or as additional rent and charges under
Section 21 hereof;
(B)All Allocated Activity Based Fees and Charges
on a current basis as the same become due and payable to
the Port Authority under this Agreement commencing as of
the first day of the Foreclosure Period but only if the
Allocated Activity Based Fees and Charges Triggering Date
as defined in subparagraph (2) (ii) of this paragraph (n)
occurred upon or after the commencement of the Foreclosure
Period and any and all Allocated Activity Based Fees and
Charges which accrued and remained unpaid during the
sixty (60) day period prior to the Allocated Activity
Based Fees and Charges Triggering Date, and the conditions
specified in subparagraph (2)(ii) of this paragraph (n)
continue to be satisfied;
(C)Any and all costs of fulfilling the Lessee's
obligations under the Lease as provided in Section 21
hereof during the Foreclosure Period with respect to
security, utilities, insurance and maintenance of the
Mortgaged Premises; and the amounts of said costs shall be
due and payable to the Port Authority by the Leasehold
Mortgagee within thirty (30) days after the Port Authority
sends to the Leasehold Mortgagee a notice or invoice
therefor, which notices or invoices the Port Authority may
send to the Leasehold Mortgagee from time to time.
(ii) The Leasehold Mortgagee's obligation to pay
Allocated Activity Based Fees and Charges shall commence upon
the "Allocated Activity Based Fees and Charges Triggering
Date" which shall be deemed to be the later to occur of both
(aa) the Reletting Election Notice Service Date and (bb)
either (x) the date the Port Authority commences a suit,
action or proceeding, summary or otherwise, to evict or
dispossess the Lessee from or to retake possession of the "C-1
and C-2 portions of the premises" (as defined in Paragraph 3
of this Supplement No. 17 to the Lease) or (y) the date on
which the Port Authority takes such other action or actions in
accordance with applicable law which have the effect of
preventing the use by the Lessee of the C-1 and C-2 portions
of the premises. The obligation of the Leasehold Mortgagee to
pay Allocated Activity Based Fees and Charges shall continue
throughout the Foreclosure Period and any all extensions
thereof as long as the Port Authority continues to diligently
pursue the suit, action or proceeding mentioned in the
foregoing clause (x) or has otherwise prevented Lessee's use
of the C-1 and C-2 portions of the Premises.
(iii)It is recognized that all or portions of amounts
comprising the Activity Based Fees and Charges may include or
may be calculated on activities of the Lessee outside of the
Mortgaged Premises, and accordingly it is agreed that the
following allocation provisions shall apply to determine
Allocated Activity Based Fees and Charges. (i) where such
amounts are capable of being determined with respect to the
Mortgaged Premises solely without the need of allocation or
apportionment, 100% of such amounts shall be paid by the
Leasehold Mortgagee; and (ii) where such amounts require
allocation or apportionment the same shall be allocated or
apportioned as follows: such fees and charges shall be
divided by the total number of aircraft gates then leased by
the Port Authority to the Lessee at the Airport and the
resulting quotient shall be multiplied by the total number of
aircraft gates constructed or to be constructed pursuant to
Section 93 hereof in the Mortgaged Premises (which for
purposes of this calculation shall not be less than the number
12, minus any gates that are permanently removed from
service).
(3) other Leasehold Mortgagee's Foreclosure Period
Obligations/ from and after the first (1st) day of the Foreclosure
Period:
(i) At all times during the Foreclosure Period the
Leasehold Mortgagee shall use all reasonable efforts to
preserve the value of the Mortgaged Premises hereunder until
it has possession of the Mortgaged Premises under the Lease,
and thereafter shall fulfill all obligations under the Lease
with respect to the preservation of the Mortgaged Premises;
(ii) Immediately upon the commencement of the
Foreclosure Period the Leasehold Mortgagee shall use
commercially reasonable efforts to obtain an Approved
Successor Lessee for the Mortgaged Premises for the balance of
the term hereunder or such lesser term as it proposes to
lease, subject to the consent of the Port Authority in
accordance with and subject to paragraphs (t) and (u) of this
Section; provided further, that if, within the Foreclosure
Period, the Leasehold Mortgagee identifies a Proposed
Successor Lessee for the Mortgaged Premises it shall give
prompt written notice thereof to the Port Authority including
all information described in paragraph (t) of this Section; it
being understood and agreed that any such Approved Successor
Lessee shall be obligated to pay to the Port Authority all the
rentals, fees and charges for the Mortgaged Premises under the
Lease including without limitation the Area C-3 rentals which
shall include all airport services factors at the rates
provided under this Agreement at the effective date of the
reletting; flight fees (Schedule C) as set forth in Section 53
hereof; Schedule B charges as set forth in Schedule B attached
to this Agreement; fuel gallonage fees (Schedule D) as set
forth in Section 56 hereof; the Monorail Fees as set forth in
Supplement No. 15 of the Lease and Schedule M thereof; the
Phase 1A Charges as set forth in Supplement No. 15 of the
Lease; and any other fees and charges then in effect under the
Lease relating to the use of the Mortgaged Premises; all of
which shall be applicable to and paid by the Approved
Successor Lessee during the reletting of the Mortgaged
Premises to the Approved Successor Lessee, and shall be in
addition to the Deferred Reletting Fee or the Deferred
Reletting Fee Rental, as the case may be, required to be paid
to the Port Authority as described in paragraph (u) of this
Section
(4) Initial Foreclosure Period / 91st to 180th days:
Upon any commencement of the Foreclosure Period whether
triggered by a Lease default (Notice of Termination or Bankruptcy
Rejection) or a Bonds Default the Leasehold Mortgagee shall (to the
extent permitted by law) promptly and diligently and in good faith
commence and continue and seek to complete proceedings to foreclose
upon the Leasehold Mortgage and, in the event the Lessee fails to
vacate the Mortgaged Premises, including eviction of the Lessee
therefrom; provided that in the event the Leasehold Mortgagee
continues diligently to continue and complete the foreclosure
proceedings including eviction of the Lessee and, through no fault
of its own, is unable to complete said foreclosure proceedings
including eviction of the Lessee at the end of the ninetieth (90th)
day from the initial commencement of the Foreclosure Period, then,
provided that not less than five (5) days prior to the expiration
of said initial 90th-day period the Leasehold Mortgagee shall give
written notice to the Port Authority, which notice shall contain
the Leasehold Mortgagee's certification of the foregoing to the
Port Authority including the status of the aforesaid foreclosure
proceedings, the initial Foreclosure Period shall be deemed
extended for an additional 90 days which shall expire on the
earlier of (aa) the Lease Assignment/Assumption Commencement Date
or (bb) the date which constitutes the one hundred and eightieth
(180th) day from the initial commencement of the Foreclosure Period
subject to the extension under subparagraph (5) of this paragraph
(n); subject, however, to the further condition that during the
said 91st to 180th days of the Foreclosure Period the Leasehold
Mortgagee shall perform all the Leasehold Mortgagee's Foreclosure
Period Obligations including without limitation paying to the Port
Authority all of the Leasehold Mortgagee's Foreclosure Period
Current Basis Payments.
(5) Initial Foreclosure Period / 181st to 270th days/
Foreclosure Period Extension Fee:
In the event the Leasehold Mortgagee, during the initial
90 days of the Foreclosure Period, as aforesaid, commenced in good
faith and thereafter at all times diligently continued proceedings
to foreclose upon the Leasehold Mortgage including eviction of the
Lessee, and the Leasehold Mortgagee, through no fault of its own,
is unable to complete said foreclosure proceedings including
eviction of the Lessee at the end of the 180th day from the
commencement of the Foreclosure Period, then, provided that not
less than five (5) days prior to the expiration of said 180th day
period the Leasehold Mortgagee shall give written notice to the
Port Authority, which notice shall contain the Leasehold
Mortgagee's certification of the foregoing to the Port Authority
including the status of the aforesaid foreclosure proceedings and
subject to the further conditions set forth below, the Foreclosure
Period shall be deemed extended for an additional 90 days which
shall expire on the earlier of (aa) the Lease Assignment/Assumption
Commencement Date or (bb) the date which constitutes the 270th day
from the initial commencement of the Foreclosure Period.
The foregoing, however, shall be subject to the following further
conditions:
(i) that during the said 181st to 270th days of the
Foreclosure Period the Leasehold Mortgagee shall perform all
the Leasehold Mortgagee's Foreclosure Period Obligations
including without limitation paying to the Port Authority all
of the Leasehold Mortgagee's Foreclosure Period Current Basis
Payments; and
(ii) that the Leasehold Mortgagee shall pay to the
Port Authority for the said 181st to 270th day period a
Foreclosure Period extension Fee in the amount of Two Million
Four Hundred Seventy-two Thousand Dollars and No Cents
($2,472,000.00); which amount is based on a preliminary
determination by the Lessee of the percentage (82.4%) that its
estimated Mortgage Amount (estimated at Five Hundred Forty-
seven Million Four Hundred Thirty-six Thousand Four Hundred
Twenty-four Dollars and No Cents ($547,436,424.00)) bears to
its estimated total bond financing amounts of Six Hundred
Sixty-four Million Four Hundred Fifty-nine Thousand Three
Hundred Ninety Dollars and No Cents ($664,459,390.00) which
estimated total consists of the said estimated Mortgage Amount
plus estimated bond financing amounts of the Lessee's proposed
development projects at the Airport under lease ANA-040
(hangar 55) and lease ANB-028 (cargo building). The said
amount of the Foreclosure Period Extension Fee shall be
subject to adjustment as follows: after all of said actual
bond financing amounts are final based on the final pricing of
the Bonds and the final pricing of the bonds for the said
other development projects under leases ANA-040 and ANB-028,
the said amount of the Foreclosure Period Extension Fee shall
be equal to the product resulting from multiplying (x) the sum
of Three Million Dollars and No Cents ($3,000,000.00) times
(y) a fraction the numerator of which shall be the Mortgage
Amount set forth in paragraph (a)(29) of this Section 96 and
denominator of which shall be the sum of the said Mortgage
Amount plus the mortgage amounts defined and set forth in the
said leases ANA-040 and ANB-028. The said Foreclosure Period
Extension Fee, shall be payable to the Port Authority in three
equal 30-day installments; the first such installment shall be
due and payable by the Leasehold Mortgagee at the same time
the leasehold Mortgagee delivers its aforesaid 5-day
certification notice to the Port Authority; and the next two
installments shall be due and payable by the Leasehold
Mortgagee on the 210th day and on the 240th day of the
Foreclosure Period; provided, however, that subject to the
provisions of subparagraph (2) of paragraph (t) of this
Section, after the occurrence of the lease
Assignment/Assumption Commencement Date (as defined in
subparagraph (2) of paragraph (t) of this Section) no
installment(s) for any subsequent 30-day period of this
extension shall be payable.
The foregoing Foreclosure Period Extension Fee payments
shall apply as stated above where the Foreclosure Period initially
commenced on any basis other that the sole occurrence of a Bonds
Default; however, the same shall be subject the provisions of
subparagraph (7) of this paragraph (n) in the event the Foreclosure
Period initially commenced solely on the basis of a Bonds Default
and thereafter a "Subsequent Non-Bonds Default" as defined in
subparagraph (7) of this paragraph (n) occurred during the
Foreclosure Period.
(6) Foreclosure Period Additional Extensions -- to
maximum aggregate total of 720 days/ Foreclosure Period Extension
Fees:
Pre-conditions to additional extensions. It is expressly
understood and agreed that unless each of the following conditions
are satisfied prior to the expiration of the 270th day of the
Foreclosure Period (as extended under the foregoing subparagraph
(5)) there shall be no further extension of the Foreclosure Period
beyond the 270th day: (aa) the Leasehold Mortgagee has previously
identified and proposed to the Port Authority a Proposed Successor
Lessee pursuant to and in accordance with the terms and provisions
of paragraph (t) of this Section and in full compliance with all of
the requirements and conditions of said paragraph (t), (bb) such
Proposed Successor Lessee meets all of the requirements for
becoming an Approved Successor Lessee, as determined by, and to the
satisfaction of, the Port Authority, (cc) such Proposed Successor
Lessee, the Leasehold Mortgagee, the Lessee (if required pursuant
to paragraph (t) hereof) and the Port Authority have executed the
Lease Assignment/ Assumption and Consent Agreement subject to, and
under which the Proposed Successor Lessee will become the Approved
Successor Lessee commencing only upon, the successful completion by
the Leasehold Mortgagee of the foreclosure and eviction proceedings
prior to the expiration of the Foreclosure Period (if and as
extended not to exceed an aggregate maximum total of 720 days).
The foregoing pre-conditions shall be in addition to the conditions
set forth below which the Leasehold Mortgagee must satisfy with
respect to each of the following additional extensions of the
Foreclosure Period.
(A) Foreclosure Period extension 271st to 360th days/
Foreclosure Period Extension Fee:
In the event the Leasehold Mortgagee, during the
initial 90 days of the Foreclosure Period, as aforesaid, commenced
in good faith and thereafter at all times diligently continued
proceedings to foreclose the Leasehold Mortgage and to evict the
Lessee from the Mortgaged Premises and the Leasehold Mortgagee,
through no fault of its own, is unable to complete said foreclosure
proceedings including eviction of the Lessee from the Mortgaged
Premises at the end of the 270th day from the commencement of the
Foreclosure Period and the pendency of the foreclosure proceedings
in the State of New Jersey is the sole impediment to such
completion, then, provided that not less than five (5) days prior
to the expiration of said 270th-day period the Leasehold Mortgagee
shall give written notice to the Port Authority, which notice shall
contain the Leasehold Mortgagee's certification of the foregoing to
the Port Authority including the status of the aforesaid
foreclosure proceedings, the Foreclosure Period shall be deemed
extended for an additional 90 days which shall expire on the
earlier of (aa) the Lease Assignment/Assumption Commencement Date
or (bb) the date which constitutes 360th day from the commencement
of the Foreclosure Period; subject, however, to the following
further conditions:
(i) that during the said 271st to 360th day
extension of the Foreclosure Period the Leasehold Mortgagee
shall perform all of the Leasehold Mortgagee's Foreclosure
Period Obligations including without limitation paying to the
Port Authority all of the Leasehold Mortgagee's Foreclosure
Period Current Basis Payments; and
(ii) that the Leasehold Mortgagee shall pay to the
Port Authority for the said 271st to 360th day extension a
Foreclosure Period Extension Fee in the amount of Two Million
Four Hundred Seventy-two Thousand Dollars and No Cents
($2,472,000.00); which amount is based on a preliminary
determination by the Lessee of the percentage (82.4%) that its
estimated Mortgage Amount (estimated at Five Hundred Forty-
seven Million Four Hundred Thirty-six Thousand Four Hundred
Twenty-four Dollars and No Cents ($547,436,424.00) bears to
its estimated total bond financings amounts of Six Hundred
Sixty-four Million Four Hundred Fifty-nine Thousand Three
Hundred Ninety Dollars and No Cents ($664,459,390.00) which
estimated total consists of the said estimated Mortgage Amount
plus estimated bond financing amounts of the Lessee's proposed
development projects at the Airport under lease ANA-040
(hangar 55) and lease ANB-028 (cargo building). The said
amount of the Foreclosure Period Extension Fee shall be
subject to adjustment as follows: after all of said actual
bond financing amounts are final based on the final pricing of
the Bonds and the final pricing of the bonds for the said
other development projects under leases ANA-040 and ANB-028,
the said amount of the Foreclosure Period Extension Fee shall
be equal to the product resulting from multiplying (x) the sun
of Three Million Dollars and No Cents ($3,000,000.00) times
(y) a fraction the numerator of which shall be the Mortgage
Amount set forth in paragraph (a) (29) of this Section 96 and
denominator of which shall be the sum of the said Mortgage
Amount plus the mortgage amounts defined and set forth in the
said leases ANA-040 and ANB-028. The said Foreclosure Period
Extension Fee shall be payable to the Port Authority in three
equal 30-day installments; the first such installment shall be
due and payable by the Leasehold Mortgagee at the same time
the Leasehold Mortgagee delivers its aforesaid 5-day
certification notice to the Port Authority; and the next two
installments shall be due and payable by the Leasehold
Mortgagee on the 301st day and on the 331st day of the
Foreclosure Period; provided, however, that, subject to the
provisions of subparagraph (2) of paragraph (t) of this
Section, after the occurrence of the Lease
Assignment/Assumption Commencement Date (as defined in
subparagraph (2) of paragraph (t) of this Section) no
installment(s) for any subsequent 30-day period of this
extension shall be payable.
The foregoing Foreclosure Period Extension Fee payments
shall apply as stated above where the Foreclosure Period initially
commenced on any basis other that the sole occurrence of a Bonds
Default; and the same shall be subject to the provisions of
subparagraph (7) of this paragraph (n) in the event the Foreclosure
Period initially commenced solely on the basis of a Bonds Default
and thereafter a "Subsequent Non-Bonds Default" as defined in
subparagraph (7) of this paragraph (n) occurred during the
Foreclosure Period.
(B) Foreclosure Period additional extension 361st to
540th days / Foreclosure Period Extension Fee:
In the event the Leasehold Mortgagee, during the
initial 90 days of the Foreclosure Period, as aforesaid, commenced
in good faith and thereafter at all times diligently continued
proceedings to foreclose the Leasehold Mortgage including eviction
of the Lessee from the Mortgaged Premises and the Leasehold
Mortgagee, through no fault of its own, is unable to complete said
foreclosure proceedings including eviction of the Lessee from the
Mortgaged Premises at the end of the 360th day from the
commencement of the Foreclosure Period and the pendency of the
foreclosure proceedings in the State of New Jersey is the sole
impediment to such completion, then, provided that not less than
five (5) days prior to the expiration of said 360th day period the
Leasehold Mortgagee shall give written notice to the Port
Authority, which notice shall contain the Leasehold Mortgagee's
certification of the foregoing to the Port Authority including the
status of the aforesaid foreclosure proceedings and subject to the
further conditions set forth below, the Foreclosure Period shall be
deemed extended for an additional period which shall expire on the
earlier of (aa) the Lease Assignment/Assumption Commencement Date
or (bb) the date which constitutes the 540th day from the initial
commencement of the Foreclosure Period; subject, however, to the
following further conditions:
(i) that during the said 361st to 540th day
extension of the Foreclosure Period the Leasehold Mortgagee
shall perform all of the Leasehold Mortgagee's Foreclosure
Period Obligations including without limitation paying to the
Port Authority all of the Leasehold Mortgagee's Foreclosure
Period Current Basis Payments; and
(ii) that the Leasehold Mortgagee shall pay to the
Port Authority for the said 361st to 540th day extension a
Foreclosure Period Extension Fee in the amount of Nine Million
Eight Hundred Eighty-eight Thousand Dollars and No Cents
($9,888,000.00); which amount is based on a preliminary
determination by the Lessee of the percentage (82.4%) that its
estimated Mortgage amount (estimated at Five Hundred Forty-
seven Million Four Hundred Thirty-six Thousand Four Hundred
Twenty-four Dollars and No Cents ($547,436,424.00)) bears to
its estimated total bond financings amounts of Six Hundred
Sixty-four Million Four Hundred Fifty-nine Thousand Three
Hundred Ninety Dollars and No Cents ($664,459,390.00) which
estimated total consists of the said estimated Mortgage Amount
plus estimated bond financing amounts of the Lessee's proposed
development projects at the Airport under lease ANA-040
(hangar 55) and lease ANB-028 (cargo building). The said
amount of the Foreclosure Period Extension Fee shall be
subject to adjustment as follows: after all of said actual
bond financing amounts are final based on the final pricing of
the Bonds and the final pricing of the bonds for the said
other development projects under leases ANA-040 and ANB-028,
the said amount of the Foreclosure Period Extension Fee shall
be equal to the product resulting from multiplying (x) the sum
of Twelve Million Dollars and No Cents ($12,000,000.00) times
(y) a traction the numerator of which shall be the Mortgage
Amount set forth in paragraph (a) (29) of this Section 96 and
denominator of which shall be the sum of the said Mortgage
Amount plus the mortgage amounts defined and set forth in the
said leases ANA-040 and ANB-028. The said Foreclosure Period
Extension Fee shall be payable to the Port Authority in six
equal 30-day installments; the first such installment shall be
due and payable by the Leasehold Mortgagee at the same time
the Leasehold Mortgagee delivers its aforesaid 5-day
certification notice to the Port Authority; and the next five
installments shall be due and payable by the Leasehold
Mortgagee on the 391st day, on the 421st day, on the 451st
day, on the 481st day, and on the 511th day of the Foreclosure
Period; provided, however, that, subject to the provisions of
subparagraph (2) of paragraph (t) of this Section, after the
occurrence of the Lease Assignment/Assumption Commencement
Date (as defined in subparagraph (2) of paragraph (t) of this
Section) no installment(s) for any subsequent 30-day period of
this extension shall be payable.
The foregoing Foreclosure Period Extension Fee payments
shall apply as stated above where the Foreclosure Period initially
commenced on any basis other that the sole occurrence of a Bonds
Default; and the same shall be subject to the provisions of
subparagraph (7) of this paragraph (n) in the event the Foreclosure
Period initially commenced solely on the basis of a Bonds Default
and thereafter a "Subsequent Non-Bonds Default" as defined in
subparagraph (7) of this paragraph (n) occurred during the
Foreclosure Period.
(C) Foreclosure Period final extension 541st to 720th
days / Foreclosure Period Extension Fee:
In the event the Leasehold Mortgagee, during the
initial 90 days of the Foreclosure Period, as aforesaid, commenced
in good faith and thereafter at all times diligently continued
proceedings to foreclose the Leasehold Mortgage including eviction
of the Lessee from the Mortgaged Premises and the Leasehold
Mortgagee, through no fault of its own, is unable to complete said
foreclosure proceedings including eviction of the Lessee from the
Mortgaged Premises at the end of the 540th day from the
commencement of the Foreclosure Period and the pendency of the
foreclosure proceedings in the State of New Jersey is the sole
impediment to such completion, then, provided that not less than
five (5) days prior to the expiration of said 540th day period the
Leasehold Mortgagee shall give written notice to the Port
Authority, which notice shall contain the Leasehold Mortgagee's
certification of the foregoing to the Port Authority including the
status of the aforesaid foreclosure proceedings, the Foreclosure
Period shall be deemed extended for a final additional period which
shall expire on the earlier of (aa) the Lease Assignment/Assumption
Commencement Date or (bb) the date which constitutes the 720th day
from the initial commencement of the Foreclosure Period; subject,
however, to the following further conditions:
(i) that during the said 541st to 720th day
extension of the Foreclosure Period the Leasehold Mortgagee
shall perform all of the Leasehold Mortgagee's Foreclosure
Period Obligations including without limitation paying to the
Port Authority all of the Leasehold Mortgagee's Foreclosure
Period Current Basis Payments; and
(ii) that the Leasehold Mortgagee shall pay to the
Port Authority for the said 541st to 720th day extension a
Foreclosure Period Extension Fee in the amount of Fourteen
Million Eight Hundred Thirty-two Thousand Dollars and No Cents
($14,832,000.00); which amount is based on a preliminary
determination by the Lessee of the percentage (82.4%) that its
estimated Mortgage Amount (estimated at Five Hundred Forty-
seven Million Four Hundred Thirty-six Thousand Four Hundred
Twenty-four Dollars and No Cents ($547,436,424.00)) bears to
its estimated total bond financings amounts of Six Hundred
Sixty-four Million Four Hundred Fifty-nine Thousand Three
Hundred Ninety Dollars and No Cents ($664,459,390.00) which
estimated total consists of the said estimated Mortgage Amount
plus estimated bond financing amounts of the Lessee's proposed
development projects at the Airport under lease ANA-040
(hangar 55) and lease ANB-028 (cargo building). The said
amount of the Foreclosure Period Extension Fee shall be
subject to adjustment as follows: after all of said actual
bond financing amounts are final based on the final pricing of
the Bonds and the final pricing of the bonds for the said
other development projects under leases ANA-040 and ANB-028,
the said amount of the Foreclosure Period Extension Fee shall
be equal to the product resulting from multiplying (x) the sum
of Eighteen Million Dollars and No Cents ($18,000,000.00)
times (y) a fraction the numerator of which shall be the
Mortgage Amount set forth in paragraph (a) (29) of this
Section 96 and denominator of which shall be the sum of the
said Mortgage Amount plus the mortgage amounts defined and set
forth in the said leases ANA-040 and ANB-028. The said
Foreclosure Period Extension Fee shall be payable to the Port
Authority in six equal 30-day installments; the first such
installment shall be due and payable by the Leasehold
Mortgagee at the same time the Leasehold Mortgagee delivers
its aforesaid 5-day certification notice to the Port
Authority; and the next five installments shall be due and
payable by the Leasehold Mortgagee on the 571st day, on the
601st day, on the 631st day, on the 661st day, and on the
691st day of the Foreclosure Period; provided, however, that,
subject to the provisions of subparagraph (2) of paragraph (t)
of this Section, after the occurrence of the Lease
Assignment/Assumption Commencement Date (as defined in
subparagraph (2) of paragraph (t) of this Section) no
installment(s) for any subsequent 30-day period of this
extension shall be payable.
The foregoing Foreclosure Period Extension Fee payments
shall apply as stated above where the Foreclosure Period initially
commenced on any basis other that the sole occurrence of a Bonds
Default; and the same shall be subject to the provisions of
subparagraph (7) of this paragraph (n) in the event the Foreclosure
Period initially commenced solely on the basis of a Bonds Default
and thereafter a "Subsequent Non-Bonds Default" as defined in
subparagraph (7) of this paragraph (n) occurred during the
Foreclosure Period.
(7) Foreclosure Period Extension Fees / initial Bonds
Default followed by a Lease Termination or Bankruptcy Rejection
Date.
(i) For purposes of this subparagraph (7) the term
"Subsequent Non-Bonds Default" shall mean the occurrence of either
a Notice of Termination Service Date or a Bankruptcy Rejection Date
(whichever is first to occur) subsequent to the initial
commencement of the Foreclosure Period which commencement was based
solely on the occurrence of a Bonds Default. In the event that the
Foreclosure Period initially commences as a result solely of a
Bonds Default, the Foreclosure Period Extension Fees shall not be
payable unless and until there occurs a Subsequent Non-Bonds
Default; provided that such Subsequent Non-Bonds Default shall
neither commence a new Foreclosure Period nor extend the total
aggregate Foreclosure Period (including all available extensions)
beyond the allowable maximum aggregate total of 720 days. In the
event of such Subsequent Non-Bonds Default the obligation of the
Leasehold Mortgagee to pay to the Port Authority the Foreclosure
Period Extension Fees set forth in subparagraphs (5) and (6) (A),
(B) and (C) of this paragraph (n) shall be deemed to commence and
at the installment rate determined in accordance with the
following: if the Subsequent Non-Bonds Default occurs during the
initial 90 days after the commencement the Foreclosure Period the
actual date of said Subsequent Non-Bonds Default shall be treated
as day 1 of the Foreclosure Period and the Foreclosure Period
Extension Fees set forth above shall commence on the 181st day
following the date of said Subsequent Non-Bonds Default at the
applicable 30-day installment rate in accordance with the
subparagraph (5) of this paragraph (n); if such Subsequent Non-
Bonds Default occurs after the 90th day of the Foreclosure Period
the 90th day of the Foreclosure Period shall be treated as day 1 of
the Foreclosure Period and the Foreclosure Period Extension Fees
shall, where the Subsequent Non-Bonds Default occurs between the
91st and the 270th days of the Foreclosure Period, commence on the
271st day of the Foreclosure Period at the 30-day installment rate
applicable on the 181st day thereof (271 minus 90); and where the
Subsequent Non-Bonds Default occurs between the 271st and the 720th
days of the Foreclosure Period the Foreclosure Period Extension
Fees shall commence on the actual date of the Subsequent Non-Bonds
Default at the 30-day installment rate applicable on the 90th day
preceding such actual date.
[For illustrative purposes only the following two
illustrations of the foregoing are provided:
Illustration 1. if the Foreclosure Period commenced
based on a Bonds Default only and the Subsequent Non-Bonds
Default occurred on the 20th day after such commencement of
the Foreclosure Period, the 20th day of the Foreclosure Period
would be treated as day 1 for purposes of the determination of
the applicable Foreclosure Period Extension Fee and the
obligation of the Leasehold Mortgagee to pay to the Port
Authority the Foreclosure Period Extension Fees would commence
on the 200th day of the Foreclosure Period at the 30-day
installment rate set forth in subparagraph (5) of this
paragraph (n) (the 181st-270th day installment rate);
alternatively, if the Subsequent Non-Bonds Default occurred on
the 150th day after such commencement of the Foreclosure
Period, the 90th day of the Foreclosure Period shall be
treated as day 1 and said 150th day would be treated as day 60
for purposes of the determination of the applicable
Foreclosure Period Extension Fee and the obligation of the
Leasehold Mortgagee to pay to the Port Authority the
Foreclosure Period Extension Fees would commence 121 days
thereafter (i.e. on the 271st day of the Foreclosure Period)
at the 30-day installment rate applicable on the 181st day as
set forth in subparagraph (5) of this paragraph (n) (the
181st-270th days rate) and continue thereafter during the
Foreclosure Period and payable on the first day of each 30-day
period thereafter occurring during the Foreclosure Period at
the 30-day installment rates set forth in subparagraphs (6)
(A), (B) and (C) of this paragraph (n).
Illustration 2. if the Foreclosure Period commenced
based on a Bonds Default only and the Subsequent Non-Bonds
Default occurred on the 70th day after such commencement of
the Foreclosure Period, the 70th day of the Foreclosure Period
would be treated as day 1 for purposes of the determination of
the applicable Foreclosure Period Extension Fee and the
obligation of the Leasehold Mortgagee to pay to the Port
Authority the Foreclosure Period Extension Fees would commence
on the 251st, day of the Foreclosure Period at the 30-day
installment rate set forth in subparagraph (5) of this
paragraph (n) (the 181st-270th installment rate) and continue
thereafter during the Foreclosure Period and payable on the
first day of each 30-day period thereafter occurring during
the Foreclosure Period at the 30-day installment rates set
forth in subparagraphs (6) (A), (B) and (C) of this paragraph
(n); alternatively, if the Foreclosure Period commenced based
on a Bonds Default only and the Subsequent Non-Bonds Default
occurred on the 600th day after such commencement of the
Foreclosure Period, the 90th day of the Foreclosure Period
shall be treated as day 1 and the said 600th, day would be
treated as day 510 for purposes of the determination of the
applicable Foreclosure Period Extension Fee and the obligation
of the Leasehold Mortgagee to pay to the Port Authority the
Foreclosure Period Extension Fees would commence on the 600th
day of the Foreclosure Period at the 30-day installment rate
which would be in effect on the 510th day as set forth in
subparagraph (6) of this paragraph (n) (the 361st - 540th days
rate) and continue thereafter during the Foreclosure Period
and payable on the first day of each 30-day period thereafter
occurring during the Foreclosure Period at the 30-day
installment rates set forth in subparagraphs (6) (B) and (C)
of this paragraph (n).]
(ii) The Leasehold Mortgagee shall pay to the Port
Authority the Foreclosure Period Extension Fees in the monthly
installments determined in accordance with the foregoing
immediately upon the commencement date established in accordance
with the foregoing and on the first day of each 30-day period
thereafter occurring during the Foreclosure Period.
(iii) The foregoing provisions of this subparagraph
(7), however, shall not in any event extend, or be construed to
extend, the Foreclosure Period beyond the maximum permissible
aggregate total of 720 days (including all extensions) from the
initial commencement date of the Foreclosure Period.
(o) (1) The failure of the Leasehold Mortgagee to pay the
Foreclosure Period Commencement Payments when due shall result in
the automatic cancellation of the Leasehold Mortgagee's Reletting
Rights (and of any Foreclosure Period) and of the Leasehold
Mortgage, such cancellation to be deemed effective as of the
Reletting Election Notice Service Date and there shall be no
further Reletting Rights or Leasehold Mortgage with respect to the
Mortgaged Premises hereunder and any Notice of Termination
previously stayed shall become fully effective as described below.
The failure of the Leasehold Mortgagee to timely pay any of the
Leasehold Mortgagee's Foreclosure Period Payments or to fully and
duly perform any of the Leasehold Mortgagee's Foreclosure Period
Obligations shall result in the termination of the Foreclosure
Period and the Reletting Rights and the Leasehold Mortgage
automatically without any further act on the part of the Port
Authority and any Notice of Termination previously stayed shall
become fully effective as described below. The failure of the
Leasehold Mortgagee to pay any Foreclosure Period Extension Fee
when due shall result in the automatic termination and non-
extension of the Foreclosure Period and the automatic termination
of the Leasehold Mortgage and the Reletting Rights without any
further act on the part of the Port Authority and any Notice of
Termination previously stayed shall become fully effective as
described below. Notwithstanding anything herein to the contrary
but without limiting subparagraph (2) below or paragraph (s) of
this Section, the sole right or remedy of the Port Authority for
the failure of the Leasehold Mortgagee to pay the Leasehold
Mortgagee's Foreclosure Period Payments shall be the cancellation
or termination (including non-extension) of the Leasehold
Mortgagee's Reletting Rights (and of any Foreclosure Period) and of
the Leasehold Mortgage.
(2) Upon any such termination or cancellation of the
Foreclosure Period or any non-extension of the Foreclosure Period,
the Port Authority's termination under the Notice of Termination
shall be deemed effective with respect to the Mortgaged Premises
and the Lease with respect to the Mortgaged Premises shall be
deemed terminated effective immediately on said expiration,
termination or cancellation of the Foreclosure Period in accordance
with the Section of the Lease entitled "Termination by the Port
Authority" and the Port Authority, in addition to pursuing any or
all of its rights and remedies under the Lease, or otherwise, shall
be entitled to elect to use, alter or demolish any of the
improvements on the Mortgaged Premises free of any claim, right or
interest of the Lessee, the Trustee or the Bondholders.
(p) During the Foreclosure Period, as to any and all portions
of the Mortgaged Premises which the Lessee has vacated or from
which the Lessee has been evicted, the Port Authority, until such
time as the Trustee obtains an Approved Successor Lessee, may use
or grant to other Aircraft Operators the use of portion or portions
of the Mortgaged Premises on a temporary basis, which use shall be
deemed a subuse under this Agreement and shall not impair or limit
any of obligations or liabilities of the Lessee or the Leasehold
Mortgagee; any net amount received by the Port Authority (after
deducting all expenses, costs and disbursements incurred or paid by
the Port Authority in connection therewith) shall be credited to
the obligations of the Lessee. No such subuse shall be or be
construed to be an acceptance of a surrender or a waiver of any
claims, rights or remedies of the Port Authority or to be a
reletting by the Leasehold Mortgagee or to limit the Reletting
Rights of the Leasehold Mortgagee under this Section.
(q) In the event that at the expiration of the Foreclosure
Period the Trustee has failed to obtain an Approved Successor
Lessee for the Mortgaged Premises in accordance with and subject to
paragraphs (t) and (u) of this Section, the Reletting Rights and
the Leasehold Mortgage shall terminate automatically and the
Trustee shall have no further rights or obligations with respect to
reletting, the Port Authority's termination under the Notice of
Termination shall be deemed effective with respect to the Mortgaged
Premises and the Lease with respect to the Mortgaged Premises shall
be deemed terminated effective immediately on said expiration of
the Foreclosure Period in accordance with the Section of the Lease
entitled "Termination by the Port Authority" and the Port
Authority, in addition to pursuing any or all of its rights and
remedies under the Lease, or otherwise, shall be entitled to elect
to use, alter or demolish any of the improvements on the Mortgaged
Premises free of any claim, right or interest of the Lessee, the
Trustee or the Bondholders.
(r) Lease Default-Lessee Bankruptcy
(1) (i)In the event of the occurrence of a Lessee
Bankruptcy and the Foreclosure Period has not previously
commenced,
(A)if the Lessee as debtor in possession or the
bankruptcy trustee assumes and assigns the Lease to an
assignee which assignee also assumes the Lease subject to
the encumbrance created by the Leasehold Mortgage (by
operation of law or otherwise) (whether or not such
assignee also assumes the NJEDA Subleases and the Lessee's
obligations to pay the principal, redemption premium and
interest on any of the Bonds) and there are then Bonds
outstanding then the Reletting Rights of the Leasehold
Mortgagee and the Leasehold Mortgage shall continue to
obtain and apply to the tenancy of said assignee of the
assigned Lease of the Mortgaged Premises with Reletting
Rights to a new Foreclosure Period as to such assignee in
accordance with and subject to this Section;
(B) [INTENTIONALLY OMITTED]
(C) if the Lessee as debtor in possession or
the bankruptcy trustee rejects the Lease, then the
Reletting Election Period shall commence upon the
Bankruptcy Rejection Date and the provisions of paragraph
(n) hereof shall apply. For purposes hereof the term
"Bankruptcy Rejection Date" shall mean the later of (x)
the date set forth in the order of the bankruptcy court
as the effective date thereof for the rejection (or
deemed rejection) of the Lease by the Lessee and (y) the
actual date of such order of the bankruptcy court, and
said Bankruptcy Rejection Date shall trigger the
Reletting Election Period, provided that the Leasehold
Mortgagee shall submit to the Port Authority its
Reletting Election Notice stating its election to
exercise its Reletting Rights under this Agreement, as
above described, within thirty (30) days of the
Bankruptcy Rejection Date; and provided, further,
however, that the foregoing shall not constitute any
waiver, impairment or limitation of any claims, rights or
remedies of the Port Authority with respect to such
rejection of the Lease or the Lessee Bankruptcy. The
foregoing shall not limit the rights granted hereunder to
the Leasehold Mortgagee.
(ii) In the event of the occurrence of a Lessee
Bankruptcy and the Foreclosure Period has previously
commenced,
(A) if the Lessee as debtor in possession or
the bankruptcy trustee assumes and assigns the Lease to
an assignee which assignee also assumes the Lease subject
to the encumbrance created by the Leasehold Mortgage (by
operation of law or otherwise) (whether or not such
assignee also assumes the NJEDA Subleases and the
Lessee's obligations to pay the principal, redemption
premium and interest on the Bonds) and there are then
Bonds outstanding then the Reletting Rights of the
Leasehold Mortgagee and the Leasehold Mortgage shall
continue to obtain and apply to the tenancy of said
assignee of the assigned Lease of the Mortgaged Premises
with Reletting Rights to a new Foreclosure Period as to
such assignee in accordance with and subject to this
Section;
(B) [INTENTIONALLY OMITTED]
(C) if the Lessee as debtor in possession or
the bankruptcy trustee rejects the Lease, then the
running of the previously commenced Foreclosure Period
shall be deemed suspended as of the date of the Lessee
Bankruptcy and shall resume as of the occurrence of a
Bankruptcy Rejection Date; provided, however, that the
foregoing shall not constitute any waiver, impairment or
limitation of any claims, rights or remedies of the Port
Authority with respect to such rejection of the Lease or
with respect to a Lessee Bankruptcy. The foregoing shall
not limit the rights granted hereunder to the Leasehold
Mortgagee, provided that the Leasehold Mortgagee fulfills
all Leasehold Mortgagee's Foreclosure Period Obligations
and pays all Leasehold Mortgagee's Foreclosure Period
Payments.
(2) Upon the Bankruptcy Rejection Date the Leasehold
Mortgagee shall, for purposes of this Section, be the "deemed
Lessee" under this Agreement and shall simultaneously with the
service of its Reletting Election Notice pay the Leasehold
Mortgagee's Foreclosure Period Commencement Payments, if not
already paid, and shall thereafter satisfy all of the Leasehold
Mortgagee's Foreclosure Period Obligations.
(s) (1) In the event of the failure of the Leasehold
Mortgagee to exercise its Reletting Rights by the timely service of
its Reletting Election Notice and the payment to the Port Authority
of the Leasehold Mortgagee's Foreclosure Period Commencement
Payments in accordance with this Section 96, the Lease and the
letting of the Mortgaged Premises shall be deemed terminated
effective immediately on the Notice of Termination Effective Date,
or on the effective date of any other notice of termination served
by the Port Authority in accordance with the Section of the Lease
entitled "Termination by the Port Authority", and the Port
Authority, in addition to pursuing any or all of its rights and
remedies under the Lease, or otherwise, shall be entitled to elect
to use, alter or demolish any of the improvements on the Mortgaged
Premises free of any claim, right or interest of the Lessee, the
Trustee or the Bondholders.
(2) In the event the Mortgaged Premises do not
constitute all of the premises under this Agreement, the above
provisions with respect to the rights of the Leasehold Mortgagee to
extend the Notice of Termination or to exercise Reletting Rights
based on a Bonds Default Date or a Bankruptcy Rejection Date shall
apply only to the Mortgaged Premises and shall not apply to the
other areas or portions of the premises, and this Agreement as to
all such other areas or portions of the premises shall terminate on
the Notice of Termination Effective Date, or on the effective date
of any other notice of termination served by the Port Authority in
accordance with the Section of the Lease entitled "Termination by
the Port Authority", and the Port Authority may pursue any or all
of its rights and remedies under the Lease or otherwise with
respect thereto. The provisions hereof for the reletting of the
Mortgaged Premises based on a Bonds Default Date or a Bankruptcy
Rejection Date shall not and shall not be construed as a waiver or
limitation of the rights of the Port Authority to terminate other
portions of the premises or any Port Authority remedies with
respect thereto. If in the event of a reletting to an Approved
Successor Lessee of the Mortgaged Premises pursuant to the
provisions of this Section and the Lease as to the other portions
of the premises (excluding the Mortgaged Premises) has not expired
or been terminated and remains in effect on the effective date of
such reletting of the Mortgaged Premises, then the Port Authority
shall include with the Lease Assignment/Assumption and Consent
Agreement a restated lease document separately covering the
Mortgaged Premises.
(t) (1) Except as provided in paragraph (u) of this Section
with respect to the Port Authority, no entity, party or person
other than an Approved Successor Lessee shall be entitled to become
the owner of or acquire any interest in this Agreement pursuant to
a judgment of foreclosure and sale or as a result of an assignment
in lieu of foreclosure or as a result of the exercise by the
Leasehold Mortgagee of its Reletting Rights or otherwise; and any
entity, person or party proposed to become an Approved Successor
Lessee ("Proposed Successor Lessee") shall become an Approved
Successor Lessee only if the Leasehold Mortgagee duly exercises its
Reletting Rights by submitting to the Port Authority its Reletting
Election Notice stating its election to exercise its Reletting
Rights under this Agreement and including therewith the payment to
the Port Authority of the Leasehold Mortgagee's Foreclosure Period
Commencement Payments and fulfills all Leasehold Mortgagee's
Foreclosure Period Obligations and pays all Leasehold Mortgagee's
Foreclosure Period Payments, and said Proposed Successor Lessee
receives the approval of the Port Authority in advance. In
determining whether to approve or disapprove a Proposed Successor
Lessee, the Port Authority shall consider all relevant factors,
including but not limited to, the following factors, but it is
agreed that the Port Authority shall analyze all such factors in a
reasonable manner:
(i) whether the Proposed Successor Lessee will be
able to fulfill all of the Lessee's obligations under this
Agreement with respect to the Mortgaged Premises throughout
the balance of the term of the letting hereunder or such
lesser term as it proposes to lease;
(ii) whether the financial standing of the Proposed
Successor Lessee as of the effective date of its acquisition
of the leasehold hereunder is sufficient, in the opinion of
the Port Authority, to assure to the Port Authority that the
Proposed Successor Lessee is able to fulfill all of the
Lessee's obligations with respect to the Mortgaged Premises
under this Agreement throughout the balance of the term of the
letting of the Mortgaged Premises hereunder or such lesser
term as it proposes to lease which shall constitute the term
of the proposed reletting; including without limitation the
submission to the Port Authority of such security or guaranty
in such form and amount as the Port Authority may find
satisfactory and shall also submit such financial statements
and other financial information as the Port Authority may
require;
(iii) whether the Proposed Successor Lessee and
any officer, director or partner thereof and any person, firm
or corporation having an outright or beneficial interest in
twenty percent (20%) or more of the monies invested in the
Proposed Successor Lessee, if said Proposed Successor Lessee
is a corporation or partnership, by loans thereto, stock
ownership therein or any other form of financial interest has
as of the date of the proposed assignment/assumption a good
reputation for integrity and financial responsibility and has
not been convicted of or under current indictment for any
crime and is not currently involved in material civil anti-
trust or fraud litigation (other than as a plaintiff); and
(iv) whether the Port Authority has had any
"unfavorable experience" with the Proposed Successor Lessee,
or any of its officers, directors, or partners, or any person,
firm or corporation (such officers, directors, partners,
person, firm and corporation, being herein in this item (iv)
individually and collectively referred to as a "Person")
having an outright or beneficial interest in twenty percent
(20%) or more of the monies invested in the Proposed Successor
Lessee, if said Proposed Successor Lessee is a corporation or
partnership, by loans thereto, stock ownership therein or any
other form of financial interest; "unfavorable experience" as
used herein shall mean any one or more of the following. (A)
a material default by said Proposed Successor Lessee or any
such Person of any obligation, (monetary or non-monetary) to
the Port Authority; (B) any assertion made by said Proposed
Successor Lessee or any such Person against the Port Authority
in any frivolous, false, malicious, or unsupportable claim,
demand or allegation or suit or proceeding; (C) any act or
omission of said Proposed Successor Lessee or any such Person
causing or resulting in any loss, damage or injury to the Port
Authority or the imposition or threatened imposition of any
fine or penalty on the Port Authority or the commencement or
threatened commencement of any action, suit or proceeding
against the Port Authority; (D) any failure or refusal of said
Proposed Successor Lessee or any such Person to comply with
any law, governmental order, directive, ordinance or
requirement, including without limitation, Environmental
Requirements, at any Port Authority facility; (E) any failure
to comply with, or breach of, the Port Authority's Code of
Ethics and Financial Disclosure by said Proposed Successor
Lessee or any such Person; or (F) any breach by said Proposed
Successor Lessee or any such Person of any fiduciary
obligation, trust, confidence or other duty to the Port
Authority or of any confidentiality agreement with the Port
Authority;
(v) whether the Proposed Successor Lessee or any
officer, director or partner thereof or any person, firm or
corporation having an outright or beneficial interest in
twenty percent (20%) or more of the monies invested in the
proposed assignee, if said Proposed Successor Lessee is a
corporation or partnership, by loans thereto, stock ownership
therein or any other form of financial interest is in conflict
of interest, as defined under the laws of the States of New
York and New Jersey or Port Authority policy, with any
Commissioner of the Port Authority as of the date of the
proposed acquisition; and
(vi) whether the Proposed Successor Lessee or any
officer, director or partner thereof or any person, firm or
corporation having an outright or beneficial interest in
twenty percent (20%) or more of the monies invested in the
proposed assignee, if said Proposed Successor Lessee is a
corporation or partnership, by loans thereto, stock ownership
therein or any other form of financial interest has filed a
voluntary petition in bankruptcy or has been adjudicated a
bankrupt within five (5) years prior to the date of the
proposed acquisition.
Without limiting any other term or provision hereof, the
Proposed Successor Lessee must also agree in the Lease
Assignment/Assumption and Consent Agreement, to pay all of the
rentals, fees and charges in accordance with the Lease, including
without limitation the amounts described in paragraphs (n) (3) (ii)
and (u) of this Section. The Proposed Successor Lessee shall use
and occupy the Mortgaged Premises for the purposes set forth in
Section 8 hereof and shall be a major domestic or international
Scheduled Aircraft Operator or consortium thereof and shall agree
(or, if a consortium, shall agree jointly and severally) in the
Lease Assignment/Assumption and Consent Agreement to use and occupy
the Mortgaged Premises in accordance with all the terms and
conditions of this Agreement.
(2) Notwithstanding the foregoing, no acquisition,
assignment, sale or transfer pursuant to this paragraph (t) shall
be effective, and no Proposed Successor Lessee shall become an
Approved Successor Lessee, or have any right to possess, use or
occupy the Mortgaged Premises unless and until an assignment and
assumption agreement, in the event of an assignment in lieu of
foreclosure, or an assumption agreement, in the event of a
foreclosure, and in either event in form satisfactory to the Port
Authority whereby the Proposed Successor Lessee, effective on a
date prior to or simultaneously with the expiration of the
Foreclosure Period, assumes the obligations of the Lessee as if it
were the original tenant hereunder, has been executed by the Port
Authority, the Lessee, the Proposed Successor Lessee and the
Leasehold Mortgagee (said fully executed agreement in either case,
the "Lease Assignment/Assumption and Consent Agreement"); provided
that the foregoing may be effected without the Lessee's execution
thereof where there has been a preceding judgment of foreclosure
and sale of the Leasehold Mortgage or a preceding judgment of
eviction against the Lessee; subject to the payment of the Deferred
Reletting Fee as set forth in paragraph (u) of this Section. The
said effective date of the Lease Assignment/Assumption and Consent
Agreement is herein referred to as the "Lease Assignment/Assumption
Commencement Date", provided that where the Leasehold Mortgagee has
commenced proceedings to foreclose the Leasehold Mortgage, and for
purposes of the continuation of the Foreclosure Period Extension
Fees (as provided in paragraph (n) of this Section), such date
shall be deemed to have occurred only upon the successful
completion by the Leasehold Mortgagee prior to the expiration of
the Foreclosure Period (subject to the aggregate total maximum of
720 days) of the foreclosure and eviction proceedings described in
paragraph (n) (4) of this Section; provided, further, however, that
in the event the Leasehold Mortgagee does not in fact successfully
complete the foreclosure of the Leasehold Mortgage and eviction
proceedings as described in paragraph (n) (4) of this Section prior
to the expiration of the Foreclosure Period (subject to the
aggregate total maximum of 720 days) the Lease
Assignment/Assumption and Consent Agreement shall be null and void
and of no force or effect.
(3) It is understood and agreed that after the Leasehold
Mortgagee has obtained a Proposed Successor Lessee and has promptly
submitted to the Port Authority all required and necessary
information and materials, in accordance with subparagraph (1) of
this paragraph (t), to enable the Port Authority to determine
whether it will approve such Proposed Successor Lessee as an
Approved Successor Lessee, the running of the Foreclosure Period
shall be deemed tolled pending said determination by the Port
Authority, such determination to be considered promptly and
reasonably by the Port Authority; provided, however, that no such
tolling shall be effective unless the Leasehold Mortgagee promptly
continues to submit such additional information and material as may
be reasonably required by the Port Authority for its making of such
determination. Such tolling shall also toll the Leasehold
Mortgagee's obligation to pay the Foreclosure Period Extension
Fees, but not any other of Leasehold Mortgagee's Foreclosure Period
Obligations.
(u) Deferred Reletting Fee:
(1) Anything to the contrary herein notwithstanding, (i)
no Port Authority consent shall be granted to any Approved
Successor Lessee and no Proposed Successor Lessee or any other
entity, person or party shall become an Approved Successor Lessee
unless and until either (A) the Leasehold Mortgagee or the Proposed
Successor Lessee shall pay to the Port Authority prior to the
effective date of any right of the Approved Successor Lessee to
possess or commence any use or occupancy of the Mortgaged Premises
and prior to any such actual possession or commencement by any such
Approved Successor Lessee in a single lump sum payment the full
amount of the Deferred Reletting Fee, as defined below, or (B) at
the election of the Approved Successor Lessee, in lieu of said
single lump sum payment, the Approved Successor Lessee shall agree
to pay the Deferred Reletting Fee over time in Deferred Reletting
Fee Rental, as defined below, commencing as of the Lease
Assignment/Assumption Commencement Date which election shall be
stated in the Lease Assignment/Assumption and Consent Agreement
subject to subparagraph (4) of this paragraph (u); and (ii) in the
case of the foregoing (i) (B), any such Port Authority consent to
any Approved Successor Lessee is and shall be expressly conditioned
on the agreement of the Proposed Successor Lessee to make
continuing payments to the Port Authority of the Deferred Reletting
Fee Rental under subparagraph (4) of this paragraph (u); provided
however that the Approved Successor Lessee shall also submit to the
Port Authority such additional security as the Port Authority may
reasonably require and in such amount and form as the Port
Authority may determine to be appropriate to secure the obligation
of the Approved Successor Lessee to pay said Deferred Reletting Fee
Rental.
(2) "Deferred Reletting Fee" shall mean the fee payable
to the Port Authority in a single lump sum payment by the Leasehold
Mortgagee or the Approved Successor Lessee, as aforesaid, and which
shall be determined by applying the following formula:
DRF = MA x Y x C
Where DRF equals the Deferred Reletting Fee.
MA equals the Mortgage Amount hereunder (as defined in
subparagraph (29) of paragraph (a) of this Section.
Y equals a fraction the numerator of which shall be
the greater of (i) the actual number of full years
then remaining in the term of the letting of the
Mortgaged Premises hereunder at the Reletting
Election Notice Service Date and (ii) the number
five (5), and the denominator of which shall be
twenty-nine (29) representing the total number of
years of the term of the letting of the Mortgaged
Premises as of the effective date of Supplement No.
17 of the Lease.
C equals (i) 2% in the event the Foreclosure Period
commenced on the basis of a Bonds Default, and a
Subsequent Non-Bonds Default did not occur
thereafter during the Foreclosure Period; (ii) 3%
in the event the Foreclosure Period commenced on
the basis of the occurrence of a Lease Termination
or Bankruptcy Rejection Date, and a Bonds Default
did not subsequently occur; or (iii) 4% in the
event the Foreclosure Period commenced on the basis
of a Bonds Default and thereafter a Subsequent Non-
Bonds Default occurred, or the Foreclosure Period
commenced on the basis of a Lease Termination or
Bankruptcy Rejection Date, and thereafter a Bonds
Default occurred.
(3) Subject to (4) below, the Deferred Reletting Fee
shall be due and payable in full to the Port Authority by the
Leasehold Mortgagee or the Approved Successor Lessee in a single
lump sum payment on the Lease Assignment/Assumption Commencement
Date (and in any event prior to any use, occupancy or possession of
the premises by the Approved Successor Lessee).
(4) In the event the Approved Successor Lessee elects to
pay to the Port Authority the Deferred Reletting Fee in accordance
with clause (i) (B) of subparagraph (1) of this paragraph (u) then
the following provisions shall be and become immediately effective
as part of the rental obligations of the Approved Successor Lessee
as the lessee under the Lease and as part of the rental obligations
assumed by the Approved Successor Lessee under the Lease
Assignment/Assumption and Consent Agreement:
"(A) 1. "Deferred Reletting Fee" shall have the meaning
as defined in paragraph (u)(2) of Section 96 of the Lease.
2. 'Deferred Reletting Fee Rental Commencement
Date' shall mean, with respect to the Deferred Reletting Fee
Rental established on the basis of the Deferred Reletting Fee,
the Lease Assignment/Assumption Commencement Date; provided,
however, that if the Deferred Reletting Fee Rental
Commencement Date shall occur on other than the first day of
a calendar month, the Deferred Reletting Fee Rental
Commencement Date shall mean the first day of the calendar
month immediately following the month in which the aforesaid
Lease Assignment/Assumption Commencement Date occurs.
3. 'Deferred Reletting Fee Rental Period' shall
mean the period commencing on the Deferred Reletting Fee
Rental Commencement Date and ending on the earlier of (i) the
day preceding the tenth (10th) year anniversary of the
Deferred Reletting Fee Rental Commencement Date and (ii) the
expiration date of the then remaining term of the letting of
the Mortgaged Premises after the Deferred Reletting Fee Rental
Commencement Date.
4. 'Monthly Factor' shall mean the factor derived
in accordance herewith by the application of the following
formula:
1
= Monthly Factor
1 1
-
i i (1 + i)t
Where i is an annual percentage rate expressed in decimal form
equal to the sum of (x) the Fixed RBI Rate (as herein defined
in item 5 below) plus (y) 1.5% (150 basis points), divided by
twelve (12); and where t (a power) equals the number of
calendar months (expressed in whole numbers) from the Deferred
Reletting Fee Rental Commencement Date to the earlier of (i)
the day preceding the tenth (10th) year anniversary of the
Deferred Reletting Fee Rental Commencement Date and (ii) the
expiration date of the then remaining term of the letting of
the Mortgaged Premises after the Deferred Reletting Fee Rental
Commencement Date.
5. 'Fixed RBI Rate' as applicable to and
determined for the Deferred Reletting Fee Rental hereunder
shall mean the percentage reported as the weekly index of the
Bond Buyer Revenue Bond Index as reported in the publication
'The Bond Buyer' during the calendar week immediately
preceding the Deferred Reletting Fee Rental Commencement Date.
In the event that the Bond Buyer or its weekly Bond Buyer
Revenue Bond Index shall be discontinued during the term of
this Agreement, a comparable substitute for such Index shall
be mutually agreed upon in writing by the Lessee and the Port
Authority within thirty (30) days after such discontinuance.
In the event that the Lessee and the Port Authority shall fail
to agree upon such a substitute within the time hereinabove
specified then upon notice of either party such dispute shall
be disposed of by arbitration in accordance with then existing
rules of the American Arbitration Association or any successor
association. One half of the cost of said arbitration shall
be borne by the Port Authority and the other half of said cost
shall be borne by the Lessee.
(B) Computation and Payment
Commencing on the Deferred Reletting Fee Rental
Commencement Date the Lessee shall pay to the Port Authority
a rental (herein called the 'Deferred Reletting Fee Rental')
which Deferred Reletting Fee Rental shall be an amount payable
on the first day of each and every calendar month during the
Deferred Reletting Fee Rental Period which shall be equal to
the product obtained by multiplying the Monthly Factor by the
Deferred Reletting Fee (as defined in paragraph (u)(2) of
Section 96 of the Lease) as determined on the day immediately
preceding the Deferred Reletting Fee Rental Commencement Date.
(C) The Deferred Reletting Fee Rental shall be payable
in the same manner and collectible with like remedies as if
the same were part of the Area C-3 rentals except that such
payment shall not be subject to abatement or suspension for
any reason whatsoever.
(D) Notwithstanding any obligation of the Lessee to pay
the Deferred Reletting Fee Rental as part of the rental
obligations of the Lessee hereunder, the Lessee hereby, as a
separate and independent covenant, agrees and promises to pay
to the Port Authority the 'Deferred Reletting Fee Payment
Amount' which for purposes hereof shall mean the total amount
of installments and payments to be paid by the Lessee as
Deferred Reletting Fee Rental to the extent not actually paid
by the Lessee as Deferred Reletting Fee Rental as set forth
above. The Deferred Reletting Fee Payment Amount shall be due
and payable by the Lessee to the Port Authority immediately
upon any termination, expiration, non-extension or
cancellation of the Lease. Said obligation and agreement of
the Lessee to pay the Deferred Reletting Fee Payment Amount to
the Port Authority shall survive any termination, expiration,
non-extension or cancellation of the Lease."
(v) The Leasehold Mortgagee shall not be entitled to
foreclose its Leasehold Mortgage or to have the Lessee's interest
assigned in lieu of such foreclosure unless at least thirty (30)
days prior to commencing such foreclosure or requesting such
assignment in lieu of foreclosure, the Leasehold Mortgagee shall
have given the Port Authority written notice of its intention to
foreclose or to have this Agreement assigned with respect to the
Mortgaged Premises which notice shall state the then principal
balance of the Mortgage Amount, the amount of accrued and unpaid
interest thereon, and the per diem interest which will accrue on
the Mortgage Amount from, and after the giving of such notice. The
Port Authority shall have the right following the giving of such
notice by the Leasehold Mortgagee, to purchase the Leasehold
Mortgage for an amount equal to the total amount specified in such
notice from the Leasehold Mortgagee, including per diem interest to
the date of purchase. If the Port Authority shall fail to notify
the Leasehold Mortgagee within the thirty (30) day period specified
in the notice of its intention to purchase the Leasehold Mortgage
the Leasehold Mortgagee shall be entitled with respect to the
Mortgaged Premises to proceed to foreclose the Leasehold Mortgage
or to accept an assignment in lieu of foreclosure in accordance
with the provisions of this Agreement.
(w) No sale, transfer or assignment by the Lessee of its
interest in this Agreement to the Port Authority shall create a
merger between the estates of the Port Authority and the Lessee
unless the Port Authority, the Lessee and the Leasehold Mortgagee
shall specifically consent to such merger in writing, nor shall any
such sale, transfer or assignment be deemed to affect or diminish
the liabilities of the Lessee named in this Agreement, whether for
survived damages or otherwise.
(x) Each and every provision stated herein to be or become a
right or an obligation of the Trustee or of the Trustee in its
capacity as Leasehold Mortgagee shall be included in the Indenture
(by reference to this Agreement or otherwise) as among the rights
and obligations of the Trustee under the Indenture and in the Port
Authority Consent to NJEDA Subleases (by reference to this
Agreement or otherwise) as among the rights and obligations of the
Trustee, and in the Leasehold Mortgage as among the rights and
obligations of the Trustee as Leasehold Mortgagee under the
Leasehold Mortgage, and each and every provision stated herein to
be or become an obligation of the Approved Successor Lessee shall
be deemed included in the obligations assumed by the Approved
Successor Lessee by its acquisition of the Mortgaged Premises, the
Lease with respect thereto and by its execution of the Lease
Assignment/Assumption and Consent Agreement.
(y) (1) If the Leasehold Mortgagee shall obtain an Approved
Successor Lessee such Approved Successor Lessee shall acquire the
Lease with respect to the Mortgaged Premises with no further right
to mortgage or pledge the leasehold, and shall have no right to
assign the Lease with respect to the Mortgaged Premises other than
the limited right of assignment provided under Section 77 hereof.
(2) Nothing herein shall or shall be deemed to release
or relieve the Lessee from any terms, provisions, covenants or
conditions to be kept, performed or observed by the Lessee under
this Agreement or under the Port Authority Consent to NJEDA
Subleases.
(3) Nothing herein shall constitute or be deemed to
constitute any waiver by the Port Authority of any of its rights or
remedies to evict the Lessee in the event the Port Authority
terminates the Lease pursuant to the Section of this Agreement
entitled "Termination by the Port Authority" and the Leasehold
Mortgagee fails to properly exercise its Reletting Rights or to
obtain an Approved Successor Lessee in accordance with the
provisions hereof.
(4) Except for the rights granted herein to the
Leasehold Mortgagee, nothing herein shall constitute any waiver,
impairment or limitation of any of claims, rights or remedies of
the Port Authority based upon any event of default or based on any
rejection of the Lease resulting from a Lessee Bankruptcy or based
on any Lessee Bankruptcy.
(5) This Section and the right of the Lessee to grant
the Leasehold Mortgage and the right of the Trustee to enter the
Leasehold Mortgage are and shall be rights granted and effective
only as to Continental Airlines, Inc., the named Lessee hereunder,
and are exercisable one time only as above provided, and shall not
extend, obtain or apply to any Approved Successor Lessee or other
entity or person who may become a tenant or lessee of the premises
or any portion thereof.
(6) Neither this Section nor anything contained herein
nor any action taken or not taken hereunder shall impair, restrict
or limit the rights of the Port Authority under Section 69 hereof.
(z) Notices, statements and requests by or to the Trustee
(Leasehold Mortgagee) under the provisions of this Section 96 shall
be governed by Section 37 of the Lease entitled "Notices" and shall
be given to the Trustee at its address specified in Paragraph 14 of
the Port Authority Consent to NJEDA Subleases.
Section 97. No Third Party Beneficiary.
There shall be no third-party beneficiaries of this
Agreement. This Agreement shall be effective only as between the
parties hereto (and their successors and assigns, if, as and to the
extent permitted under this Agreement), and shall not be construed
as creating or conferring upon any person or entity any right,
remedy or claim under or by reason of this Agreement.
Notwithstanding the foregoing, nothing in this Section 97 shall
deprive the Leasehold Mortgagee of any of its Reletting Rights (as
defined in Section 96 of the Lease) under Section 96 of the Lease."
50. (a) Subparagraph (b) of paragraph 4 of Supplement No. 8
of the Lease shall be deemed deleted, and Sections 16 and 17 of the
Lease as amended by and as set forth in subparagraph (a) of said
paragraph 4 of Supplement No. 8 of the Lease, and as said Section
17 is also further herein amended, shall continue in full force and
effect for the term of the letting under the Lease including the
extension thereof provided for in this Seventeenth Supplemental
Agreement.
(b) Paragraph 5 of Supplement No. 8 of the Lease, as
amended by paragraph 3 of Supplement No. 11 and by paragraph 5 of
Supplement No. 13 and as referenced in paragraph 18 of Supplement
No. 15, and the right of termination thereunder as to all or
portions of Area C-3, shall be deemed deleted from the Lease and of
no further force and effect.
(c) The final sentence of Paragraph III of Schedule B of
the Lease, as previously amended in subparagraph (a) (11) of
paragraph 6 of Supplement No. 8 of the Lease, is hereby further
amended by inserting before the final period at the end thereof the
following:
"and, upon the Port Authority notice to the
Lessee of the completion by the Port Authority
of an appropriate expansion to the Central
Plant, the additional aircraft gate positions
and Area C-3 Concourse of the Expansion
Construction Work as defined and described in
and performed by the Lessee under Section 93
of the Lease as set forth in the Supplement
No. 17 to the Lease".
(d) Subparagraph (b) of paragraph 6 of Supplement No. 8
of the Lease shall be deemed deleted therefrom.
(e) (1) Paragraph 11 of Supplement No. 8 of the Lease
shall be deemed deleted therefrom.
(2) Paragraph 6 of Supplement No. 10 of the Lease
shall be deemed deleted therefrom.
(f) It is recognized that Paragraph 3 of Supplement No.
12 and the right of the Port Authority to require the removal of
the "Area C-3 Work" as defined in said Supplement No. 12 does not
extend or apply to the "Expansion Construction Work" as defined in
Section 93 of the Lease set forth in Paragraph 6 of this
Seventeenth Supplemental Agreement.
51. In addition to and without limiting any term or provision
of Section 66 or any other section of the Lease, the Lessee shall
and hereby agrees to submit, no later than the earlier of (i)
December 31, 2000 or (ii) the day which constitutes the three
hundred sixty-fifth (365th) day prior to either the expected
completion date of the Expansion Construction Work under Section 93
or date of the permitted occupancy of any portion of said Expansion
Construction Work, to the Port Authority for its review and
approval in accordance with Sections 66 and 73 of the Lease, a
revised updated comprehensive consumer services plan and covering
the consumer services to be provided in Area C-3 and other portions
of the premises after the completion of the Expansion Construction
Work, as defined in and pursuant to Section 93 of the Lease set
forth in this Seventeenth Supplemental Agreement.
52. The Lessee hereby expressly acknowledges and agrees that
the letting of Area C-3 under the Lease, and the extension of such
letting under this Supplemental Agreement, is expressly subject to
the condition that the Lessee shall allow to remain, in a location
in the premises approved in advance by the Port Authority, the room
now designated as the "Meditation Room-Freedom Shrine".
Accordingly, the Lessee hereby expressly agrees either to allow the
said room to remain in its present location in Area C-3 during the
term of the letting hereunder of Area C-3 or to move the same, at
the sole cost and expense of the Lessee, subject to Section 23
hereof, to such other suitable location on the premises approved in
advance by the Port Authority; it being expressly understood and
agreed that the foregoing shall not result in or constitute any
basis or claim by the Lessee for an abatement or reduction of
rental, or constitute any basis or claim for any payment of any
type from the Port Authority or to alter or impair any of the
responsibilities, duties or obligations of the Lessee under the
Lease or otherwise.
53. (a) The items of the Expansion Construction Work listed
in Schedule 1 attached to this Supplement No. 17 ("Schedule 1") are
personal property the title to which shall pass to the Port
Authority as the same, or any part thereof, are affixed to or
installed in the premises hereunder as part of the Expansion
Construction Work ("Schedule 1 Terminal Fixtures") and the same
shall become part of the premises under the Lease as herein
amended. It is understood and agreed that none of said Schedule 1
Terminal Fixtures shall include "rolling stock" or "vehicles". The
Lessee shall promptly provide the Port Authority with a detailed
and complete written inventory of each of said Schedule 1 Terminal
Fixtures not later than the applicable date each item is affixed to
or installed in the premises.
(b) Section 34 of the Lease, as previously amended, is hereby
further amended as follows:
(1) The first (1st) line of paragraph (a) thereof shall be
deemed amended to read as follows:
"All personal property (including trade fixtures but
specifically excluding the Schedule 1 Terminal Fixtures)
removable".
(2) The eleventh (11th) line of paragraph (a) thereof shall
be deemed amended by inserting the following after the word
"Lessee" and before the parenthesis appearing therein:
"and the Schedule 1 Terminal Fixtures shall not be the
property of the Lessee".
(3) The following new sentence shall be deemed inserted at
the end of paragraph (a) thereof:
"Anything in this Section 34 of the Lease to the contrary
notwithstanding, it is further expressly understood and
agreed that the Lessee shall have no right to, and shall
not, remove the Schedule 1 Terminal Fixtures, or any of
them, from the premises, title to which Schedule 1
Terminal Fixtures shall pass to the Port Authority as the
same or any part thereof are affixed to or installed in
the premises hereunder in accordance with paragraph 53 of
Supplement No. 17 of the Lease."
(c) The first sentence of Section 74 of the Lease, as
previously amended, is hereby further amended to add the following
words and symbol before the period at the end thereof:
"; provided, however, that the provisions of this Section
74 for the Port Authority's purchase of personal property
shall not apply to the Schedule 1 Terminal Fixtures (as
defined in paragraph 53 of Supplement No. 17 of the
Lease), titled to which shall pass to the Port Authority
as the same or any part thereof are affixed to or
installed in the premises hereunder in accordance with
paragraph 53 of Supplement No. 17 of the Lease".
54. Each party represents and warrants to the other that no
broker has been concerned in the negotiation of this Seventeenth
Supplemental Agreement and that there is no broker who is or may be
entitled to be paid a commission in connection therewith. Each
party shall indemnify and save harmless the other party of and from
any and all claims for commissions or brokerage made by any and all
persons, firms or corporations whatsoever for services provided to
or on behalf of the indemnifying party in connection with the
negotiation and execution of this Seventeenth Supplemental
Agreement.
55. No Commissioner, director, officer, agent or employee of
any party to this Seventeenth Supplemental Agreement shall be
charged personally or held contractually liable by or to any other
party under any term or provision of this Seventeenth Supplemental
Agreement or of any supplement, modification or amendment to the
Lease or because of its or their execution or attempted execution
or because of any breach or alleged or attempted breach thereof.
56. As hereby amended, all of the terms, covenants,
provisions, conditions and agreements of the Lease shall be and
remain in full force and effect.
57. This Seventeenth Supplemental Agreement and the Lease
which it amends constitute the entire agreement between the Port
Authority and the Lessee on the subject matter, and may not be
changed, modified, discharged or extended except by instrument in
writing duly executed on behalf of both the Port Authority and the
Lessee. The Lessee and the Port Authority agree that no
representations or warranties shall be binding upon the other
unless expressed in writing in the Lease or in this Seventeenth
Supplemental Agreement.
IN WITNESS WHEREOF, the Port Authority and the Lessee
have executed these presents as of the date first above written.
ATTEST: THE PORT AUTHORITY OF NEW YORK
AND NEW JERSEY
By
Secretary
(Title)
Seal
ATTEST: CONTINENTAL AIRLINES, INC.
By
Secretary
(Title) President
(Corporate Seal)
<PAGE>
Ack. N.J.; Corp. & Corp.
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On the _____ day of __________, 1999, before me, the subscriber,
a notary public of New York, personally appeared
_________________________ the _________________________ of THE PORT
AUTHORITY OF NEW YORK AND NEW JERSEY, who I am satisfied is the
person who has signed the within instrument; and, I having first made
known to him the contents thereof, he did acknowledge that he signed,
sealed with the corporate seal and delivered the same as such officer
aforesaid and the within instrument is the voluntary act and deed of
such corporation made by virtue of the authority of its Board of
Commissioners.
_________________________
(notarial seal and stamp)
STATE OF )
) ss.
COUNTY OF )
On the _____ day of __________, 1999, before me, the subscriber,
a _________________________, personally appeared
_________________________ the _________________________ of
CONTINENTAL AIRLINES, INC., who I am satisfied is the person who has
signed the within instrument; and, I having first made known to him
the contents thereof, he did acknowledge that he signed, sealed with
the corporate seal and delivered the same as such officer aforesaid
and the within instrument is the voluntary act and deed of such
corporation made by virtue of the authority of its Board of
Directors.
_________________________
(notarial seal and stamp)
<PAGE>
SCHEDULE 1
(to Supplement No. 17 of Lease ANA-170)
Without limiting paragraph (i) of Section 93 of the Lease, the items
listed below are personal property, which constitute a portion of the
Expansion Construction Work under Section 93 of the Lease, the title
to which shall pass to the Port Authority as the same or any part
thereof are affixed to or installed in the premises under the Lease
and become part of the premises under the Lease as provided in and
subject to the provisions of paragraph 53 of Supplement No. 17 of the
Lease.
1. Passenger loading bridges and foundations
2. Baggage handling systems
3. Fixed aircraft ground power/heating units
4. Passenger ticketing counters, stands and podium which are
affixed to the flooring of the Terminal.
5. Flight/baggage information display systems
6. Terminal holdroom seating which are affixed to the flooring of
the Terminal
7. Customs and immigration counters which are affixed to the
flooring of the Terminal
8. Fixed PC air units (AC for jet bridges and gated aircraft)
9. Exterior light stanchions
10. Signage
11. Building security system (including closed circuit television)
to the extent affixed to the Terminal.
______________________________
For the Port Authority
Initialled:
______________________________
For the Lessee
SCHEDULE E
AFFIRMATIVE ACTION-EQUAL OPPORTUNITY---MINORITY BUSINESS
ENTERPRISES ---WOMEN-OWNED BUSINESS ENTERPRISES REQUIREMENTS
Part I. Affirmative Action Guidelines - Equal Employment
Opportunity
I. As a matter of policy the Port Authority hereby
requires the Lessee and the Lessee shall require the Contractor, as
hereinafter defined, to comply with the provisions set forth
hereinafter in this Schedule E and in Section 93 of Port Authority
Agreement No. ANA-170 (herein called the "Lease") with CONTINENTAL
AIRLINES, INC. (herein and in the Lease called the "Lessee"). The
provisions set forth in this Part I are similar to the conditions for
bidding on federal government contract adopted by the Office of
Federal Contract Compliance and effective May 8, 1978.
The Lessee as well as each bidder, contractor and
subcontractor of the Lessee and each subcontractor of a contractor at
any tier of construction (herein collectively referred to as "the
Contractor") must fully comply with the following conditions set
forth herein as to each construction trade to be used on the
construction work or any portion thereof (said conditions being
herein called "Bid Conditions"). The Lessee hereby commits itself to
the goals for minority and female utilization set forth below and all
other requirements, terms and conditions of the Bid Conditions. The
Lessee shall likewise require the Contractor to commit itself to the
said goals for minority and female utilization set forth below and
all other requirements, terms and conditions of the Bid Conditions by
submitting a properly signed bid.
II. The Lessee and the Contractor shall each appoint an
executive of its company to assume the responsibility for the
implementation of the requirements, terms and conditions of the
following Bid Conditions:
(a) The goals for minority and female participation
expressed in percentage terms for the Contractor's aggregate
workforce in each trade on all construction work are as follows:
(1) Minority participation
Minority, except laborers 30%
Minority, laborers 40%
(2) Female participation
Female, except laborers 6.9%
Female, laborers 6.9%
These goals are applicable to all the Contractor's
construction work performed in and for the premises.
The Contractor's specific affirmative action
obligations required herein of minority and female employment and
training must be substantially uniform throughout the length of the
contract, and in each trade, and the Contractor shall make good faith
efforts to employ minorities and women evenly on each of its
projects. The transfer of minority or female employees or trainees
from contractor to contractor or from project to project for the sole
purpose of meeting the Contractor's goals shall be a violation of the
contract. Compliance with the goals will be measured against the
total work hours performed.
(b) The Contractor shall provide written notification
to the Lessee and the Lessee shall provide written notification to
the Manager of the Office of Business and Job Opportunity of the Port
Authority within 10 working days of award of any construction
subcontract in excess of $10,000 at any tier for construction work.
The notification shall list the name, address and telephone number of
the subcontractor; employer identification number; estimated starting
and completion dates of the subcontract; and the geographical area in
which the subcontract is to be performed.
(c) As used in these specifications:
(1) "Employer identification number" means the
Federal Social Security number used on the Employer's Quarterly
Federal Tax Return, U.S. Treasury Department Form 941:
(2) "Minority" includes:
(i) Black (all persons having origins in any of
the Black African racial groups not of Hispanic origin);
(ii) Hispanic (all persons of Mexican, Puerto
Rican, Dominican, Cuban, Central or South American culture or origin,
regardless of race);
(iii) Asian and Pacific Islander (all persons
having origins in any of the original peoples of the Far East,
Southeast Asia, the Indian Subcontinent, or the Pacific Islands); and
(iv) American Indian or Alaskan Native (all
persons having origins in any of the original peoples of North
America and maintaining identifiable tribal affiliations through
membership and participation or community identification).
(d) Whenever the Contractor, or any subcontractor at
any tier, subcontracts a portion of the construction work involving
any construction trade, it shall physically include in each
subcontract in excess of $10,000 those provisions which include the
applicable goals for minority and female participation.
(e) The Contractor shall implement the specific
affirmative action standards provided in subparagraphs (1) through
(16) of Paragraph (h) hereof. The goals set forth above are
expressed as percentages of the total hours of employment and
training of minority and female utilization the Contractor should
reasonably be able to achieve in each construction trade in which it
has employees in the premises. The Contractor is expected to make
substantially uniform progress toward its goals in each craft during
the period specified.
(f) Neither the provisions of any collective
bargaining agreement, nor the failure by a union with whom the
Contractor has a collective bargaining agreement, to refer either
minorities or women shall excuse the Contractor's obligations
hereunder.
(g) In order for the nonworking training hours of
apprentices and trainees to be counted in meeting the goals, such
apprentices and trainees must be employed by the Contractor during
the training period, and the Contractor must have made a commitment
to employ the apprentices and trainees at the completion of their
training subject to the availability of employment opportunities.
Trainees must be trained pursuant to training programs approved by
the U.S. Department of Labor.
(h) The Contractor shall take specific affirmative
actions to ensure equal employment opportunity ("EEO").
The evaluation of the Contractor's compliance with
these provisions shall be based upon its good faith efforts to
achieve maximum results from its actions. The Contractor shall
document these efforts fully, and shall implement affirmative action
steps at least as extensive as the following:
(1) Ensure and maintain a working environment free of
harassment, intimidation, and coercion at all sites, and in all
facilities at which the Contractor's employees are assigned to
work. The Contractor, where possible, will assign two or more
women to each Phase of the construction project. The
Contractor, shall specifically ensure that all foremen,
superintendents, and other supervisory personnel at the premises
are aware of and carry out the Contractor's obligation to
maintain such a working environment, with specific attention to
minority or female individuals working at the premises.
(2) Establish and maintain a current list of minority
and female recruitment sources, provide written notification to
minority and female recruitment sources and to community
organizations when the Contractor or its unions have employment
opportunities available, and maintain a record of the
organizations' responses.
(3) Maintain a current file of the names, addresses
and telephone number of each minority and female off-the-street
applicant and minority or female referral from a union, a
recruitment source or community organization and of what action
was taken with respect to each such individual. If such
individual was sent to the union hiring hall for referral and
was not referred back to the Contractor by union or, if
referred, not employed by the Contractor, this shall be
documented in the file with the reason therefor, along with
whatever additional actions the Contractor may have taken.
(4) Provide immediate written notification to the
Lessee when the union or unions with which the Contractor has a
collective bargaining agreement has not referred to the
Contractor a minority person or woman sent by the Contractor, or
when the Contractor has other information that the union
referral process has impeded the Contractor's efforts to meet
its obligations.
(5) Develop on-the-job training opportunities and/or
participate in training programs for the area which expressly
include minorities and women, including upgrading programs and
apprenticeship and training programs relevant to the
Contractor's employment needs, especially those programs funded
or approved by the Department of Labor. The Contractor shall
provide notice of these programs to the sources compiled under
subparagraph (2) above.
(6) Disseminate the Contractor's EEO Policy by
providing notice of the policy to unions and training programs
and requesting their cooperation in assisting the Contractor in
meeting its EEO obligations; by including it in any policy
manual and collective bargaining agreement; by publicizing it in
the Contractor's newspaper, annual report, etc.; by specific
review of the policy with all management personnel and with all
minority and female employees at least once a year; and by
posting the Contractor's EEO policy on bulletin boards
accessible to all employees at each location where Construction
work is performed.
(7) Review, at least every six months the
Contractor's EEO policy and affirmative action obligations
hereunder with all employees having any responsibility for
hiring, assignment, layoff, termination or other employment
decision including specific review of these items with
on-premises supervisory personnel such as Superintendents,
General Foremen, etc., prior to the initiation of construction
work at the premises. A written record shall be made and
maintained identifying the time and place of these meetings,
persons attending, subject matter discussed, and disposition of
the subject matter.
(8) Disseminate the Contractor's EEO policy
externally by including it in any advertising in the news media,
specifically including minority and female news media, and
providing written notification to and discussing the
Contractor's EEO policy with other Contractors and
Subcontractors with whom the Contractor does or anticipates
doing business.
(9) Direct its recruitment efforts, both oral and
written, to minority, female and community organizations, to
schools with minority and female students and to minority and
female recruitment and training organizations and to
State-certified minority referral agencies serving the
Contractor's recruitment area and employment needs. Not later
than one month prior to the date for the acceptance of
applications for apprenticeship or other training by any
recruitment source, the Contractor shall send written
notification to organizations such as the above, describing the
openings, screening procedures, and tests to be used in the
selection process.
(10) Encourage present minority and female employees
to recruit other minority persons and women and, where
reasonable, provide after school, summer and vacation employment
to minority and female youth both on the premises and in areas
of a Contractor's workforce.
(11) Tests and other selecting requirements shall
comply with 41 CFR Part 60-3.
(12) Conduct, at least every six months, an inventory
and evaluation at least of all minority and female personnel for
promotional opportunities and encourage these employees to seek
or to prepare for, through appropriate training, etc., such
opportunities.
(13) Ensure that seniority practices, job
classifications, work assignments and other personnel practices,
do not have a discriminatory effect by continually monitoring
all personnel and employment related activities to ensure that
the EEO policy and the Contractor's obligations hereunder are
being carried out.
(14) Ensure that all facilities and company activities
are nonsegregated except that separate or single-user toilet and
necessary changing facilities shall be provided to assure
privacy between the sexes.
(15) Document and maintain a record of all
solicitations of offers for subcontracts from minority and
female construction contractors and suppliers, including
circulation of solicitations to minority and female contractor
associations and other business associations.
(16) Conduct a review, at least every six months, of
all supervisors' adherence to and performance under the
Contractors' EEO policies and affirmative action obligations.
(i) Contractors are encouraged to participate in voluntary
associations which assist in fulfilling one or more of their
affirmative action obligations (subparagraphs (1)-(16) of Paragraph
(h) above). The efforts of a contractor association, joint
contractor-union, contractor-community, or other similar group of
which the Contractor is a member and participant, may be asserted as
fulfilling any one or more of its obligations under Paragraph (h)
hereof provided that: the Contractor actively participates in the
group, makes good faith efforts to assure that the group has a
positive impact on the employment of minorities and women in the
industry, ensures that the concrete benefits of the program are
reflected in the Contractor's minority and female workforce
participation, makes good faith efforts to meet its individual goals
and timetables, and can provide access to documentation which
demonstrates the effectiveness of actions taken on behalf of the
Contractor. The obligation to comply, however, is the Contractor's
and failure of such a group to fulfill an obligation shall not be a
defense for the Contractor's non-compliance.
(j) A single goal for minorities and a separate single
goal for women have been established. The Contractor, however, is
required to provide equal opportunity and to take affirmative action
for all minority groups, both male and female, and all women, both
minority and non-minority. Consequently, the Contractor may be in
violation hereof if a particular group is employed in a substantially
disparate manner (for example, even though the Contractor has
achieved its goals for women generally, the Contractor may be in
violation hereof if a specific minority group of women is
underutilized).
(k) The Contractor shall not use the goals and timetables
or affirmative action standards to discriminate against any person
because of race, color, religion, sex or national origin.
(l) The Contractor shall not enter into any subcontract
with any person or firm debarred from Government contracts pursuant
to Executive Order 11246.
(m) The Contractor shall carry out such sanctions and
penalties for violation of this clause including suspension,
termination and cancellation of existing subcontracts as may be
imposed or ordered by the Lessee. Any Contractor who fails to carry
out such sanctions and penalties shall be in violation hereof.
(n) The Contractor, in fulfilling its obligations
hereunder shall implement specific affirmative actions steps, at
least as extensive as those standards prescribed in paragraph (h)
hereof so as to achieve maximum results from its efforts to ensure
equal employment opportunity. If the Contractor fails to comply with
the requirements of these provisions, the Lessee shall proceed
accordingly.
(o) The Contractor shall designate a responsible official
to monitor all employment related activity to ensure that the company
EEO policy is being carried out, to submit reports relating to the
provisions hereof as may be required and to keep records. Records
shall at least include for each employee the name, address, telephone
numbers, construction trade, union affiliation if any, employee
identification number when assigned, social security number, race,
sex, status (e.g. mechanical apprentice, trainee, helper, or
laborer), dates of changes in status, hours worked per week in the
indicated trade, rate of pay, and location at which the work is
performed. Records shall be maintained in an easily understandable
and retrievable form; however, to the degree that existing records
satisfy this requirement, contractors shall not be required to
maintain separate records.
(p) Nothing herein provided shall be construed as a
limitation upon the application of any laws which establish different
standards of compliance or upon the application of requirements for
the hiring of local or other area residents (e.g., those under the
Public Works Employment Act of 1977 and the Community Development
Block Grant Program).
(q) Without limiting any other obligation, term or
provision under the Lease, the Contractor shall cooperate with all
federal, state or local agencies established for the purpose of
implementing affirmative action compliance programs and shall comply
with all procedures and guidelines established or which may be
established by the Port Authority.
PART II. MINORITY BUSINESS ENTERPRISES/WOMEN-OWNED
BUSINESS ENTERPRISES
As a matter of policy the Port Authority requires the
Lessee and the Lessee shall itself and shall require the general
contractor or other construction supervisor and each of the Lessee's
contractors to use every good faith effort to provide for meaningful
participation by Minority Business Enterprises (MBEs) and Women-owned
Business Enterprises (WBEs) in the construction work pursuant to the
provisions of this Schedule E. For purposes hereof, "Minority
Business Enterprise" "(MBE)" shall mean any business enterprise which
is at least fifty-one percentum owned by, or in the case of a
publicly owned business, at least fifty-one percentum of the stock of
which is owned by citizens or permanent resident aliens who are
minorities and such ownership is real, substantial and continuing.
For the purposes hereof, "Women-owned Business Enterprise" "(WBE)"
shall mean any business enterprise which is at least fifty-one
percentum owned by, or in the case of a publicly owned business, at
least fifty-one percentum of the stock of which is owned by women and
such ownership is real, substantial and continuing. A minority shall
be as defined in paragraph II(c) of Part I of this Schedule E.
"Meaningful participation" shall mean that at least seventeen percent
(17%) of the total dollar value of the construction contracts
(including subcontracts) covering the construction work are for the
participation of Minority Business Enterprises and Women-owned
Business Enterprises, of which at least twelve percent (12%) are for
the participation of Minority Business Enterprises. Good faith
efforts to include meaningful participation by MBEs and WBEs shall
include at least the following:
(a) Dividing the work to be subcontracted into
smaller portions where feasible.
(b) Actively and affirmatively soliciting bids for
subcontracts from MBEs and WBEs, including circulation of
solicitations to minority and female contractor associations. The
Contractor shall maintain records detailing the efforts made to
provide for meaningful MBE and WBE participation in the work,
including the names and addresses of all MBEs and WBEs contacted and,
if any such MBE or WBE is not selected as a joint venturer or
subcontractor, the reason for such decision.
(c) Making plans and specifications for prospective
construction work available to MBEs and WBEs in sufficient time for
review.
(d) Utilizing the list of eligible MBEs and WBEs
maintained by the Port Authority or seeking minorities and women from
other sources for the purpose of soliciting bids for subcontractors.
(e) Encouraging the formation of joint ventures,
partnerships or other similar arrangements among subcontractors,
where appropriate, to insure that the Lessee and Contractor will meet
their obligations hereunder.
(f) Insuring that provision is made to provide
progress payments to MBEs and WBEs on a timely basis.
(g) Not requiring bonds from and/or providing bonds
and insurance for MBEs and WBEs, where appropriate.
Certification of MBEs and WBEs hereunder shall be made by
the Office of Business and Job Opportunity of the Port Authority. If
the Contractor wishes to utilize a firm not already certified by the
Port Authority, it shall submit to the Port Authority a written
request for a determination that the proposed firm is eligible for
certification. This shall be done by completing and forwarding such
form as may be then required by the Port Authority. All such
requests shall be in writing addressed to the Office of Business and
Job Opportunity, the Port Authority of New York and New Jersey, One
World Trade Center, 63 East, New York, New York 10048 or such other
address as the Port Authority may specify by notice to the Lessee.
Certification shall be effective only if made in writing by the
Director in charge of the Office of Business and Job Opportunity of
the Port Authority. The determination of the Port Authority shall be
final and binding.
The Port Authority has compiled a list of the firms that
the Port Authority has determined satisfy the criteria for MBE and
WBE certification. This list may be supplemented and revised from
time to time by the Port Authority. Such list shall be made
available to the Contractor upon request. The Port Authority makes
no representation as to the financial responsibility of such, firms,
their technical competence to perform, or any other
performance-related qualifications.
Only MBE's and WBE's certified by the Port Authority will
count toward the MBE and WBE goals.
Please note that only sixty percent (60%) of expenditures
to MBE or WBE suppliers will count towards meeting the MBE and WBE
goals. However, expenditures to MBE or WBE manufacturer's (i.e.
suppliers that produce goods from raw materials or substantially
alter them before resale) are counted dollar for dollar.
For the Port Authority
Initialled:
For the Lessee
EXHIBIT 10.14(b)
Amendment of Executive Bonus Program
(adopted February 8, 2000)
RESOLVED, that pursuant to the Committee's authority to amend
such programs and consistent with the Committee's past practice,
the definition of "Cumulative Actual Net Income" contained in each
of the Executive Bonus Program and the Executive Bonus Performance
Award Program is hereby amended, effective as of the applicable
effective date of each of such programs, to read in its entirety as
follows:
"Cumulative Actual Net Income" with respect to a quarter
means the aggregate consolidated net income of the
Company and its consolidated subsidiaries, as shown on
the regularly prepared statement of operations of the
Company prepared in accordance with GAAP, as adjusted for
unbudgeted (i) one-time gains or losses from the disposal
of assets, (ii) write-offs of assets (including aircraft
and associated parts), and (iii) any other item of gain,
loss, or expense determined to be extraordinary or
unusual in nature or infrequent in occurrence, in each
case under clauses (i), (ii) and (iii) as determined by
the Committee, for the period commencing on the first day
of the fiscal year of the Company in which such quarter
occurs and ending on the last day of such quarter.
EXHIBIT 10.19
CONTINENTAL AIRLINES, INC.
DEFERRED COMPENSATION PLAN
As Amended and Restated
Effective February 8, 2000
<PAGE>
TABLE OF CONTENTS
ARTICLE PAGE
I - Definitions and Construction . . . . . . . . . . I-1
II - Participation . . . . . . . . . . . . . . . . . II-1
III - Account Credits and Allocations of Income
or Loss . . . . . . . . . . . . . . . . . . . . III-1
IV - Deemed Investment of Funds . . . . . . . . . . . IV-1
V - Determination of Vested Interest . . . . . . . . V-1
VI - In-Service Distributions . . . . . . . . . . . . VI-1
VII - Termination Benefits . . . . . . . . . . . . . . VII-1
VIII - Administration of the Plan . . . . . . . . . . . VIII-1
IX - Administration of Funds. . . . . . . . . . . . . IX-1
X - Nature of the Plan . . . . . . . . . . . . . . . X-1
XI - Miscellaneous . . . . . . . . . . . . . . . . . XI-1
<PAGE>
CONTINENTAL AIRLINES, INC.
DEFERRED COMPENSATION PLAN
W I T N E S S E T H :
WHEREAS, CONTINENTAL AIRLINES, INC., hereinafter referred to
as the "Company," has heretofore adopted the CONTINENTAL AIRLINES,
INC. DEFERRED COMPENSATION PLAN, hereinafter referred to as the
"Plan," to aid certain of its employees and directors in making
more adequate provision for their retirement; and
WHEREAS, the Company desires to restate the Plan and to amend
the Plan in several respects, intending thereby to provide an
uninterrupted and continuing program of benefits;
NOW THEREFORE, the Plan is hereby restated in its entirety as
follows, with no interruption in time, effective as of February 8,
2000, except as otherwise indicated herein:
<PAGE>
I.
Definitions and Construction
1.1 Definitions. Where the following words and phrases
appear in the Plan, they shall have the respective meanings set
forth below, unless their context clearly indicates to the
contrary.
(1) Account: An individual account for each Member to which is
credited his Compensation deferrals pursuant to Section 3.1
and which is credited (or debited) for such account's
allocation of net income (or net loss) as provided in Section
3.2.
(2) Annual Bonus: The annual incentive bonus, if any, paid in
cash by the Employer to or for the benefit of a Member for
services rendered or labor performed while a Member. A
Member's Annual Bonus shall not include any LTIP Payment.
(3) Annual Retainer: The annual retainer paid in cash by the
Company to or for the benefit of a Nonemployee Director.
(4) Base Salary: The base rate of pay paid in cash by the
Employer to or for the benefit of a Member for services
rendered or labor performed while a Member.
(5) Change in Control: The term "Change in Control" shall have the
same meaning as is assigned to such term under the Company's
1998 Stock Incentive Plan, as in effect on January 1, 1999
(6) Code: The Internal Revenue Code of 1986, as amended.
(7) Committee: The administrative committee appointed by the
Human Resources Committee to administer the Plan.
(8) Company: Continental Airlines, Inc.
(9) Company Stock: The Class B common stock, par value $0.01 per
share, of the Company.
(10) Company Stock Fund: A Fund consisting of a deemed
investment in Company Stock.
(11) Compensation: With respect to a Member who is a Nonemployee
Director, such Member's Annual Retainer and Meeting Fees.
With respect to any other Member, such Member's Annual Bonus,
Base Salary, Executive Bonus, LTIP Payment, and Stay Bonus.
Each component of a Member's Compensation shall be determined
by including any portion thereof that such Member could have
received in cash in lieu of (a) Compensation deferrals
pursuant to Section 3.1 or (b) elective contributions made on
his behalf by the Employer pursuant to a qualified cash or
deferred arrangement (as defined in section 401(k) of the
Code) or pursuant to a plan maintained under section 125 of
the Code.
(12) Disability: With respect to a Member who is a Nonemployee
Director, a disability that renders such Member permanently
and totally unable to perform his duties as a director of the
Company as a result of any medically determinable physical or
mental impairment as supported by a written medical opinion to
the foregoing effect by a physician selected by the Committee
(unless such medical opinion is waived by the Committee as
unnecessary). With respect to any other Member, a disability
entitling such Member to benefits under the Company's group
long-term disability plan.
(13) Effective Date: February 8, 2000, as to this restatement of
the Plan. The original effective date of the Plan was January
1, 1999.
(14) Election Date: The first day of each Plan Year.
(15) Employer: The Company and any other adopting entity (which
must be a Subsidiary) that adopts the Plan pursuant to the
provisions of Section 2.3. As of the Effective Date, each of
the Company, Continental Express, Inc., and Continental
Micronesia, Inc. is an Employer.
(16) Exchange Act: The Securities Exchange Act of 1934, as
amended.
(17) Executive Bonus: The quarterly incentive bonus, if any, paid
in cash by the Employer to or for the benefit of a Member for
services rendered or labor performed while a Member, whether
pursuant to the Company's Executive Bonus Plan or otherwise.
(18) Funds: The investment funds designated from time to time for
the deemed investment of Accounts pursuant to Article IV.
(19) Human Resources Committee: The Human Resources Committee of
the Board of Directors of the Company.
(20) Incentive Plan 2000: The Continental Airlines, Inc. Incentive
Plan 2000, as amended from time to time.
(21) Insider: A Member who is an officer or director of the
Company or any Subsidiary and who is subject to Section 16(b)
of the Exchange Act.
(22) LTIP: The Continental Airlines, Inc. Long Term Incentive
Performance Award Program, as amended from time to time, which
has been established under the Incentive Plan 2000.
(23) LTIP Payment: The incentive payment, if any, paid in cash by
the Employer under the LTIP to or for the benefit of a Member
for services rendered or labor performed while a Member. A
LTIP Payment shall not include (a) any portion of an award
under the LTIP that is paid in shares of Company Stock or (b)
any stock option granted in replacement of an award under the
LTIP.
(24) Market Value per Share: As of any specified date, the closing
sales price of the Company Stock on that date (or, if there
are no sales on that date, the last preceding date on which
there was a sale) in the principal securities market in which
the Company Stock is then traded. If the Company Stock is not
publicly traded at the time a determination of "Market Value
per Share" is required to be made hereunder, the determination
of such amount shall be made by the Committee in such manner
as it deems appropriate.
(25) Member: Each Nonemployee Director who has become a Member
pursuant to Article II and each other individual who has been
selected by the Committee for participation in the Plan and
who has become a Member pursuant to Article II.
(26) Meeting Fees: The fees paid in cash by the Company to or for
the benefit of a Nonemployee Director for attending or
participating in a meeting of the Company's Board of Directors
or a committee thereof, acting as the chair of a committee
thereof, conducting Company business in his capacity as a
director on behalf of the Company at the request of the Board
or the Chairman of the Board outside the United States, or
such other fees paid in cash as may be paid to a Nonemployee
Director from time to time for other services performed in his
capacity as a director of the Company.
(27) Nonemployee Director: Each individual who is a member of the
Board of Directors of the Company and who is not employed by
the Employer or any Subsidiary.
(28) Performance Period: The term "Performance Period" shall have
the same meaning as is assigned to such term under the LTIP.
(29) Plan: The Continental Airlines, Inc. Deferred Compensation
Plan, as amended from time to time.
(30) Plan Year: The twelve-consecutive month period commencing
January 1 of each year.
(31) Retirement Date. With respect to each Member who is a
Nonemployee Director, the earlier of (a) the first date upon
which such Member has completed 10 years of service (whether
or not completed consecutively) as a Nonemployee Director or
(b) the date upon which such Member has attained 65 years of
age. With respect to each other Member, the earlier of (i)
the first date upon which such Member has both attained 50
years of age and completed 20 or more years of service for
vesting purposes under the Continental Airlines Retirement
Plan, (ii) the first date upon which such Member has both
attained 55 years of age and completed 10 or more years of
service for vesting purposes under the Continental Airlines
Retirement Plan, or (iii) the date upon which such Member has
attained 65 years of age.
(32) Stay Bonus: The monthly bonus, if any, paid in cash by the
Employer to or for the benefit of a Member pursuant to a Stay
Bonus Agreement between the Company and such Member dated as
of April 14, 1998.
(33) Subsidiary: Any corporation that is a "subsidiary
corporation" of the Company within the meaning of section
424(f) of the Code.
(34) Termination of Service: With respect to each Member who is a
Nonemployee Director, the termination of such Member's service
on the Company's Board of Directors for any reason whatsoever.
With respect to each other Member, the termination of such
Member's employment with the Employer and all Subsidiaries for
any reason whatsoever.
(35) Trust: The trust established under the Trust Agreement.
(36) Trust Agreement: The agreement entered into between the
Employer and the Trustee pursuant to Article X.
(37) Trust Fund: The funds and properties held pursuant to the
provisions of the Trust Agreement, together with all income,
profits, and increments thereto.
(38) Trustee: The trustee or trustees qualified and acting under
the Trust Agreement at any time.
(39) Unforeseeable Financial Emergency: An unexpected need of a
Member for cash that (a) arises from a sudden and unexpected
illness or accident of the Member or of a dependent of a
Member, loss of the Member's property due to casualty, or
similar extraordinary and unforeseeable circumstances arising
as a result of events beyond the control of such Member and
(b) would result in severe financial hardship to such Member
if his Compensation deferral election was not canceled
pursuant to Section 3.1(c) and/or if a benefit payment
pursuant to Section 6.2 or 7.5(b)(ii) was not permitted. Cash
needs arising from foreseeable events, such as the purchase of
a house or education expenses for children, shall not be
considered to be the result of an Unforeseeable Financial
Emergency. Further, cash needs that may be relieved (i)
through reimbursement or compensation by insurance or
otherwise, (ii) by liquidation of the Member's assets, to the
extent the liquidation of such assets would not itself cause
severe financial hardship, or (iii) by cessation of deferrals
under the Plan shall not be considered to be Unforeseeable
Financial Emergencies.
(40) Valuation Dates: The last business day of each calendar
quarter and any other interim Valuation Date determined by the
Committee on a nondiscriminatory basis.
1.2 Number and Gender. Wherever appropriate herein, words
used in the singular shall be considered to include the plural and
words used in the plural shall be considered to include the
singular. The masculine gender, where appearing in the Plan, shall
be deemed to include the feminine gender.
1.3 Headings. The headings of Articles and Sections herein
are included solely for convenience, and if there is any conflict
between such headings and the text of the Plan, the text shall
control.
<PAGE>
II.
Participation
2.1 Participation.
(a) Each individual who is a Nonemployee Director as of
an Election Date shall be eligible to become a Member as of such
Election Date. Any such Nonemployee Director may become a Member
on such Election Date by executing and filing with the Committee,
prior to such Election Date, the Compensation deferral election
prescribed by the Committee for the Plan Year beginning on such
date.
(b) Prior to each Election Date, the Committee, in its
sole discretion, shall select and notify those management or highly
compensated employees of the Employer who shall be eligible to
become Members as of such Election Date. Any such eligible
employee may become a Member on such Election Date by executing and
filing with the Committee, prior to such Election Date, the
Compensation deferral election prescribed by the Committee for the
Plan Year beginning on such date.
(c) Subject to the provisions of Section 2.2, a Member
shall remain eligible to defer Compensation hereunder for each Plan
Year following his initial year of participation in the Plan.
2.2 Cessation of Active Participation. Notwithstanding any
provision herein to the contrary, an individual who has become a
Member of the Plan (other than a Member who is a Nonemployee
Director) shall cease to be entitled to defer Compensation
hereunder effective as of any date designated by the Committee.
Any such Committee action shall be communicated to the affected
individual prior to the effective date of such action. Such an
individual may again become entitled to defer Compensation
hereunder beginning on any subsequent Election Date selected by the
Committee in its sole discretion.
2.3 Adopting Entities. It is contemplated that other
corporations may adopt this Plan and thereby become an Employer.
Any such entity, whether or not presently existing, may become a
party hereto by appropriate action of its officers without the need
for approval of its board of directors, the Committee or the Human
Resources Committee; provided, however, that such entity must be a
Subsidiary. The provisions of the Plan shall apply separately and
equally to each Employer and its employees in the same manner as is
expressly provided for the Company and its employees, except that
the power to appoint or otherwise affect the Committee and the
Trustee and the power to amend or terminate the Plan or amend the
Trust Agreement shall be exercised by the Human Resources Committee
alone. Transfer of employment among Employers and Subsidiaries
shall not be considered a termination of employment hereunder. Any
Employer may, by appropriate action of its officers without the
need for approval of its board of directors, the Committee or the
Human Resources Committee, terminate its participation in the Plan.
Moreover, the Human Resources Committee may, in its discretion,
terminate an Employer's Plan participation at any time.
<PAGE>
III.
Account Credits and Allocations of Income or Loss
3.1 Member Deferrals.
(a) In accordance with the procedures established from
time to time by the Committee, a Member may elect to defer all or
a portion of his Compensation for a Plan Year (or, in the case of
a LTIP Payment, for the related Performance Period); provided,
however, that a Member's election to defer Compensation for a Plan
Year must, in the opinion of the Committee, be reasonably expected
to result in a minimum deferral of $5,000 for such year. Without
limiting the discretion of the Committee to establish the
procedures pursuant to which Members may defer Compensation, the
Committee may, in its discretion, permit a Member to (i) designate
fixed or variable percentages or dollar amounts of his Compensation
to be deferred throughout the Plan Year (provided that an election
to defer a LTIP Payment may be designated only as a fixed
percentage or dollar amount to be deferred for the related
Performance Period) and (ii) make separate deferral elections with
respect to one or more components of his Compensation.
Compensation for a Plan Year (or, in the case of a LTIP Payment,
for the related Performance Period) not so deferred by such
election shall be received by such Member in cash. A Member's
election to defer an amount of his Compensation pursuant to this
Section shall be made by executing and delivering to the Committee
a Compensation deferral election in the form prescribed by the
Committee pursuant to which the Member authorizes the Employer to
reduce his Compensation in the elected amount and the Employer, in
consideration thereof, agrees to credit an equal amount to such
Member's Account maintained under the Plan. Compensation deferrals
made by a Member shall be credited to such Member's Account as of
the date upon which the Compensation deferred would have been
received by such Member in cash if he had not elected to defer such
amount pursuant to this Section.
(b) A Member's Compensation deferral election shall
become effective as of the Election Date which is immediately after
the date the election is executed by the Member and delivered to
the Committee; provided, however, that a Member's deferral
elections with respect to the LTIP Payments relating to the first,
second, and third Performance Periods under the LTIP shall become
effective as of March 1, 2000, provided that such elections are
executed by the Member and delivered to the Committee prior to such
date. Subject to the provisions of Section 3.1(c), a Member's
Compensation deferral election shall remain in force and effect for
the entire Plan Year (or, in the case of an election to defer a
LTIP Payment, for the entire Performance Period) to which such
election relates; provided, however, that a Member who is eligible
to receive Executive Bonuses may, in accordance with procedures
established from time to time by the Committee, make a separate
deferral election with respect to the Executive Bonus to be paid to
such Member with respect to each of the second, third, and fourth
calendar quarters of such Plan Year during the calendar month
preceding each such quarter. A Member's election to defer
Compensation (other than a LTIP Payment) with respect to a Plan
Year shall apply to such Compensation for such year even if such
Compensation is paid after the close of such Plan Year. Except as
provided in the first sentence of this Section 3.1(b), a Member's
election to defer a LTIP Payment shall be made prior to the
beginning of the Performance Period to which such election relates,
and a deferral election with respect to a LTIP Payment shall apply
to such payment even if such payment is made after the close of the
related Performance Period.
(c) In the event that the Committee, upon written
petition of a Member, determines in its sole discretion that such
Member has suffered an Unforeseeable Financial Emergency or that
such Member will, absent termination of such Member's Compensation
deferral election then in effect, suffer an Unforeseeable Financial
Emergency, then such Member's Compensation deferral then in effect,
if any, shall be terminated as soon as administratively practicable
after such determination. A Member whose Compensation deferral
election has been so terminated may again elect to defer a portion
of his Compensation, effective as of any subsequent Election Date,
by executing and delivering to the Employer a new Compensation
deferral election prior to such Election Date.
(d) With respect to Compensation deferred by a Member
for a Plan Year (or, in the case of a LTIP Payment, for the related
Performance Period), such Member's Compensation deferral election
shall indicate whether:
(i) 100% of the Compensation deferred under such
election and the net income (or net loss) allocated with
respect thereto are to be deferred until the date of such
Member's Termination of Service; or
(ii) a specified amount of the Compensation
deferred under such election shall be deferred until the
earlier of such Termination of Service or the last day of a
Plan Year specified by such Member in such election (which
specified Plan Year must end no earlier than two years after
the last day of the Plan Year (or, in the case of the deferral
of a LTIP Payment, no earlier than two years after the last
day of the Performance Period) to which the Compensation
deferral election relates), and the balance of the
Compensation deferred under such election and the net income
(or net loss) allocated with respect thereto are to be
deferred until such Termination of Service.
A Member's elections under this Section 3.1(d) with respect to LTIP
Payments shall be separate from such Member's elections with
respect to the other components of his Compensation. The Committee
shall establish a separate subaccount within a Member's Account for
each Plan Year or Performance Period, as applicable, with respect
to which such Member makes an election pursuant to clause (ii) of
this Section 3.1(d), and all Compensation deferrals made by such
Member with respect to such Plan Year or Performance Period, as
applicable, and the net income (or net loss) allocated with respect
thereto shall be credited (or debited) to such subaccount. The
provisions of Section 6.1 shall apply with respect to each election
by a Member pursuant to clause (ii) of this Section 3.1(d).
3.2 Allocation of Net Income or Loss; Changes in Value Among
Accounts; Company Stock.
(a) As of each Valuation Date, the Committee shall
determine the net income (or net loss) of each Fund for the period
elapsed since the next preceding Valuation Date. The net income
(or net loss) of each Fund since the next preceding Valuation Date
shall be ascertained by the Committee in such manner as it deems
appropriate, provided that such determination shall include any net
increase or net decrease (whether or not realized) in the value of
the assets of each such Fund since the next preceding Valuation
Date (as publicly reported for any Fund that publicly reports its
value or results), and may include an appropriate allocation of
expenses of administering the Fund, the Trust, and the Plan.
(b) For purposes of allocations of net income (or net
loss), each Member's Account (or subaccounts) shall be divided into
subaccounts to reflect such Member's deemed investment designation
in a particular Fund or Funds pursuant to Article IV. As of each
Valuation Date, the net income (or net loss) of each Fund,
separately and respectively, shall be allocated among the
corresponding subaccounts of the Members who had such corresponding
subaccounts on the next preceding Valuation Date, and each such
corresponding subaccount shall be credited with (or debited for)
that portion of such net income (or net loss) that the value of
each such corresponding subaccount on such next preceding Valuation
Date was of the value of all such corresponding subaccounts on such
date; provided, however, that the value of such subaccounts as of
the next preceding Valuation Date shall be reduced by the amount of
any payments debited thereto in accordance with Section 7.6 since
the next preceding Valuation Date.
(c) So long as there is any balance in any Account, such
Account shall continue to receive allocations pursuant to this
Section.
(d) Plan provisions to the contrary notwithstanding, the
provisions of this Section 3.2(d) shall be applicable with respect
to allocations and accounting for deemed investments in the Company
Stock Fund. All amounts that are allocated to a Member's Account
under the Plan and that are to be deemed invested in the Company
Stock Fund shall be deemed to have been used to purchase shares of
Company Stock (including fractional shares). Shares of Company
Stock that have been so deemed to have been purchased for a
Member's Account shall be earmarked for the benefit of such Member.
Any cash dividends that would have been received with respect to
Company Stock earmarked for a Member's Account shall be deemed to
have been used to purchase additional shares of Company Stock
(including fractional shares) as of the date such dividends would
have been received, and such additional shares shall also be
earmarked for the benefit of such Member. Any Company Stock that
would have been received as a result of a stock split or stock
dividend shall be allocated pro rata to the Members' Accounts in
proportion to the respective deemed balances of Company Stock
credited to such Accounts as of the appropriate record date and,
following an allocation of such shares to a Member's Account, such
shares shall be earmarked for the benefit of such Member.
<PAGE>
IV.
Deemed Investment of Funds
4.1 Deemed Investment of Accounts.
(a) Each Member shall designate, in accordance with the
procedures established from time to time by the Committee, the
manner in which the amounts allocated to his Account shall be
deemed to be invested from among the Funds made available from time
to time for such purpose by the Committee; provided, however, that,
at all times, one of the Funds that shall be made available for
purposes of this Section 4.1 shall be the Company Stock Fund. Such
Member may designate one of such Funds for the deemed investment of
all such amounts allocated to his Account or he may split the
deemed investment of such amounts allocated to his Account among
such Funds in such increments as the Committee may prescribe. If
a Member fails to make a proper designation, then his Account shall
be deemed to be invested in the Fund or Funds designated by the
Committee from time to time in a uniform and nondiscriminatory
manner.
(b) A Member may change his deemed investment
designation for future deferrals to be allocated to his Account.
Any such change shall be made in accordance with the procedures
established by the Committee, and the frequency of such changes may
be limited by the Committee.
(c) A Member may elect to convert his deemed investment
designation with respect to the amounts already allocated to his
Account. Any such conversion shall be made in accordance with the
procedures established by the Committee, and the frequency of such
conversions may be limited by the Committee. No election of a
conversion designation by an Insider which has the effect of
increasing the total amount allocated to the Company Stock Fund may
be made on a date which is less than six months following (i) the
date of any prior election of a conversion designation by such
Insider which had the effect of decreasing the total amount
allocated to the Company Stock Fund or (ii) the date of any
election by such Insider with respect to any other plan of the
Employer or any subsidiary thereof which had the effect (directly
or indirectly) of making a disposition on behalf of such Insider of
Company Stock. No election of a conversion designation by an
Insider which has the effect of decreasing the total amount
allocated to the Company Stock Fund may be made on a date which is
less than six months following (1) the date of any prior election
of a conversion designation by such Insider which had the effect of
increasing the total amount allocated to the Company Stock Fund or
(2) the date of any election by such Insider with respect to any
other plan of the Employer or any subsidiary thereof which had the
effect (directly or indirectly) of making an acquisition on behalf
of the Insider of Company Stock.
(d) The restrictions contained in the Plan regarding
investment designations, changes, and/or conversions by Insiders
respecting the Company Stock Fund are intended to comply with, and
enable Insiders to rely upon, the exemption provided by Rule 16b-3
under the Exchange Act. Any future amendment to Rule 16b-3 or any
successor rule promulgated by the Securities and Exchange
Commission affecting the investment by Insiders in the Company
Stock Fund shall be incorporated by reference herein and be deemed
to be an amendment to the Plan in order that Insiders shall
continue to be entitled to rely upon the exemption provided by such
rule without any interruption. Notwithstanding the foregoing, the
Committee or the Human Resources Committee may alter the
designation, change and/or conversion restrictions applicable to an
Insider, as set forth in the Plan, as a result of changes in Rule
16b-3 under the Exchange Act.
4.2 Deemed Purchases and Sales of Company Stock. For all
purposes of the Plan, all deemed purchases and sales of shares of
Company Stock shall be deemed to have been made at the Market Value
per Share for the date such purchase or sale was deemed to have
occurred under the provisions of the Plan.
<PAGE>
V.
Determination of Vested Interest
Except as otherwise expressly provided in the Plan, a Member
shall have a 100% vested and nonforfeitable interest in his Account
at all times.
<PAGE>
VI.
In-Service Distributions
6.1 Distribution of Certain Compensation Deferrals. With
respect to each election made by a Member pursuant to Section
3.1(d)(ii), as soon as administratively practicable after the last
day of the Plan Year specified by such Member in such election,
such Member shall receive a distribution in a single lump sum
payment in an amount equal to the lesser of (a) the amount of the
distribution such Member elected to receive on such specified date
pursuant to such election or (b) the value as of such specified
date of the subaccount within such Member's Account that was
established by the Committee in connection with such election. If
a Member's Account is deemed to be invested in more than one Fund,
such benefit shall be distributed pro rata from each Fund in which
such Account is deemed to be invested.
6.2 Emergency Benefit. In the event that the Committee, upon
written petition of a Member, determines in its sole discretion
that such Member has suffered an Unforeseeable Financial Emergency,
such Member shall be entitled to a distribution in an amount not to
exceed the lesser of (a) the amount determined by the Committee as
necessary to meet such Member's needs created by the Unforeseeable
Financial Emergency or (b) the then value of such Member's Account.
Such benefit shall be paid in a single lump sum payment as soon as
administratively practicable after the Committee has made its
determinations with respect to the availability and amount of such
benefit. If a Member's Account is deemed to be invested in more
than one Fund, such benefit shall be distributed pro rata from each
Fund in which such Account is deemed to be invested. If a Member's
Account contains one or more deferral elections pursuant to Section
3.1(d)(ii), such benefit shall be considered to have been
distributed, first, from the deferral amount with respect to which
the earliest distribution would be made pursuant to Section 6.1,
then, from the deferral amount with respect to which the next
earliest distribution would be made pursuant to Section 6.1, and
continuing in such manner until the amount of such distribution has
been satisfied.
6.3 Elective Withdrawal.
(a) A Member may elect at any time, by following the
election procedure prescribed by the Committee, to withdraw as a
benefit all or a portion of his Account as of any Valuation Date,
subject to a withdrawal penalty of 10% of the amount of any such
withdrawal. Upon any such withdrawal, the withdrawal penalty
referred to in the preceding sentence shall be forfeited to the
Employer. Further, upon any such withdrawal, such Member's
participation in the Plan shall terminate and no further
Compensation deferrals shall be made under the Plan on behalf of
such Member until the first day of the Plan Year that is at least
12 months after the date of such withdrawal. If a Member's Account
is deemed to be invested in more than one Fund, such withdrawal
shall be distributed pro rata from each Fund in which such Account
is deemed to be invested. If a Member's Account contains one or
more deferral elections pursuant to Section 3.1(d)(ii), such
withdrawal shall be considered to have been distributed, first,
from the deferral amount with respect to which the earliest
distribution would be made pursuant to Section 6.1, then, from the
deferral amount with respect to which the next earliest
distribution would be made pursuant to Section 6.1, and continuing
in such manner until the amount of such withdrawal (including the
withdrawal penalty) has been satisfied. Notwithstanding the
preceding provisions of this Section 6.3(a), a Member shall not be
entitled to a withdrawal under this Section 6.3(a) if the Committee
determines, in its sole discretion, that the primary purpose of
such withdrawal is the cessation of Compensation deferrals under
the Plan. The Committee shall consider such factors as it deems
appropriate in order to make a determination pursuant to the
preceding sentence, including, without limitation, the amount of
the requested withdrawal, the balance in the Member's Account, the
Member's Compensation deferral election then in effect, and the
timing of such withdrawal request.
(b) No election of a withdrawal of an amount allocated
to the Company Stock Fund may be made by an Insider on a date which
is less than six months following (i) the date of any prior
election to convert such Insider's deemed investment designation
which had the effect of increasing the total amount allocated to
the Company Stock Fund or (ii) the date of any election by such
Insider with respect to any other plan of the Employer or any
subsidiary thereof which had the effect (directly or indirectly) of
making an acquisition on behalf of such Insider of Company Stock.
6.4 Restriction on In-Service Distributions. This Article VI
shall not be applicable to a Member following his Termination of
Service, and the amounts credited to such Member's Account shall be
payable to such Member in accordance with the provisions of Article
VII.
<PAGE>
VII.
Termination Benefits
7.1 Amount of Benefit. Upon a Member's Termination of
Service, the Member, or, in the event of the death of the Member
while employed by the Employer or a Subsidiary (or while serving on
the Company's Board of Directors in the case of a Nonemployee
Director), the Member's designated beneficiary, shall be entitled
to a benefit equal in value to the balance in the Member's Account
as of the Valuation Date next preceding the date the payment of
such benefit is to commence pursuant to Section 7.2.
7.2 Time of Payment. Payment of a Member's benefit under
Section 7.1 shall commence as soon as administratively practicable
after the Valuation Date coincident with or next succeeding the
date of the Member's Termination of Service; provided, however,
that, in a written election on the form prescribed by the
Committee, a Member may elect at the time specified in Section
7.3(c) to defer the commencement of the payment of his benefit in
the event of his Termination of Service prior to his Retirement
Date by reason of Disability to the Valuation Date coincident with
or next succeeding the earlier of (a) the date of such Member's
death or (b) the date such Member attains age 65.
7.3 Alternative Forms of Benefit Payments.
(a) A Member's benefit under Section 7.1 shall be paid
in the form of a single lump sum payment if such Member's
Termination of Service occurs prior to his Retirement Date for a
reason other than Disability.
(b) With respect to a Member whose Termination of
Service occurs (i) prior to his Retirement Date by reason of
Disability or (ii) on or after his Retirement Date, such Member
shall receive his benefit payments in one of the following forms
elected by such Member in writing on the form prescribed by the
Committee at the time specified in Section 7.3(c):
(1) A single lump sum payment; or
(2) Annual installment payments for a period of
from two to 20 years as designated by such Member; provided,
however, that in the event of such Member's death prior to the
end of such period, the remaining balance in such Member's
Account shall be paid as soon as administratively feasible in
one lump sum payment to such Member's designated beneficiary
as provided in Section 7.4. The amount of each annual
installment shall be computed by dividing the unpaid balance
in the Member's Account as of the Valuation Date next
preceding the date of payment of such annual installment by
the number of annual installments remaining.
A separate election shall be made pursuant to this Section 7.3(b)
by each Member with respect to the form of distribution to be made
in connection with a Termination of Service that occurs (A) prior
to such Member's Retirement Date by reason of Disability or (B) on
or after such Member's Retirement Date. In the event such Member
fails to timely elect in accordance with Section 7.3(c) the form in
which his benefit payments are to be made, such benefit payments
shall be in the form of a single lump sum payment.
(c) A Member's elections pursuant to Sections 7.2 and
7.3(b) shall be made on or before the date he first becomes a
Member of the Plan. Notwithstanding the foregoing, subject to the
consent of the Committee in its sole discretion, a Member may, on
the form prescribed by the Committee, make one change to each of
his original elections made pursuant to Sections 7.2 and 7.3(b);
provided, however, that (i) upon making any such change, the
aggregate balance in such Member's Account as of the Valuation Date
coincident with or next succeeding such change shall be reduced by
5% and such amount shall be forfeited to the Employer and (ii) such
change shall not be effective (but the penalty described in clause
(i) of this sentence shall still apply) if such Member incurs a
Termination of Service on or before the date that is two years
after such Member delivers the form implementing such change to the
Committee.
7.4 Designation of Beneficiaries.
(a) Each Member shall have the right to designate the
beneficiary or beneficiaries to receive payment of his benefit in
the event of his death. Each such designation shall be made by
executing the beneficiary designation form prescribed by the
Committee and filing same with the Committee. Any such designation
may be changed at any time by execution of a new designation in
accordance with this Section.
(b) If no such designation is on file with the Committee
at the time of the death of the Member or such designation is not
effective for any reason as determined by the Committee, then the
designated beneficiary or beneficiaries to receive such benefit
shall be as follows:
(i) If a Member leaves a surviving spouse, his
benefit shall be paid to such surviving spouse;
(ii) If a Member leaves no surviving spouse, his
benefit shall be paid to such Member's executor or
administrator, or to his heirs at law if there is no
administration of such Member's estate.
7.5 Accelerated Pay-Out of Certain Benefits.
(a) Notwithstanding any provision in Section 7.3(b) to
the contrary, if a Member's benefit payments are to be paid in a
form other than a single lump sum payment and the aggregate amount
to be paid to such Member in any particular calendar year is less
than $10,000, then the Committee may, in its sole discretion, elect
to cause the remaining balance in such Member's Account to be paid
in a single lump sum payment.
(b) If a Member incurs a Termination of Service and such
Member's benefit payments are being, or are to be, paid in a form
other than a single lump sum payment, then:
(i) Such Member may elect at any time, by
following the election procedure prescribed by the Committee,
to receive the remaining balance in his Account (reduced by
the 10% penalty described in the following sentence) in a
single lump sum payment as soon as administratively feasible
after the Valuation Date coincident with or next succeeding
the date such Member delivers to the Committee the form
prescribed by the Committee requesting such distribution.
Upon such a request, the aggregate balance in such Member's
Account as of such Valuation Date shall be reduced by 10% and
such amount shall be forfeited to the Employer; and
(ii) In the event that the Committee, upon written
petition of such Member, determines in its sole discretion
that such Member has suffered an Unforeseeable Financial
Emergency, such Member shall be entitled to an emergency
benefit in an amount and under conditions similar to those
described in Section 6.2.
7.6 Payment of Benefits. To the extent the Trust Fund has
sufficient assets, the Trustee shall pay benefits to Members or
their beneficiaries, except to the extent the Employer pays the
benefits directly and provides adequate evidence of such payment to
the Trustee. To the extent the Trustee does not or cannot pay
benefits out of the Trust Fund, the benefits shall be paid by the
Employer. Any benefit payments made to a Member or for his benefit
pursuant to any provision of the Plan shall be debited to such
Member's Account. All benefit payments shall be made in cash to
the fullest extent practicable.
7.7 Unclaimed Benefits. In the case of a benefit payable on
behalf of a Member, if the Committee is unable, after reasonable
efforts, to locate the Member or beneficiary to whom such benefit
is payable, upon the Committee's determination thereof, such
benefit shall be forfeited to the Employer. Notwithstanding the
foregoing, if subsequent to any such forfeiture the Member or
beneficiary to whom such benefit is payable makes a valid claim for
such benefit, such forfeited benefit (without any adjustment for
earnings or loss) shall be restored to the Plan by the Employer and
paid in accordance with the Plan.
<PAGE>
VIII.
Administration of the Plan
8.1 Appointment of Committee. The general administration of
the Plan shall be vested in the Committee which shall be appointed
by the Human Resources Committee and shall consist of one or more
persons. Any individual, whether or not an employee of the
Employer, is eligible to become a member of the Committee.
8.2 Term, Vacancies, Resignation, and Removal. Each member
of the Committee shall serve until he resigns, dies, or is removed
by the Human Resources Committee. At any time during his term of
office, a member of the Committee may resign by giving written
notice to the Human Resources Committee and the Committee, such
resignation to become effective upon the appointment of a
substitute member or, if earlier, the lapse of thirty days after
such notice is given as herein provided. At any time during his
term of office, and for any reason, a member of the Committee may
be removed by the Human Resources Committee with or without cause,
and the Human Resources Committee may in its discretion fill any
vacancy that may result therefrom. Any member of the Committee who
is an employee of the Employer shall automatically cease to be a
member of the Committee as of the date he ceases to be employed by
the Employer or any Subsidiary.
8.3 Self-Interest of Members. No member of the Committee
shall have any right to vote or decide upon any matter relating
solely to himself under the Plan or to vote in any case in which
his individual right to claim any benefit under the Plan is
particularly involved. In any case in which a Committee member is
so disqualified to act and the remaining members cannot agree, the
Human Resources Committee shall appoint a temporary substitute
member to exercise all the powers of the disqualified member
concerning the matter in which he is disqualified.
8.4 Committee Powers and Duties. The Committee shall
supervise the administration and enforcement of the Plan according
to the terms and provisions hereof and shall have all powers
necessary to accomplish these purposes, including, but not by way
of limitation, the right, power, and authority:
(a) To make rules, regulations, and bylaws for the
administration of the Plan that are not inconsistent with the
terms and provisions hereof, and to enforce the terms of the
Plan and the rules and regulations promulgated thereunder by
the Committee;
(b) To construe in its discretion all terms, provisions,
conditions, and limitations of the Plan;
(c) To correct any defect or to supply any omission or
to reconcile any inconsistency that may appear in the Plan in
such manner and to such extent as it shall deem in its
discretion expedient to effectuate the purposes of the Plan;
(d) To employ and compensate such accountants,
attorneys, investment advisors, and other agents, employees,
and independent contractors as the Committee may deem
necessary or advisable for the proper and efficient
administration of the Plan;
(e) To determine in its discretion all questions
relating to eligibility;
(f) To determine whether and when a Member has incurred
a Termination of Service, and the reason for such termination;
(g) To make a determination in its discretion as to the
right of any person to a benefit under the Plan and to
prescribe procedures to be followed by distributees in
obtaining benefits hereunder;
(h) To receive and review reports from the Trustee as to
the financial condition of the Trust Fund, including its
receipts and disbursements; and
(i) To establish or designate Funds as investment
options as provided in Article IV.
8.5 Claims Review. In any case in which a claim for Plan
benefits of a Member or beneficiary is denied or modified, the
Committee shall furnish written notice to the claimant within 90
days (or within 180 days if additional information requested by the
Committee necessitates an extension of the 90-day period), which
notice shall:
(a) State the specific reason or reasons for the denial
or modification;
(b) Provide specific reference to pertinent Plan
provisions on which the denial or modification is based;
(c) Provide a description of any additional material or
information necessary for the Member, his beneficiary, or
representative to perfect the claim and an explanation of why
such material or information is necessary; and
(d) Explain the Plan's claim review procedure as
contained herein.
In the event a claim for Plan benefits is denied or modified, if
the Member, his beneficiary, or a representative of such Member or
beneficiary desires to have such denial or modification reviewed,
he must, within 60 days following receipt of the notice of such
denial or modification, submit a written request for review by the
Committee of its initial decision. In connection with such
request, the Member, his beneficiary, or the representative of such
Member or beneficiary may review any pertinent documents upon which
such denial or modification was based and may submit issues and
comments in writing. Within 60 days following such request for
review the Committee shall, after providing a full and fair review,
render its final decision in writing to the Member, his beneficiary
or the representative of such Member or beneficiary stating
specific reasons for such decision and making specific references
to pertinent Plan provisions upon which the decision is based. If
special circumstances require an extension of such 60-day period,
the Committee's decision shall be rendered as soon as possible, but
not later than 120 days after receipt of the request for review.
If an extension of time for review is required, written notice of
the extension shall be furnished to the Member, beneficiary, or the
representative of such Member or beneficiary prior to the
commencement of the extension period.
8.6 Dispute Resolution; Mandatory Arbitration.
(a) If a Member or beneficiary is not satisfied with the
decision of the Committee pursuant to the Plan's claims review
procedure, then such Member or beneficiary may, within 180 days of
receipt of the written decision of the Committee, request by
written notice to the Committee that his claim be submitted to
arbitration pursuant to the procedures set forth in this Section.
In such event, all claims, demands, causes of action, disputes,
controversies, and other matters in question arising out of or
relating to the Plan, any provision hereof, the alleged breach
thereof, or in any way relating to the subject matter of the Plan,
involving the Employer, such Member or beneficiary, and/or their
respective representatives, even though some or all of such claims
allegedly are extra-contractual in nature, whether such claims
sound in contract, tort, or otherwise, at law or in equity, under
state or federal law, whether provided by statute or the common
law, for damages or any other relief, shall be resolved by binding
arbitration pursuant to the Federal Arbitration Act in accordance
with the Commercial Arbitration Rules then in effect with the
American Arbitration Association; provided, however, that the
arbitrators shall use the standard of review which would be used by
a federal court in reviewing a decision of the Committee under the
provisions of the Employee Retirement Income Security Act of 1974.
The arbitration proceeding shall be conducted in Houston, Texas.
This requirement to arbitrate shall be enforceable in either
federal or state court.
(b) The enforcement of this requirement to arbitrate and
all procedural aspects of the arbitration, including but not
limited to, the construction and interpretation of this Section,
the issues subject to arbitration (i.e., arbitrability), the scope
of the arbitrable issues, allegations of waiver, delay or defenses
to arbitrability, and the rules governing the conduct of the
arbitration, shall be governed by and construed pursuant to the
Federal Arbitration Act and shall be decided by the arbitrators.
In deciding the substance of any such claims, the arbitrators shall
apply the substantive laws of the State of Texas (excluding Texas
choice-of-law principles that might call for the application of
some other state's law); provided, however, it is expressly
provided that the arbitrators shall have no authority to award
treble, exemplary, or punitive damages under any circumstances
regardless of whether such damages may be available under Texas
law.
(c) Within 30 days after notice to the Committee
pursuant to Section 8.6(a) to have a claim resolved by arbitration,
(i) the Member or beneficiary, as applicable, shall denominate one
arbitrator and (ii) the Company shall denominate one arbitrator.
The two arbitrators shall select a third arbitrator failing
agreement on which within 60 days of the original notice, either
the Company or the Member or beneficiary, as applicable, shall
apply to the Senior Active United States District Judge for the
Southern District of Texas, who shall appoint a third arbitrator.
While the third arbitrator shall be neutral, the two party-
appointed arbitrators are not required to be neutral and it shall
not be grounds for removal of either of the two party-appointed
arbitrators or for vacating the arbitrators' award that either of
such arbitrators has past or present minimal relationships with the
party that appointed such arbitrator. Evident partiality on the
part of an arbitrator exists only where the circumstances are such
that a reasonable person would have to conclude there in fact
existed actual bias and a mere appearance or impression of bias
will not constitute evident partiality or otherwise disqualify an
arbitrator.
(d) The three arbitrators shall by majority vote resolve
all disputes between the parties. There shall be no transcript of
the hearing before the arbitrators. The arbitrators' decision
shall be in writing, but shall be as brief as possible. The
arbitrators shall not assign the reasons for their decision. The
arbitrators shall certify in their award that they have faithfully
applied the terms and conditions of the Plan and that no part of
their award includes any amount for treble, exemplary or punitive
damages. Judgment upon any award rendered in any such arbitration
proceeding may be entered by any federal or state court having
jurisdiction.
(e) The Member or beneficiary and the Employer shall
share equally the costs and expenses of the arbitrators. Each
party to an arbitration proceeding shall be responsible for its own
costs and expenses, including its own attorneys' fees.
Notwithstanding the preceding provisions of this Section 8.6(e),
if, following a Change in Control, a Member or beneficiary shall
obtain any money judgment in an arbitration brought by such Member
or beneficiary pursuant to this Section, which money judgment is in
excess of the amount determined as owed to such Member or
beneficiary by the Committee pursuant to the Plan's claims review
procedure, then the Employer, to the fullest extent permitted by
applicable law, shall indemnify such Member or beneficiary for his
share of the costs and expenses of the arbitrators and such
Member's or beneficiary's reasonable attorneys' fees and
disbursements incurred in such arbitration, and the Employer shall
pay in full all such costs, expenses, fees, and disbursements.
8.7 Employer to Supply Information. The Employer shall
supply full and timely information to the Committee, including, but
not limited to, information relating to each Member's Compensation,
age, retirement, death, Disability, or other cause of Termination
of Service and such other pertinent facts as the Committee may
require. The Employer shall advise the Trustee of such of the
foregoing facts as are deemed necessary for the Trustee to carry
out the Trustee's duties under the Plan and the Trust Agreement.
When making a determination in connection with the Plan, the
Committee shall be entitled to rely upon the aforesaid information
furnished by the Employer.
8.8 Indemnity. To the extent permitted by applicable law,
the Company shall indemnify and save harmless each member of the
Committee and the Human Resources Committee against any and all
expenses, liabilities and claims (including legal fees incurred to
investigate or defend against such liabilities and claims) arising
out of their discharge in good faith of responsibilities under or
incident to the Plan. Expenses and liabilities arising out of
willful misconduct shall not be covered under this indemnity. This
indemnity shall not preclude such further indemnities as may be
available under insurance purchased by the Company or provided by
the Company under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, as such indemnities are
permitted under applicable law.
8.9 Change in Control. Notwithstanding any provision in the
Plan to the contrary, upon the occurrence of a Change in Control,
the Committee's powers and duties under the Plan shall cease to the
extent, if any, such powers and duties are vested in the Trustee
under the terms of the Trust Agreement.
<PAGE>
IX.
Administration of Funds
9.1 Payment of Expenses. All expenses incident to the
administration of the Plan and Trust, including but not limited to,
legal, accounting, Trustee fees, and expenses of the Committee, may
be paid by the Employer and, if not paid by the Employer, shall be
paid by the Trustee from the Trust Fund.
9.2 Trust Fund Property. All income, profits, recoveries,
contributions, forfeitures and any and all moneys, securities and
properties of any kind at any time received or held by the Trustee
shall be held for investment purposes as a commingled Trust Fund
pursuant to the terms of the Trust Agreement. The Committee shall
maintain one or more Accounts in the name of each Member, but the
maintenance of an Account designated as the Account of a Member
shall not mean that such Member shall have a greater or lesser
interest than that due him by operation of the Plan and shall not
be considered as segregating any funds or property from any other
funds or property contained in the commingled fund. No Member
shall have any title to any specific asset in the Trust Fund.
9.3 Contributions to the Trust Fund. As soon as
administratively practicable after each date upon which an amount
is credited to a Member's Account pursuant to Section 3.1, the
Employer shall contribute an equivalent amount to the Trust Fund.
9.4 Investment of the Trust Fund. The Committee shall have
the right, power, authority, and duty to instruct the Trustee as to
the management, investment, and reinvestment of the Trust Fund.
<PAGE>
X.
Nature of the Plan
The Employer intends and desires by the adoption of the Plan
to recognize the value to the Employer of the past and present
services of Nonemployee Directors and employees covered by the Plan
and to encourage and assure their continued service with the
Employer by making more adequate provision for their future
retirement security. The establishment of the Plan is made
necessary by certain benefit limitations which are imposed on the
Employer's tax-qualified plans by the Employee Retirement Income
Security Act of 1974 and by the Code. The Plan is intended to
constitute an unfunded, unsecured plan of deferred compensation for
Nonemployee Directors and a select group of management or highly
compensated employees of the Employer. Plan benefits herein
provided are a contractual obligation of the Employer which shall
be paid out of the Trust Fund or out of the Employer's general
assets. Subject to the terms hereof and of the Trust Agreement,
the Employer shall transfer money or other property to the Trustee
to provide Plan benefits hereunder, and the Trustee shall pay Plan
benefits to Members and their beneficiaries out of the Trust Fund.
The Employer shall establish the Trust and enter into the
Trust Agreement. The Employer shall remain the owner of all assets
in the Trust Fund and the assets shall be subject to the claims of
the Employer's creditors if the Employer ever becomes insolvent.
For purposes hereof, the Employer shall be considered "insolvent"
if (a) the Employer is unable to pay its debts as they become due
or (b) the Employer is subject to a pending proceeding as a debtor
under the United Sates Bankruptcy Code (or any successor federal
statute). The chief executive officer of the Employer and its
board of directors shall have the duty to inform the Trustee in
writing if the Employer becomes insolvent. Such notice given under
the preceding sentence by any party shall satisfy all of the
parties' duty to give notice. When so informed, the Trustee shall
suspend payments to the Members and hold the assets for the benefit
of the Employer's general creditors. If the Trustee receives a
written allegation that the Employer is insolvent, the Trustee
shall suspend payments to the Members and hold the Trust Fund for
the benefit of the Employer's general creditors, and shall
determine within the period specified in the Trust Agreement
whether the Employer is insolvent. If the Trustee determines that
the Employer is not insolvent, the Trustee shall resume payments to
the Members. No Member or beneficiary shall have any preferred
claim to, or any beneficial ownership interest in, any assets of
the Trust Fund, and, upon commencement of participation in the
Plan, each Member shall have agreed to waive his priority credit
position, if any, under applicable state law with respect to the
assets of the Trust Fund.
<PAGE>
XI.
Miscellaneous
11.1 Not Contract of Employment. The adoption and maintenance
of the Plan shall not be deemed to be a contract between the
Employer and any person or to be consideration for the employment
of or service as a director by any person. Nothing herein
contained shall be deemed to (a) give any person the right to be
nominated to the Company's Board of Directors to serve as a
director or to be retained in the employ of the Employer, (b)
restrict the right of the Employer to discharge any person at any
time, (c) give the Employer the right to require any person to
remain in the employ of the Employer or continue service as a
director, or (d) restrict any person's right to terminate his
employment or service as a director at any time.
11.2 Alienation of Interest Forbidden. The interest of a
Member or his beneficiary or beneficiaries hereunder may not be
sold, transferred, assigned, or encumbered in any manner, either
voluntarily or involuntarily, and any attempt so to anticipate,
alienate, sell, transfer, assign, pledge, encumber, or charge the
same shall be null and void; neither shall the benefits hereunder
be liable for or subject to the debts, contracts, liabilities,
engagements or torts of any person to whom such benefits or funds
are payable, nor shall they be an asset in bankruptcy or subject to
garnishment, attachment or other legal or equitable proceedings.
11.3 Withholding. All Compensation deferrals and payments
provided for hereunder shall be subject to applicable withholding
and other deductions as shall be required of the Employer under any
applicable local, state or federal law.
11.4 Amendment and Termination. The Human Resources Committee
may from time to time, in its discretion, amend, in whole or in
part, any or all of the provisions of the Plan; provided, however,
that no amendment may be made that would impair the rights of a
Member with respect to amounts already allocated to his Account.
The Human Resources Committee may terminate the Plan at any time.
In the event that the Plan is terminated, the balance in a Member's
Account shall be paid to such Member or his designated beneficiary
in the manner specified by the Committee, which may include the
payment of a single lump sum payment in full satisfaction of all of
such Member's or beneficiary's benefits hereunder.
11.5 Severability. If any provision of this Plan shall be
held illegal or invalid for any reason, said illegality or
invalidity shall not affect the remaining provisions hereof;
instead, each provision shall be fully severable and the Plan shall
be construed and enforced as if said illegal or invalid provision
had never been included herein.
11.6 Guaranty. Notwithstanding any provisions of the Plan to
the contrary, in the event any Subsidiary that adopts the Plan
pursuant to Section 2.3 hereof fails to make payment of the
benefits due under the Plan on behalf of its Members, whether
directly or through the Trust, the Company shall be liable for and
shall make payment of such benefits due as a guarantor of such
entity's obligations hereunder. The guaranty obligations provided
herein shall be satisfied directly and not through the Trust.
11.7 Governing Laws. All provisions of the Plan shall be
construed in accordance with the laws of Texas except to the extent
preempted by federal law.
11.8 Effect of Plan Restatement. The Plan as set forth herein
constitutes an amendment and restatement of the Plan as previously
adopted by the Company prior to the Effective Date (the "Prior
Plan"), and, except as provided below, shall supersede and replace
in its entirety the Prior Plan. This amendment and restatement of
the Plan shall be effective as of the Effective Date provided that
the Incentive Plan 2000 is approved by the Company's stockholders
in the manner required under section 162(m) of the Code at the
Company's 2000 annual meeting of stockholders. Notwithstanding any
provision herein to the contrary, if the Incentive Plan 2000 is not
so approved by the Company's stockholders, then (a) this
restatement of the Plan shall be void ab initio and the Prior Plan
shall remain in full force and effect and (b) all elections by
Members to defer LTIP Payments shall be void ab initio and of no
further effect.
<PAGE>
EXECUTED this ____ day of February, 2000.
CONTINENTAL AIRLINES, INC.
By:
Jeffery A. Smisek
Executive Vice President
EXHIBIT 10.20
CONTINENTAL AIRLINES, INC.
INCENTIVE PLAN 2000
1. PURPOSE
The purpose of the Continental Airlines, Inc. Incentive Plan
2000 is to provide a means through which Continental Airlines, Inc.
and its subsidiaries may attract able persons to serve as
directors, or to enter or remain in the employ of the Company (as
defined below) or its subsidiaries, and to provide a means whereby
those individuals upon whom the responsibilities of the successful
administration and management of the Company and its subsidiaries
rest, and whose present and potential contributions to the welfare
of the Company and its subsidiaries are of importance, can acquire
and maintain stock ownership, thereby strengthening their concern
for the welfare of the Company and its subsidiaries. A further
purpose of the Plan is to provide such individuals with additional
incentive and reward opportunities designed to enhance the
profitable growth of the Company and its subsidiaries. So that the
maximum incentive can be provided, the Plan provides for granting
Incentive Stock Options, Non-Qualified Options, Restricted Stock
Awards, Performance Awards, and Incentive Awards, or any
combination of the foregoing, as is best suited to the
circumstances of the particular person.
2. DEFINITIONS
The following definitions (including any plural thereof) shall
be applicable throughout the Plan unless specifically modified by
any Section:
(a) "Administrator" means (i) in the context of Awards made
to, or the administration (or interpretation of any provision) of
the Plan as it relates to, any person who is subject to Section 16
of the Exchange Act (including any successor section to the same or
similar effect, "Section 16"), the Committee, or (ii) in the
context of Awards made to, or the administration (or interpretation
of any provision) of the Plan as it relates to, any person who is
not subject to Section 16, the Chief Executive Officer of the
Company (or, if the Chief Executive Officer is not a Director of
the Company, the Committee), unless the Plan specifies that the
Committee shall take specific action (in which case such action may
only be taken by the Committee) or the Committee (as to any Award
described in this clause (ii) or the administration or
interpretation of any specific provision of the Plan) specifies
that it shall serve as Administrator.
(b) "Award" means, individually or collectively, any Option,
Restricted Stock Award, Performance Award or Incentive Award.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as
amended from time to time. Reference in the Plan to any section of
the Code shall be deemed to include any amendments or successor
provisions to such section and any regulations promulgated under
such section.
(e) "Committee" means a committee of the Board comprised
solely of two or more outside Directors (within the meaning of the
term "outside directors" as used in section 162(m) of the Code and
applicable interpretive authority thereunder and within the meaning
of "Non-Employee Director" as defined in Rule 16b-3). Such
committee shall be the Human Resources Committee of the Board
unless and until the Board designates another committee of the
Board to serve as the Committee.
(f) "Common Stock" means the Class B common stock, $.01 par
value, of the Company, or any security into which such Common Stock
may be changed by reason of any transaction or event of the type
described in Section 11(b).
(g) "Company" shall mean Continental Airlines, Inc., a
Delaware corporation, or any successor thereto.
(h) "Director" means an individual elected to the Board by
the stockholders of the Company or by the Board under applicable
corporate law who is serving on the Board on the date the Plan is
adopted by the Board or is elected to the Board after such date.
(i) "Disability" means, with respect to a Participant, such
Participant's disability entitling him or her to benefits under the
Company's group long-term disability plan; provided, however, that
if such Participant is not eligible to participate in such plan,
then such Participant shall be considered to have incurred a
"Disability" if and when the Administrator determines in its
discretion that such Participant has become incapacitated for a
period of at least 180 days by accident, sickness, or other
circumstance which renders such Participant mentally or physically
incapable of performing the material duties and services required
of him or her in his or her employment on a full-time basis during
such period.
(j) "employee" means any person (which may include a
Director) in an employment relationship with the Company or any
parent or subsidiary corporation (as defined in section 424 of the
Code).
(k) "Exchange Act" means the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder.
(l) "Grant Document" means the document or documents
evidencing an Award under the Plan, which may be either an
agreement between the Company and the Holder as to the Award (with
any amendments thereto) or a notice of grant of the Award from the
Company to the Holder (including any attached statement of the
terms and conditions of the Award and any modifications thereto
made in accordance with the Plan).
(m) "Holder" means an employee or a non-employee Director who
has been granted an Option, a Restricted Stock Award, a Performance
Award, or an Incentive Award.
(n) "Incentive Award" means an Award granted under Section
10 of the Plan.
(o) "Incentive Stock Option" means an incentive stock option
within the meaning of section 422 of the Code.
(p) "Market Value per Share" means, as of any specified date,
the closing sale price of the Common Stock on that date (or, if
there are no sales on that date, the last preceding date on which
there was a sale) in the principal securities market in which the
Common Stock is then traded. If the Common Stock is not publicly
traded at the time a determination of "Market Value per Share" is
required to be made hereunder, the determination of such amount
shall be made by the Administrator in such manner as it deems
appropriate.
(q) "Non-Qualified Option" means an Option that is not an
Incentive Stock Option.
(r) "Option" means an Award under Section 7 of the Plan and
includes both Non-Qualified Options and Incentive Stock Options to
purchase Common Stock.
(s) "Performance Award" means an Award granted under Section
9 of the Plan.
(t) "Personal Representative" means the person who upon the
death, disability, or incompetency of a Holder shall have acquired,
by will or by the laws of descent and distribution or by other
legal proceedings, the right to exercise an Option or the right to
any Restricted Stock Award, Performance Award, or Incentive Award
theretofore granted or made to such Holder.
(u) "Plan" means the Continental Airlines, Inc. Incentive
Plan 2000, as amended from time to time.
(v) "Restricted Stock" means shares of Common Stock granted
pursuant to a Restricted Stock Award as to which neither the
substantial risk of forfeiture nor the restriction on transfer
referred to in Section 8 of the Plan has expired.
(w) "Restricted Stock Award" means an Award granted under
Section 8 of the Plan.
(x) "Rule 16b-3" means Rule 16b-3 under the Exchange Act, as
such rule may be amended from time to time, and any successor rule,
regulation or statute fulfilling the same or similar function.
(y) "SAR" means a stock appreciation right granted in
connection with an Option under Section 7 of the Plan.
(z) "subsidiary" means any entity (other than the Company)
with respect to which the Company, directly or indirectly through
one or more other entities, owns equity interests possessing 50
percent or more of the total combined voting power of all equity
interests of such entity (excluding voting power that arises only
upon the occurrence of one or more specified events).
3. EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan shall become effective upon the date of its adoption
by the Board; provided, that the Plan is approved by the
stockholders of the Company within twelve months thereafter.
Notwithstanding any provision of the Plan or in any Grant Document
under the Plan, no Option shall be exercisable and no Award shall
vest or be payable prior to such stockholder approval. No further
Awards may be granted under the Plan after ten years from the date
the Plan is adopted by the Board. The Plan shall remain in effect
(at least for the purpose of governing outstanding Awards) until
all Option Awards granted under the Plan have been exercised or
expired, all restrictions imposed upon Restricted Stock Awards
granted under the Plan have been eliminated or the Restricted Stock
Awards have been forfeited, and all Performance Awards and
Incentive Awards granted under the Plan have been satisfied or have
terminated.
4. ADMINISTRATION
(a) Administrator. The Plan shall be administered by the
Administrator, so that (i) Awards made to, and the administration
(or interpretation of any provision) of the Plan as it relates to,
any person who is subject to Section 16, shall be made or effected
by the Committee, and (ii) Awards made to, and the administration
(or interpretation of any provision) of the Plan as it relates to,
any person who is not subject to Section 16, shall be made or
effected by the Chief Executive Officer of the Company (or, if the
Chief Executive Officer is not a Director of the Company, the
Committee), unless the Plan specifies that the Committee shall take
specific action (in which case such action may only be taken by the
Committee) or the Committee (as to any Award described in this
clause (ii) or the administration or interpretation of any specific
provision of the Plan) specifies that it shall serve as
Administrator.
(b) Powers. Subject to the express provisions of the Plan,
the Administrator shall have authority, in its discretion, to
determine which employees or Directors shall receive an Award, the
time or times when such Award shall be granted, whether an
Incentive Stock Option or Non-Qualified Option shall be granted,
the number of shares to be subject to each Option and Restricted
Stock Award, and the value of each Performance Award and Incentive
Award. In making such determinations, the Administrator shall take
into account the nature of the services rendered by the respective
employees or Directors, their present and potential contribution to
the Company's success and such other factors as the Administrator
in its discretion shall deem relevant. Subject to the express
provisions of the Plan, the Administrator shall also have the power
to construe the Plan and the respective agreements executed
hereunder, to prescribe rules and regulations relating to the Plan,
and to determine the terms, restrictions and provisions of the
Grant Documents, including such terms, restrictions and provisions
as shall be requisite in the judgment of the Administrator to cause
designated Options to qualify as Incentive Stock Options, and to
make all other determinations necessary or advisable for
administering the Plan. The Administrator may correct any defect or
supply any omission or reconcile any inconsistency in the Plan or
in any Grant Document relating to an Award in the manner and to the
extent it shall deem expedient to carry it into effect. The
determination of the Administrator on the matters referred to in
this Section 4 shall be conclusive; provided, however, that in the
event of any conflict in any such determination as between the
Committee and the Chief Executive Officer of the Company, each
acting in capacity as Administrator of the Plan, the determination
of the Committee shall be conclusive.
5. SHARES SUBJECT TO THE PLAN; GRANT OF OPTIONS,
RESTRICTED STOCK AWARDS, PERFORMANCE AWARDS AND INCENTIVE AWARDS
(a) Shares Subject to the Plan. The Administrator may from
time to time grant Awards to one or more employees or Directors
determined by it to be eligible for participation in the Plan in
accordance with the provisions of Section 6 hereof. Subject to
adjustment as provided in Section 11(b) hereof, the aggregate
number of shares of Common Stock that may be issued under the Plan
shall not exceed 3,000,000 shares. Shares shall be deemed to have
been issued under the Plan only to the extent actually issued and
delivered pursuant to an Award. To the extent that an Award lapses,
the rights of its Holder terminate, or an Award is paid in cash or
is settled in a manner such that all or some of the shares of
Common Stock covered by the Award are not issued to the Holder, any
shares of Common Stock then subject to such Award shall again be
available for the grant of an Award under the Plan.
Notwithstanding any provision in the Plan to the contrary, (i) the
maximum number of shares of Common Stock that may be subject to
Awards granted to any one individual during any calendar year may
not exceed 750,000 shares (subject to adjustment as provided in
Section 11(b)), (ii) the maximum number of shares of Common Stock
that may be granted as Restricted Stock Awards may not exceed
250,000 shares (subject to adjustment as provided in Section
11(b)), and (iii) the maximum value of all Performance Awards
denominated in cash (including the fair market value (priced at the
Market Value per Share) of any shares of Common Stock paid in
satisfaction of such Performance Awards) granted to any one
individual during any calendar year may not exceed $10 million. The
limitations set forth in clause (i) and clause (iii) of the
preceding sentence shall be applied in a manner which will permit
compensation generated under the Plan which is intended to
constitute "performance-based" compensation for purposes of section
162(m) of the Code to be treated as such "performance-based"
compensation.
(b) Grant of Awards. The Administrator may from time to time
grant Awards to one or more employees or Directors determined by it
to be eligible for participation in the Plan in accordance with the
terms of this Plan.
(c) Stock Offered. Subject to the limitations set forth in
Section 5(a) above, the stock to be offered pursuant to an Award
may be authorized but unissued Common Stock or Common Stock
previously issued and outstanding and reacquired by the Company.
Any of such shares which remain unissued and which are not subject
to outstanding Awards at the termination of the Plan shall cease to
be subject to the Plan but, until termination of the Plan, the
Company shall at all times make available a sufficient number of
shares to meet the requirements of the Plan.
6. ELIGIBILITY
Awards may be granted only to persons who, at the time of
grant, are employees or Directors. An Award may be granted on more
than one occasion to the same person and, subject to the
limitations set forth in the Plan, Awards may include an Incentive
Stock Option, a Non-Qualified Option, a Restricted Stock Award, a
Performance Award, an Incentive Award or any combination thereof.
7. STOCK OPTIONS
(a) Option Period. The term of each Option shall be as
specified by the Administrator at the date of grant.
(b) Limitations on Exercise of Option. An Option shall be
exercisable in whole or in such installments and at such times as
determined by the Administrator.
(c) Special Limitations on Incentive Stock Options. An
Incentive Stock Option may be granted only to an individual who is
an employee at the time the Option is granted. To the extent that
the aggregate Market Value per Share (determined at the time the
respective Incentive Stock Option is granted) of Common Stock with
respect to which Incentive Stock Options granted after 1986 are
exercisable for the first time by an individual during any calendar
year under all incentive stock option plans of the Company and its
parent and subsidiary corporations exceeds $100,000, such Incentive
Stock Options shall be treated as Non-Qualified Options. The
Administrator shall determine, in accordance with applicable
provisions of the Code, Treasury Regulations and other
administrative pronouncements, which of a Holder's Incentive Stock
Options will not constitute Incentive Stock Options because of such
limitation and shall notify the Holder of such determination as
soon as practicable after such determination. No Incentive Stock
Option shall be granted to an individual if, at the time the Option
is granted, such individual owns stock possessing more than 10% of
the total combined voting power of all classes of stock of the
Company or of its parent or subsidiary corporation, within the
meaning of section 422(b)(6) of the Code, unless (i) at the time
such Option is granted the option price is at least 110% of the
Market Value per Share of the Common Stock subject to the Option
and (ii) such Option by its terms is not exercisable after the
expiration of five years from the date of grant. An Incentive Stock
Option shall not be transferable otherwise than by will or the laws
of descent and distribution, and shall be exercisable during the
Holder's lifetime only by such Holder or the Holder's guardian or
Personal Representative.
(d) Option Grant Document. Each Option shall be evidenced by
an Option Grant Document in such form and containing such
provisions not inconsistent with the provisions of the Plan as the
Administrator from time to time shall approve, including, without
limitation, provisions to qualify an Incentive Stock Option under
section 422 of the Code. An Option Grant Document may provide for
the payment of the option price, in whole or in part, by delivery
of a number of shares of Common Stock (plus cash if necessary)
having a Market Value per Share equal to such option price.
Moreover, an Option Grant Document may provide for a "cashless
exercise" of the Option by establishing procedures satisfactory to
the Administrator with respect thereto. The terms and conditions of
the respective Option Grant Documents need not be identical.
(e) Option Price and Payment. The price at which a share of
Common Stock may be purchased upon exercise of an Option shall be
set forth in the Option Grant Document and shall be determined by
the Administrator but, subject to adjustment as provided in Section
11(b), such purchase price shall not be less than the Market Value
per Share of a share of Common Stock on the date such Option is
granted. The Option or portion thereof may be exercised by delivery
of an irrevocable notice of exercise to the Company. The purchase
price of the Option or portion thereof shall be paid in full in the
manner specified by the Administrator. Separate stock certificates
shall be issued by the Company for those shares acquired pursuant
to the exercise of an Incentive Stock Option and for those shares
acquired pursuant to the exercise of any Non-Qualified Option.
(f) Stockholder Rights and Privileges. The Holder of an
Option shall be entitled to all the privileges and rights of a
stockholder only with respect to such shares of Common Stock as
have been purchased under the Option and for which certificates
representing such Common Stock have been registered in the Holder's
name.
(g) Stock Appreciation Rights. The Administrator
(concurrently with the grant of an Option or subsequent to such
grant) may, in its sole discretion, grant stock appreciation rights
("SARs") to any Holder of an Option. SARs may give the Holder of
an Option the right, upon written request, to surrender any
exercisable Option or portion thereof in exchange for cash, whole
shares of Common Stock, or a combination thereof, as determined by
the Committee, with a value equal to the excess of the Market Value
per Share, as of the date of such request, of one share of Common
Stock over the Option price for such share multiplied by the number
of shares covered by the Option or portion thereof to be
surrendered. In the case of any SAR which is granted in connection
with an Incentive Stock Option, such SAR shall be exercisable only
when the Market Value per Share of the Common Stock exceeds the
price specified therefor in the Option or portion thereof to be
surrendered. In the event of the exercise of any SAR granted
hereunder, the number of shares reserved for issuance under the
Plan shall be reduced only to the extent that shares of Common
Stock are actually issued in connection with the exercise of such
SAR. Additional terms and conditions governing any such SARs may
from time to time be prescribed by the Administrator in its sole
discretion.
(h) Options and SARs in Substitution for Stock Options
Granted by Other Corporations. Options and SARs may be granted
under the Plan from time to time in substitution for stock options
held by individuals employed by corporations who become employees
as a result of a merger or consolidation or other business
combination of the employing corporation with the Company or any
subsidiary.
8. RESTRICTED STOCK AWARDS
(a) Ownership of Restricted Stock. Each grant of Restricted
Stock pursuant to a Restricted Stock Award will constitute an
immediate transfer of record and beneficial ownership of the shares
of Restricted Stock to the recipient of the grant in consideration
of the performance of services by such recipient (or other
consideration determined by the Administrator), entitling the
recipient to all voting and other ownership rights, but subject to
the restrictions hereinafter referred to or contained in the
related Grant Document. Each grant may, in the discretion of the
Administrator, limit the recipient's dividend rights during the
period in which the shares of Restricted Stock are subject to a
substantial risk of forfeiture and restrictions on transfer.
(b) Substantial Risk of Forfeiture and Restrictions on
Transfer. Each grant of Restricted Stock will provide that (i) the
shares covered thereby will be subject, for a period or periods
determined by the Administrator at the date of grant, to one or
more restrictions, including, without limitation, a restriction
that constitutes a "substantial risk of forfeiture" within the
meaning of section 83 of the Code and applicable interpretive
authority thereunder, and (ii) during such period or periods during
which such restrictions are to continue, the transferability of the
Restricted Stock subject to such restrictions will be prohibited or
restricted in a manner and to the extent prescribed by the
Administrator at the date of grant.
(c) Restricted Stock Held in Trust. Shares of Common Stock
awarded pursuant to each Restricted Stock Award will be held in
trust by the Company for the benefit of the recipient until such
time as the applicable restriction on transfer thereon shall have
expired or otherwise lapsed, at which time certificates
representing such Common Stock will be delivered to the recipient.
(d) Restricted Stock Grant Document; Consideration. Each
grant of Restricted Stock shall be evidenced by a Grant Document in
such form and containing such provisions not inconsistent with the
provisions of the Plan as the Administrator from time to time shall
approve. The terms and conditions of the respective Restricted
Stock Grant Documents need not be identical. Each grant of
Restricted Stock may be made without additional consideration or in
consideration of a payment by the recipient that is less than the
Market Value per Share on the date of grant, as determined by the
Administrator.
9. PERFORMANCE AWARDS
(a) Performance Period. The Administrator shall establish,
with respect to and at the time of each Performance Award, a
performance period over which the performance applicable to the
Performance Award shall be measured.
(b) Performance Measures. A Performance Award shall be
awarded to a Holder contingent upon future performance of the
Company or any subsidiary, division, or department thereof. The
Administrator shall establish the performance measures applicable
to such performance within the applicable time period permitted by
section 162(m) of the Code, with such adjustments thereto as may be
determined by the Administrator. The performance measures may be
absolute, relative to one or more other companies, relative to one
or more indexes, or measured by reference to the Company alone or
the Company together with its consolidated subsidiaries. The
performance measures established by the Administrator may be based
upon (i) the price of a share of Common Stock, (ii) operating
income or operating income margin, (iii) earnings before interest,
income taxes, depreciation, amortization and aircraft rent
("EBITDAR") or EBITDAR margin, (iv) net income or net income
margin, (v) cash flow, (vi) total shareholder return, or (vii) a
combination of any of the foregoing, including any average,
weighted average, minimum, hurdle, rate of increase or other
measure of any or any combination thereof. The Administrator, in
its sole discretion, may provide for an adjustable Performance
Award value based upon the level of achievement of performance
measures.
(c) Awards Criteria. In determining the value of Performance
Awards, the Administrator shall take into account a Holder's
responsibility level, performance, potential, other Awards, and
such other considerations as it deems appropriate. The
Administrator, in its sole discretion, may provide for a reduction
in the value of a Holder's Performance Award during the performance
period, if permitted by the applicable Grant Document.
(d) Payment. Following the end of the performance period,
the Holder of a Performance Award shall be entitled to receive
payment of an amount not exceeding the maximum value of the
Performance Award, based on the achievement of the performance
measures for such performance period, as determined by the
Administrator and certified as required by section 162(m) of the
Code. Payment of a Performance Award may be made in cash, Common
Stock (valued at the Market Value per Share), or a combination
thereof, as determined by the Administrator. Payment shall be made
in a lump sum, except as otherwise set forth in the applicable
Grant Document.
(e) Termination of Employment. A Performance Award shall
terminate if the Holder does not remain continuously in the employ
(or in service as a Director) of the Company or a subsidiary at all
times during the applicable performance period, except as otherwise
set forth in the applicable Grant Document.
10. INCENTIVE AWARDS
(a) Incentive Awards. Incentive Awards are rights to receive
shares of Common Stock (or the Market Value per Share thereof), or
rights to receive an amount equal to any appreciation or increase
in the Market Value per Share of Common Stock over a specified
period of time, which vest over a period of time as established by
the Administrator, without satisfaction of any performance criteria
or objectives. The Administrator may, in its discretion, require
payment or other conditions of the Holder respecting any Incentive
Award.
(b) Award Period. The Administrator shall establish, with
respect to and at the time of each Incentive Award, a period over
which the Award shall vest with respect to the Holder.
(c) Awards Criteria. In determining the value of Incentive
Awards, the Committee shall take into account a Holder's
responsibility level, performance, potential, other Awards, and
such other considerations as it deems appropriate.
(d) Payment. Following the end of the vesting period for an
Incentive Award (or at such other time as the applicable Grant
Document may provide), the Holder of an Incentive Award shall be
entitled to receive payment of an amount, not exceeding the maximum
value of the Incentive Award, based on the then vested value of the
Award. Payment of an Incentive Award may be made in cash, Common
Stock (valued at the Market Value per Share), or a combination
thereof as determined by the Administrator. Payment shall be made
in a lump sum, except as otherwise set forth in the applicable
Grant Document. Cash dividend equivalents may be paid during or
after the vesting period with respect to an Incentive Award, as
determined by the Administrator.
(e) Termination of Employment. An Incentive Award shall
terminate if the Holder does not remain continuously in the employ
(or in service as a Director) of the Company or a subsidiary at all
times during the applicable vesting period, except as otherwise set
forth in the applicable Grant Document.
11. RECAPITALIZATION, REORGANIZATION AND CHANGE IN CONTROL
(a) No Effect on Right or Power. The existence of the Plan
and the Awards granted hereunder shall not affect in any way the
right or power of the Board or the stockholders of the Company or
any subsidiary to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company's
or any subsidiary's capital structure or its business, any merger
or consolidation of the Company or any subsidiary, any issue of
debt or equity securities ahead of or affecting Common Stock or the
rights thereof, the dissolution or liquidation of the Company or
any subsidiary or any sale, lease, exchange or other disposition of
all or any part of its assets or business or any other corporate
act or proceeding.
(b) Changes in Common Stock. The provisions of Section 5(a)
imposing limits on the numbers of shares of Common Stock covered by
Awards granted under the Plan, as well as the number or type of
shares or other property subject to outstanding Awards and the
applicable option or purchase prices per share, shall be adjusted
appropriately by the Committee in the event of stock dividends,
spin offs of assets or other extraordinary dividends, stock splits,
combinations of shares, recapitalizations, mergers, consolidations,
reorganizations, liquidations, issuances of rights or warrants and
similar transactions or events.
(c) Change in Control. As used in the Plan (except as
otherwise provided in an applicable Grant Document), the term
"Change in Control" shall mean:
(aa) any person (within the meaning of Section 13(d) or 14(d)
under the Exchange Act, including any group (within the meaning of
Section 13(d)(3) under the Exchange Act), a "Person") is or becomes
the "beneficial owner" (as such term is defined in Rule 13d-3
promulgated under the Exchange Act), directly or indirectly, of
securities of the Company (such Person being referred to as an
"Acquiring Person") representing the greater of (x) 25% of the
combined voting power of the Company's outstanding securities and
(y) the proportion of the combined voting power of the Company's
outstanding securities represented by securities of the Company
beneficially owned, directly or indirectly, by Northwest Airlines
Corporation ("Northwest") and any Person controlling, controlled by
or under common control with Northwest at the time of reference
(excluding, for purposes of determining such proportion of the
combined voting power under this clause (y), any securities
beneficially owned by Northwest (and any Person controlling,
controlled by or under common control with Northwest) which are
deemed beneficially owned by such Acquiring Person); other than
beneficial ownership by (i) the Company or any subsidiary of the
Company, (ii) any employee benefit plan of the Company or any
Person organized, appointed or established pursuant to the terms of
any such employee benefit plan (unless such plan or Person is a
party to or is utilized in connection with a transaction led by
Outside Persons), (iii) 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.), or (iv) (I) 1992 Air, Inc., (II) any Person who
controlled 1992 Air, Inc. as of February 26, 1998, including David
Bonderman and James Coulter, or (III) any Person controlled by any
such Person (Persons referred to in clauses (i) through (iv) hereof
are hereinafter referred to as "Excluded Persons"); or
(bb) individuals who constituted the Board as of February 26,
1998 (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board, provided that any individual
becoming a director subsequent to February 26, 1998 whose
appointment to fill a vacancy or to fill a new Board position or
whose nomination for election by the Company's shareholders was
approved by a vote of at least a majority of the directors then
comprising the Incumbent Board or who was nominated for election by
Excluded Persons shall be considered as though such individual were
a member of the Incumbent Board; or
(cc) the Company merges with or consolidates into or engages
in a reorganization or similar transaction with another entity
(including Northwest) pursuant to a transaction in which the
Company is not the "Controlling Corporation"; or
(dd) the Company sells or otherwise disposes of all or
substantially all of its assets, other than to Excluded Persons, or
the Company sells or otherwise disposes of all or substantially all
of its assets to Northwest or any Person controlling, controlled by
or under common control with Northwest.
For purposes of clause (aa) above, if at any time there exist
securities of different classes entitled to vote separately in the
election of directors, the calculation of the proportion of the
voting power held by a beneficial owner of the Company's securities
shall be determined as follows: first, the proportion of the voting
power represented by securities held by such beneficial owner of
each separate class or group of classes voting separately in the
election of directors shall be determined, provided that securities
representing more than 50% of the voting power of securities of any
such class or group of classes shall be deemed to represent 100% of
such voting power; second, such proportion shall then be multiplied
by a fraction, the numerator of which is the number of directors
which such class or classes is entitled to elect and the
denominator of which is the total number of directors elected to
membership on the Board at the time; and third, the product
obtained for each such separate class or group of classes shall be
added together, which sum shall be the proportion of the combined
voting power of the Company's outstanding securities held by such
beneficial owner.
For purposes of clause (aa) above, the term "Outside Persons"
means any Persons other than (I) Persons described in clauses
(aa)(i) or (iii) or (iv) above (as to Persons described in clause
(aa)(iii) or (iv) above, while they are Excluded Persons) and (II)
members of senior management of the Company in office immediately
prior to the time the Acquiring Person acquires the beneficial
ownership described in clause (aa).
For purposes of clause (cc) above, the Company shall be
considered to be the Controlling Corporation in any merger,
consolidation, reorganization or similar transaction unless either
(1) the shareholders of the Company immediately prior to the
consummation of the transaction (the "Old Shareholders") would not,
immediately after such consummation, beneficially own, directly or
indirectly, securities of the resulting entity entitled to elect a
majority of the members of the Board of Directors or other
governing body of the resulting entity or (2) those persons who
were directors of the Company immediately prior to the consummation
of the proposed transaction would not, immediately after such
consummation, constitute a majority of the directors of the
resulting entity, provided that (I) there shall be excluded from
the determination of the voting power of the Old Shareholders
securities in the resulting entity beneficially owned, directly or
indirectly, by the other party to the transaction and any such
securities beneficially owned, directly or indirectly, by any
Person acting in concert with the other party to the transaction,
(II) there shall be excluded from the determination of the voting
power of the Old Shareholders securities in the resulting entity
acquired in any such transaction other than as a result of the
beneficial ownership of Company securities prior to the transaction
and (III) persons who are directors of the resulting entity shall
be deemed not to have been directors of the Company immediately
prior to the consummation of the transaction if they were elected
as directors of the Company within 90 days prior to the
consummation of the transaction.
The exclusion described in clause (aa)(iii) above shall cease
to have any force or effect (and the Persons described therein
shall cease to be Excluded Persons) if Northwest (together with any
Person controlling, controlled by or under common control with
Northwest) ceases to be, for a period of thirty consecutive
calendar days, the beneficial owner, directly or indirectly, of
securities of the Company representing at least 25% of the combined
voting power of the Company's outstanding securities. The exclusion
described in clause (aa)(iv) above shall cease to have any force or
effect (and the Persons described therein shall cease to be
Excluded Persons) if (A) the Person acquiring beneficial ownership
is not controlled by David Bonderman or James Coulter, or (B) the
Person acquiring beneficial ownership (together with any Person
controlling, controlled by or under common control with such
Person) ceases to be, for a period of thirty consecutive calendar
days, the beneficial owner, directly or indirectly, of securities
of the Company representing at least 25% of the combined voting
power of the Company's outstanding securities.
Upon the occurrence of a Change in Control, with respect to
each recipient of an Award hereunder, (AA) all Options granted to
such recipient and outstanding at such time shall immediately vest
and become exercisable in full (but subject, however, in the case
of Incentive Stock Options, to the aggregate fair market value,
determined as of the date the Incentive Stock Options are granted,
of the stock with respect to which Incentive Stock Options are
exercisable for the first time by such recipient during any
calendar year not exceeding $100,000) and, except as required by
law, all restrictions on the transfer of shares acquired pursuant
to such Options shall terminate, and (BB) all restrictions
applicable to such recipient's Restricted Stock or Incentive Award
shall be deemed to have been satisfied and such Restricted Stock or
Incentive Award shall vest in full.
In addition, except as otherwise provided in the applicable
Grant Document, if a recipient of an Award hereunder becomes
entitled to one or more payments (with a "payment" including,
without limitation, the vesting of an Award) pursuant to the terms
of the Plan (the "Total Payments"), which are or become subject to
the tax imposed by section 4999 of the Code (or any similar tax
that may hereafter be imposed) (the "Excise Tax"), the Company or
subsidiary for whom the recipient is then performing services shall
pay to the recipient an additional amount (the "Gross-Up Payment")
such that the net amount retained by the recipient, after reduction
for any Excise Tax on the Total Payments and any federal, state and
local income or employment tax and Excise Tax on the Gross-Up
Payment, shall equal the Total Payments. For purposes of
determining the amount of the Gross-Up Payment, the recipient shall
be deemed (aa) to pay federal income taxes at the highest stated
rate of federal income taxation (including surtaxes, if any) for
the calendar year in which the Gross-Up Payment is to be made; and
(bb) to pay any applicable state and local income taxes at the
highest stated rate of taxation (including surtaxes, if any) for
the calendar year in which the Gross-Up Payment is to be made. Any
Gross-Up Payment required hereunder shall be made to the recipient
at the same time any Total Payment subject to the Excise Tax is
paid or deemed received by the recipient.
12. AMENDMENT AND TERMINATION OF THE PLAN
Subject to the last sentence of Section 3 hereof, the Board in
its discretion may terminate the Plan at any time. The Board shall
have the right to amend the Plan or any part thereof from time to
time, and the Administrator may amend any Award (and its related
Grant Document) at any time, except as otherwise specifically
provided in such Grant Document or to the extent restricted by
section 162(m) of the Code with respect to an Award which is
intended to constitute "performance-based" compensation for
purposes of such section; provided that no change in any Award
theretofore granted may be made which would impair the rights of
the Holder thereof without the consent of such Holder, and provided
further that the Board may not, without approval of the
stockholders of the Company, amend the Plan to (a) increase the
maximum aggregate number of shares that may be issued under the
Plan or (b) change the class of individuals eligible to receive
Awards under the Plan.
13. MISCELLANEOUS
(a) No Right to an Award. Neither the adoption of the Plan
nor any action of the Board or the Administrator shall be deemed to
give an employee or Director any right to be granted an Award
except as may be evidenced by a Grant Document from the Company
reflecting a grant by the Company of an Award to such person and
setting forth the terms and conditions thereof. The Plan shall be
unfunded. The Company shall not be required to establish any
special or separate fund or to make any other segregation of funds
or assets to assure the performance of its obligations under any
Award.
(b) No Employment or Membership Rights Conferred. Nothing
contained in the Plan shall (i) confer upon any employee any right
with respect to continuation of employment with the Company or any
subsidiary or (ii) interfere in any way with the right of the
Company or any subsidiary to terminate his or her employment at any
time. Nothing contained in the Plan shall confer upon any Director
any right with respect to continuation of membership on the Board.
(c) Other Laws; Withholding. The Company shall not be
obligated to issue any Common Stock pursuant to any Award granted
under the Plan until there has been compliance with applicable laws
and regulations with respect thereto. No fractional shares of
Common Stock shall be delivered, nor shall any cash in lieu of
fractional shares be paid. The Company shall have the right to (i)
make deductions from any settlement or exercise of an Award made
under the Plan, including the delivery of shares, or require shares
or cash or both be withheld from any Award, in each case in an
amount sufficient to satisfy withholding of any taxes required by
law, or (ii) take such other action as may be necessary or
appropriate to satisfy any such tax withholding obligations. The
Administrator may determine the manner in which such tax
withholding may be satisfied, and may permit shares of Common Stock
(together with cash, as appropriate) to be used to satisfy required
tax withholding based on the Market Value per Share of any such
shares of Common Stock.
(d) No Restriction on Corporate Action. Subject to the
restrictions contained in Section 12, nothing contained in the Plan
shall be construed to prevent the Company or any subsidiary from
taking any corporate action, whether or not such action would have
an adverse effect on the Plan or any Award granted hereunder. No
employee, Director, beneficiary or other person shall have any
claim against the Company or any subsidiary as a result of any such
action.
(e) Restrictions on Transfer. An Award (other than an
Incentive Stock Option, which shall be subject to the transfer
restrictions set forth in Section 7(c)) shall not be transferable
otherwise than (i) by will or the laws of descent and distribution,
(ii) pursuant to a qualified domestic relations order as defined by
the Code or Title I of the Employee Retirement Income Security Act
of 1974, as amended, or the rules thereunder, or (iii) with respect
to Awards of Non-Qualified Options, with the consent of the
Administrator. In the discretion of the Administrator, a percentage
(determined by the Administrator and set forth in the applicable
Grant Document) of the aggregate shares of Common Stock obtained
from exercises of an Option (which percentage may be satisfied out
of particular exercises as determined by the Administrator and set
forth in the applicable Grant Document) shall not be transferable
prior to the earliest to occur of (x) the termination of the
relevant Option term (or such shorter period as may be determined
by the Administrator and set forth in the Grant Document), (y) the
Holder's retirement, death or Disability, or (z) termination of the
Holder's employment with the Company and its subsidiaries.
(f) Governing Law. The Plan shall be construed in accordance
with the laws of the State of Texas.
EXHIBIT 10.21
CONTINENTAL AIRLINES, INC.
EXECUTIVE BONUS PERFORMANCE AWARD PROGRAM
1. Purpose. This Continental Airlines, Inc. Executive Bonus
Performance Award Program (the "Program") has been adopted by the
Human Resources Committee of the Board of Directors of Continental
Airlines, Inc., a Delaware corporation (the "Company"), to
implement in part the Performance Award provisions of the
Continental Airlines, Inc. Incentive Plan 2000 (as amended from
time to time, the "Incentive Plan 2000") adopted by the Board of
Directors of the Company, and is intended to provide a method for
attracting, motivating, and retaining key officers of the Company
and its subsidiaries and to compensate such officers based on
performance goals consisting of achievement of cumulative quarterly
net income targets or EBITDAR margin rankings of the Company and
its consolidated subsidiaries as described herein. The Program and
participation hereunder shall be subject to the terms of the
Incentive Plan 2000, including the limitations on the maximum value
of awards contained therein.
2. Participants. Each of the Chief Executive Officer, the
Chief Operating Officer, each Executive Vice President and each
Senior Vice President of the Company shall automatically
participate in the Program with respect to each fiscal year, and,
with respect to a particular fiscal year, such other officers of
the Company or its subsidiaries shall participate in the Program as
may be recommended to the Human Resources Committee of the Board of
Directors of the Company (the "Committee") by the Chief Executive
Officer of the Company and designated by the Committee to be a
participant in the Program with respect to such fiscal year. Each
of the foregoing persons is referred to herein as a "Participant",
and the right to participate in the Program for a fiscal year or
portion thereof constitutes a Performance Award (as such term is
defined in the Incentive Plan 2000) under the Incentive Plan 2000.
The Chief Executive Officer shall have the power to terminate any
Participant's participation in the Program upon written notice to
such Participant of such termination, subject to ratification of
such action by the Committee.
3. Definitions. Where the following words and phrases are
used in this Program, they shall have the respective meanings set
forth below, unless the context clearly indicates to the contrary:
(a) "Budget" with respect to a fiscal year means the
cumulative quarterly net income targets, as established
by the Committee with respect to such fiscal year or
portion thereof, whether or not they are the same as
those contained in or derived from the Annual Financial
Plan of the Company with respect to such fiscal year
contemplated by Section 3.3 of the By-Laws of the
Company.
(b) "Cumulative Actual Net Income" with respect to a quarter
means the aggregate consolidated net income of the
Company and its consolidated subsidiaries, as shown on
the regularly prepared statement of operations of the
Company prepared in accordance with GAAP, as adjusted
for unbudgeted (i) one-time gains or losses from the
disposal of assets, (ii) write-offs of assets
(including aircraft and associated parts), and (iii) any
other item of gain, loss, or expense determined to be
extraordinary or unusual in nature or infrequent in
occurrence, in each case under clauses (i), (ii) and
(iii) as determined by the Committee, for the period
commencing on the first day of the fiscal year of the
Company in which such quarter occurs and ending on the
last day of such quarter.
(c) "Cumulative Base Salary" with respect to a quarter means
the aggregate of the Participant's base salary earned,
while a Participant under the Program, during the period
commencing on the first day of the fiscal year of the
Company in which such quarter occurs and ending on the
last day of such quarter.
(d) "Cumulative EBITDAR" with respect to a quarter means,
with respect to each company in the Industry Group, the
aggregate earnings of such company and its consolidated
subsidiaries during the period commencing on the first
day of the fiscal year of the Company in which such
quarter occurs and ending on the last day of such
quarter, determined prior to the charges, costs, and
expenses associated with interest, income taxes,
depreciation, amortization, and aircraft rent. EBITDAR
shall be determined based on the regularly prepared and
publicly available statements of operations of each
company in the Industry Group prepared in accordance
with GAAP (and if necessary to determine certain items,
based on Form 41 data filed by such company with the
Department of Transportation); provided, however, that
EBITDAR shall be adjusted to exclude (i) non-operating
income or expense, (ii) write-offs of assets (including
aircraft and associated parts), (iii) one-time gains or
losses from the disposal of assets, and (iv) any other
item of gain, loss, or expense determined to be
extraordinary or unusual in nature or infrequent in
occurrence, in each case under clauses (i), (ii), (iii)
and (iv) as determined by the Committee in accordance
with GAAP. If a company in the Industry Group provides
publicly available statements of operations with respect
to its airline business that are separate from the
statements of operations provided with respect to its
other businesses, then such company's EBITDAR shall be
determined based solely upon the separately provided
statements of operations pertaining to its airline
business.
(e) "Cumulative EBITDAR Margin" means, with respect to each
company in the Industry Group and each quarter, the
Cumulative EBITDAR for such company with respect to such
quarter, divided by such company's cumulative revenues
(determined on a consolidated basis based on the
regularly prepared and publicly available statements of
operations of such company prepared in accordance with
GAAP) over the period commencing on the first day of the
fiscal year of the Company in which such quarter occurs
and ending on the last day of such quarter. If a company
in the Industry Group provides publicly available
statements of operations with respect to its airline
business that are separate from the statements of
operations provided with respect to its other
businesses, then such company's Cumulative EBITDAR
Margin shall be determined based solely upon the
separately provided statements of operations pertaining
to its airline business.
(f) "Cumulative Number 1, Number 2 or Number 3 Ranking" with
respect to a quarter means the Company ranks first,
second or third when comparing the Cumulative EBITDAR
Margins with respect to such quarter for all companies
comprising the Industry Group as of the last day of such
quarter, and that the Company has achieved the Operating
Income Hurdle with respect to such quarter.
(g) "Cumulative Target Net Income" with respect to a quarter
means the aggregate consolidated net income of the
Company and its consolidated subsidiaries, as set forth
in the Budget, for the period commencing on the first
day of the fiscal year of the Company in which such
quarter occurs and ending on the last day of such
quarter.
(h) "EBITDAR Margin Quarterly Bonus" with respect to a
Participant for a fiscal quarter shall be equal to (i)
the dollar amount calculated by multiplying such
Participant's Cumulative Base Salary with respect to
such quarter by (x) 125%, if the Company has a
Cumulative Number 1, Number 2 or Number 3 Ranking with
respect to such quarter, or (y) 0 (zero)%, if the
Company does not have a Cumulative Number 1, Number 2 or
Number 3 Ranking with respect to such quarter, less (ii)
the amount of the Quarterly Bonuses (as defined below)
received by such Participant with respect to prior
quarters in the fiscal year in which such quarter ends.
With respect to the Company's 2000 fiscal year only,
quarterly bonuses paid under the Company's prior
executive bonus program to persons who are Participants
under this Program with respect to fiscal quarters in
2000 ending prior to the quarter during which
Stockholder Approval is obtained shall be deducted for
purposes of clause (ii) of the foregoing sentence.
(i) "GAAP" means United States generally accepted accounting
principles, consistently applied.
(j) "Industry Group" has the meaning set forth in Section 5
hereof.
(k) "LTIP Program" means the Continental Airlines, Inc. Long
Term Incentive Performance Award Program, as amended
from time to time.
(l) "Net Income Quarterly Bonus" with respect to a
Participant for a fiscal quarter shall be equal to (i)
the dollar amount calculated by multiplying such
Participant's Cumulative Base Salary with respect to
such quarter by (x) (in the case of a positive variance
(which shall include a zero variance)), 100% plus the
positive variance, if any, expressed as a percentage
(but in no event more than 25%), between the Cumulative
Actual Net Income with respect to such quarter, and the
Cumulative Target Net Income with respect to such
quarter, or (y) (in the case of a negative variance),
100% less the absolute value of the negative variance,
expressed as a percentage, between the Cumulative Actual
Net Income with respect to such quarter, and the
Cumulative Target Net Income with respect to such
quarter (provided, that if such negative variance is
greater than negative 25% (e.g., negative 30%), then
such negative variance shall be deemed negative 100%),
less (ii) the amount of the Quarterly Bonuses received
by such Participant with respect to prior quarters in
the fiscal year in which such quarter ends. With respect
to the Company's 2000 fiscal year only, quarterly
bonuses paid under the Company's prior executive bonus
program to persons who are Participants under this
Program with respect to fiscal quarters in 2000 ending
prior to the quarter during which Stockholder Approval
is obtained shall be deducted for purposes of clause
(ii) of the foregoing sentence.
(m) "Operating Income Hurdle" with respect to a quarter
means the achievement by the Company, during the period
commencing on the first day of the fiscal year of the
Company in which such quarter occurs and ending on the
last day of such quarter, of an operating income equal
to or greater than (1) with respect to the first fiscal
quarter, 19%, (2) with respect to the second fiscal
quarter, 52.8%, (3) with respect to the third fiscal
quarter, 83.6% and (4) with respect to the fourth fiscal
quarter, 100%, of the dollar amount of the "Operating
Income Hurdle" with respect to the "Performance Period"
(as such terms are defined in the LTIP Program)
commencing on the first day of the fiscal year of the
Company in which such quarter occurs, as reflected on
the regularly prepared and publicly available statements
of operations of the Company and its consolidated
subsidiaries prepared in accordance with GAAP, adjusted
to exclude (i) accruals with respect to the LTIP
Program, (ii) write-offs of assets (including aircraft
and associated parts), (iii) one-time gains or losses
from the disposal of assets, and (iv) any other item of
gain, loss, or expense determined to be extraordinary or
unusual in nature or infrequent in occurrence, in each
case under clauses (i), (ii), (iii) and (iv) as
determined by the Committee in accordance with GAAP.
4. Quarterly Bonuses. Commencing with the Company's
fiscal quarter during which Stockholder Approval (as defined below)
is obtained, each Participant in the Program who has remained
continuously employed by the Company or a subsidiary during the
entire fiscal quarter with respect to which the Quarterly Bonus (as
defined below) is to be paid, shall receive, on a fiscal quarterly
basis as soon as reasonably practicable after the certification by
the Committee described in Section 6 below with respect to such
quarter, a cash bonus (a "Quarterly Bonus"), if any, equal to the
greater of the Net Income Quarterly Bonus or the EBITDAR Margin
Quarterly Bonus for such quarter.
5. Industry Group. The Industry Group shall consist of
the Company, AMR Corporation, Delta Air Lines, Inc., Northwest
Airlines Corporation, Trans World Airlines, Inc., UAL Corporation,
and US Airways Group, Inc.; provided, however, that (a) prior to
commencement of each fiscal year of the Company that begins after
January 1, 2000, the Committee may in its discretion add any United
States certificated scheduled mainline air carrier to, or remove
any such company (other than the Company) from, the Industry Group
for such fiscal year and (b) the Industry Group shall be subject to
adjustment as provided in the following paragraph.
Except as provided in clause (a) of the proviso to the
preceding paragraph, no company shall be added to, or removed from,
the Industry Group during any fiscal quarter; provided, however,
that a company (other than the Company) shall be removed from the
Industry Group for a fiscal quarter and subsequent quarters of a
fiscal year if (a) during such fiscal quarter, (i) such company
ceases to maintain publicly available statements of operations
prepared in accordance with GAAP, (ii) such company is not the
surviving entity in any merger, consolidation, or other
reorganization (or survives only as a subsidiary of an entity other
than a previously wholly owned subsidiary of such company), (iii)
such company sells, leases, or exchanges all or substantially all
of its assets to any other person or entity (other than a
previously wholly owned subsidiary of such company), or (iv) such
company is dissolved and liquidated, or (b) more than 20% of such
company's revenues (determined on a consolidated basis based on the
regularly prepared and publicly available statements of operations
of such company prepared in accordance with GAAP) for such fiscal
quarter are attributable to the operation of businesses other than
such company's airline business and such company does not provide
publicly available statements of operations with respect to its
airline business that are separate from the statements of
operations provided with respect to its other businesses.
6. Administration. The Program will be administered by
the Committee, which at all times will consist of not less than two
persons, each of whom is an "outside director" within the meaning
of section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"). The action of a majority of the members of the
Committee will be the act of the Committee. The Committee shall,
prior to the commencement of each fiscal year of the Company
beginning on or after January 1, 2000, establish in writing the
Budget for such fiscal year for purposes of this Program. In
establishing the Budget, the Committee may in its discretion adopt
as targets cumulative quarterly net income amounts derived from the
net income amounts contained in the Annual Financial Plan of the
Company contemplated by Section 3.3 of the Company's By-Laws.
The interpretation and construction by the Committee of any
provision of the Program, and any determination or action by the
Committee pursuant to any provision hereof, will be final and
conclusive for all purposes, and each Participant's participation
in the Program is expressly subject to the foregoing. No member of
the Committee shall be liable for any action or determination taken
or made in good faith or upon reliance in good faith on the records
of the Company or information presented to the Committee by the
Company's officers, employees, or other persons (including the
Company's outside auditors) as to matters such member reasonably
believes are within such other person's professional or expert
competence. If a Participant disagrees with any decision,
determination, or action made or taken by the Committee, then the
dispute will be limited to whether the Committee has satisfied its
duty to make such decision or determination or take such action in
good faith.
As to each fiscal quarter during which the Program is
effective, the Committee will certify in writing, prior to the
payment of any Quarterly Bonus with respect to such quarter,
whether the Cumulative Target Net Income and Cumulative Number 1,
Number 2 or Number 3 Ranking performance goals set forth herein
have been met and whether any other material terms relating to the
payment of such Quarterly Bonuses have been satisfied, to the
extent required by section 162(m) of the Code.
7. Payments upon a Change in Control. If a Change in Control
occurs (as such term is defined in the Incentive Plan 2000, as in
effect on October 4, 1999) and thereafter (or in connection
therewith or in contemplation thereof) during the year in which
such Change in Control occurs (a "Change Year"), a Participant
suffers a Qualifying Event (as herein defined), then such
Participant shall, upon the occurrence of the Qualifying Event,
receive an amount in cash from the Company equal to (x) the
aggregate Quarterly Bonuses such Participant would have received
under the Program had the Company achieved a Cumulative Number 1,
Number 2 or Number 3 Ranking with respect to each quarter during
the Change Year, less (y) the aggregate of the Quarterly Bonuses
paid to such Participant pursuant to the Program during the Change
Year through the date immediately prior to the occurrence of the
Qualifying Event (with respect to the Company's 2000 fiscal year
only, quarterly bonuses paid under the Company's prior executive
bonus program to persons who are Participants under this Program
with respect to fiscal quarters in 2000 ending prior to the quarter
during which Stockholder Approval is obtained shall be deducted for
purposes of clause (y) of the foregoing sentence), and such
Participant shall not be entitled to any additional Quarterly
Bonuses with respect to such Change Year. As used herein, the term
"Qualifying Event" with respect to a Participant means (i) the
termination of such Participant's participation in the Program,
(ii) the assignment to such Participant by the Board of Directors
or the Committee or other officers or representatives of the
Company of duties materially inconsistent with the duties
associated with his position as such duties are constituted as of
the first day of the Change Year, (iii) a material diminution in
the nature or scope of such Participant's authority,
responsibilities, or title from those applicable to him as of the
first day of the Change Year, (iv) the occurrence of material acts
or conduct on the part of the Company or its officers or
representatives which prevent such Participant from performing his
duties and responsibilities as they existed on the first day of the
Change Year, (v) the Company requiring such Participant to be
permanently based anywhere outside a major urban center in the
state (or, if applicable, foreign country, U.S. territory or other
applicable sovereign entity) in which he was based as of the first
day of the Change Year, or (vi) the taking of any action by the
Company that would materially adversely affect the corporate
amenities enjoyed by such Participant on the first day of the
Change Year, except in each case if such Participant's employment
with the Company and its subsidiaries is terminated (a) upon such
Participant's death, (b) upon disability entitling him or her to
benefits under the Company's group long-term disability plan, (c)
for cause, which for purposes hereof shall mean (1) in the case of
a Participant with an employment agreement with the Company or a
subsidiary, the involuntary termination by the Company (or, if
applicable, a subsidiary) of such Participant's employment under
circumstances that do not require the Company (or such subsidiary)
to pay to such Participant a "Termination Payment" or "Monthly
Severance Amount", as such terms are defined in such Participant's
employment agreement, and (2) in the case of a Participant who does
not have an employment agreement with the Company or a subsidiary,
the involuntary termination by the Company (or, if applicable, a
subsidiary) of such Participant's employment based upon a
determination by the Committee or an authorized officer of the
Company (or such subsidiary) that such Participant has engaged in
gross negligence or willful misconduct in the performance of, or
such Participant has abused alcohol or drugs rendering him or her
unable to perform, the material duties and services required of him
or her in his or her employment, or (d) upon the voluntary
resignation from employment of such Participant (other than in
connection with circumstances which would permit such Participant
to receive severance benefits pursuant to any contract of
employment between such Participant and the Company or any of its
subsidiaries).
8. Amendments, Termination and Other Matters. Subject to the
other provisions of this Section 8, this Program may be amended
from time to time or terminated by the Committee; provided that
this Program may not be amended by the Committee without the
further approval of the stockholders of the Company if such
amendment would result in the Program no longer satisfying the
requirements of section 162(m) of the Code, and this Program may
not be amended or terminated in contemplation of or in connection
with a Change in Control, nor may any Participant's participation
herein be terminated in contemplation of or in connection with a
Change in Control, unless adequate and effective provision for the
making of all payments otherwise payable (based on Participants'
base salaries as in effect immediately prior to such Change in
Control) pursuant to Section 7 of this Program (as in effect on the
date of Stockholder Approval) with respect to such Change in
Control shall be made in connection with any such amendment or
termination.
Participation in the Program by a Participant shall terminate
upon such Participant's termination of employment with the Company
and its subsidiaries or as otherwise set forth herein, and no
Participant shall have any right to continue to participate in the
Program or have any vested right to any bonus or other payment
hereunder (except as aforesaid in connection with a Change in
Control and except with respect to quarterly periods which have
already passed prior to such amendment or termination or prior to
such Participant's termination of employment with the Company and
its subsidiaries).
Participation in the Program shall not confer any right of
future employment. The Program is not intended to create a pension
or welfare benefit plan and is intended to be exempt from
application of the Employee Retirement Income Security Act of 1974,
as amended. The Program is unfunded and shall not create, or be
construed to create, a trust or separate fund or funds, and each
Participant shall be entitled only to look to the Company for any
benefit hereunder, and shall have no greater right than an
unsecured creditor of the Company.
No liability whatsoever shall attach to or be incurred by any
past, present or future stockholders, officers or directors, as
such, of the Company or any of its subsidiaries, under or by reason
of this Program or the administration thereof, and each
Participant, in consideration of receiving benefits and
participating hereunder, expressly waives and releases any and all
claims relating to any such liability.
No bonus or other right, title, interest, or benefit hereunder
shall ever be assignable or transferable, or liable for, or charged
with any of the torts or obligations of a Participant or any person
claiming under a Participant, or be subject to seizure by any
creditor of a Participant or any person claiming under a
Participant. No Participant or any person claiming under a
Participant shall have the power to anticipate or dispose of any
bonus or other right, title, interest, or benefit hereunder in any
manner until the same shall have actually been distributed free and
clear of the terms of the Program. Payments with respect to
bonuses hereunder shall be payable only to the Participant (or in
the event of the death of a Participant, any payment due under the
Program to such Participant shall be made to his or her estate).
The provisions of this Program shall be binding on all successors
and assigns of a Participant, including without limitation the
estate of such Participant and the executor, administrator or
trustee of such estate, or any receiver or trustee in bankruptcy or
representative of the Participant's creditors.
This Program shall be construed in accordance with the laws of
the State of Texas.
9. Tax Withholding. The Company shall have the right to
withhold from any payment hereunder all applicable federal, state,
local and other taxes as required by law.
10. Effective Date. This Program shall be effective as
of the first day of the fiscal quarter during which the Incentive
Plan 2000 is approved by the Company's stockholders in the manner
required under section 162(m) of the Code at the Company's 2000
annual meeting of stockholders ("Stockholder Approval").
Notwithstanding any provision herein to the contrary, no payment
under the Program shall be made to or on behalf of any Participant
unless the Incentive Plan 2000 is so approved by the Company's
stockholders. If the Company's stockholders do not so approve the
Incentive Plan 2000, then the Program shall automatically terminate
and no bonuses shall be paid hereunder.
The Company's current executive bonus program, as in effect on
October 4, 1999 (sometimes referred to herein as the Company's
"prior executive bonus program"), is hereby terminated as of the
first day of the fiscal quarter during which the Company's 2000
annual meeting of stockholders occurs.
IN WITNESS WHEREOF, the undersigned officer of the Company
acting pursuant to authority granted to him by the Committee has
executed this instrument on this 8th day of February, 2000,
effective as stated above.
CONTINENTAL AIRLINES, INC.
By:_____________________________
Jeffery A. Smisek
Executive Vice President
EXHIBIT 10.22
CONTINENTAL AIRLINES, INC.
LONG TERM INCENTIVE PERFORMANCE AWARD PROGRAM
I. PURPOSE OF PROGRAM
This Continental Airlines, Inc. Long Term Incentive
Performance Award Program (the "Program") has been adopted by the
Human Resources Committee of the Board of Directors of Continental
Airlines, Inc., a Delaware corporation (the "Company"), to
implement in part the Performance Award provisions of the
Continental Airlines, Inc. Incentive Plan 2000 (as amended from
time to time, the "Incentive Plan 2000") adopted by the Board of
Directors of the Company, and is intended to provide a method for
attracting, motivating, and retaining key employees to assist in
the development and growth of the Company and its Subsidiaries.
The Program and Awards hereunder shall be subject to the terms of
the Incentive Plan 2000, including the limitations on the maximum
value of Awards contained therein.
II. DEFINITIONS AND CONSTRUCTION
2.1 Definitions. Where the following words and phrases are
used in the Program, they shall have the respective meanings set
forth below, unless the context clearly indicates to the contrary:
(a) "Administrator" means (i) in the context of Awards made
to, or the administration (or interpretation of any provision) of
the Program as it relates to, any person who is subject to Section
16 of the Securities Exchange Act of 1934, as amended (including
any successor section to the same or similar effect, "Section 16"),
the Committee, or (ii) in the context of Awards made to, or the
administration (or interpretation of any provision) of the Program
as it relates to, any person who is not subject to Section 16, the
Chief Executive Officer of the Company (or, if the Chief Executive
Officer is not a director of the Company, the Committee), unless
the Program specifies that the Committee shall take specific action
(in which case such action may only be taken by the Committee) or
the Committee (as to any Award described in this clause (ii) or the
administration or interpretation of any specific provision of the
Program) specifies that it shall serve as Administrator.
(b) "Award" means, with respect to each Participant for a
Performance Period, such Participant's opportunity to earn a
Payment Amount for such Performance Period upon the satisfaction of
the terms and conditions of the Program. Awards hereunder
constitute Performance Awards (as such term is defined in the
Incentive Plan 2000) under the Incentive Plan 2000.
(c) "Award Notice" means a written notice issued by the
Company to a Participant evidencing such Participant's receipt of
an Award with respect to a Performance Period.
(d) "Base Amount" means the sum of (i) the annual base rate
of pay paid or payable in cash by the Company and the Subsidiaries
to or for the benefit of a Participant for services rendered or
labor performed, plus (ii) an additional amount equal to (1) for
all Participants other than those described in Section 2.1(z)(vi),
2.1(z)(vii) or 2.1(z)(viii) below, 125% of the amount described in
clause (i), and (2) for all Participants described in Section
2.1(z)(vi), 2.1(z)(vii) or 2.1(z)(viii) below, 37.5% of the amount
described in clause (i). Base Amount shall be determined without
reduction for amounts a Participant could have received in cash in
lieu of (A) elective deferrals under the Company's Deferred
Compensation Plan or (B) elective contributions made on such
Participant's behalf by the Company or a Subsidiary pursuant to a
qualified cash or deferred arrangement (as defined in section
401(k) of the Code) or pursuant to a plan maintained under section
125 of the Code.
(e) "Board" means the Board of Directors of the Company.
(f) "Cause" means (i) in the case of a Participant with an
employment agreement with the Company or a Subsidiary, the
involuntary termination of such Participant's employment by the
Company (or, if applicable, a Subsidiary) under circumstances that
do not require the Company (or such Subsidiary) to pay to such
Participant a "Termination Payment" or "Monthly Severance Amount,"
as such terms are defined in such Participant's employment
agreement, and (ii) in the case of a Participant who does not have
an employment agreement with the Company or a Subsidiary, the
involuntary termination of such Participant's employment by the
Company (or, if applicable, a Subsidiary) based upon a
determination by the Administrator or an authorized officer of the
Company (or such Subsidiary) that such Participant has engaged in
gross negligence or willful misconduct in the performance of, or
such Participant has abused alcohol or drugs rendering him or her
unable to perform, the material duties and services required of him
or her in his or her employment.
(g) "Change in Control" shall have the same meaning as is
assigned to such term under the Incentive Plan 2000, as in effect
on October 4, 1999.
(h) "Change Year" means the calendar year during which a
Change in Control occurs.
(i) "Code" means the Internal Revenue Code of 1986, as
amended.
(j) "Committee" means a committee of the Board comprised
solely of two or more outside directors (within the meaning of the
term "outside directors" as used in section 162(m) of the Code).
Such committee shall be the Human Resources Committee of the Board
unless and until the Board designates another committee of the
Board to serve as the Committee.
(k) "Company" means Continental Airlines, Inc., a Delaware
corporation.
(l) "Company Stock" means the Class B common stock, par
value $0.01 per share, of the Company.
(m) "Disability" or "Disabled" means, with respect to a
Participant, such Participant's disability entitling him or her to
benefits under the Company's group long-term disability plan;
provided, however, that if such Participant is not eligible to
participate in such plan, then such Participant shall be considered
to have incurred a "Disability" if and when the Administrator
determines in its discretion that such Participant has become
incapacitated for a period of at least 180 days by accident,
sickness, or other circumstance which renders such Participant
mentally or physically incapable of performing the material duties
and services required of him or her in his or her employment on a
full-time basis during such period.
(n) "EBITDAR" means, with respect to each company in the
Industry Group and each Performance Period, the aggregate earnings
of such company and its consolidated subsidiaries during the
Performance Period, determined prior to the charges, costs, and
expenses associated with interest, income taxes, depreciation,
amortization, and aircraft rent. EBITDAR shall be determined based
on the regularly prepared and publicly available statements of
operations of each company in the Industry Group prepared in
accordance with GAAP (and if necessary to determine certain items,
based on Form 41 data filed by such company with the Department of
Transportation); provided, however, that EBITDAR shall be adjusted
to exclude (i) non-operating income or expense, (ii) write-offs of
assets (including aircraft and associated parts), (iii) one-time
gains or losses from the disposal of assets, and (iv) any other
item of gain, loss, or expense determined to be extraordinary or
unusual in nature or infrequent in occurrence, in each case under
clauses (i), (ii), (iii) and (iv) as determined by the Committee in
accordance with GAAP. If the fiscal year of a company in the
Industry Group is not the calendar year, then such company's
EBITDAR for a Performance Period shall be determined based upon the
fiscal quarters of such company that coincide with the fiscal
quarters contained in such Performance Period. Further, if a
company in the Industry Group provides publicly available
statements of operations with respect to its airline business that
are separate from the statements of operations provided with
respect to its other businesses, then such company's EBITDAR shall
be determined based solely upon the separately provided statements
of operations pertaining to its airline business.
(o) "EBITDAR Margin" means, with respect to each company in
the Industry Group and each Performance Period, the cumulative
EBITDAR for such company for such Performance Period divided by
such company's cumulative revenues (determined on a consolidated
basis based on the regularly prepared and publicly available
statements of operations of such company prepared in accordance
with GAAP) over such Performance Period. If the fiscal year of a
company in the Industry Group is not the calendar year, then such
company's EBITDAR Margin for a Performance Period shall be
determined based upon the fiscal quarters of such company that
coincide with the fiscal quarters contained in such Performance
Period. Further, if a company in the Industry Group provides
publicly available statements of operations with respect to its
airline business that are separate from the statements of
operations provided with respect to its other businesses, then such
company's EBITDAR Margin shall be determined based solely upon the
separately provided statements of operations pertaining to its
airline business.
(p) "Effective Date" means January 1, 2000.
(q) "Eligible Employee" means any individual who is (i) a
staff vice president or more senior officer of the Company or (ii)
a vice president or more senior officer of a Subsidiary, or (iii)
any other officer of the Company or any Subsidiary designated by
the Administrator as an Eligible Employee for purposes of the
Program.
(r) "GAAP" means United States generally accepted
accounting principles, consistently applied.
(s) "Incentive Plan 2000" means the Continental Airlines,
Inc. Incentive Plan 2000, as amended from time to time.
(t) "Industry Group" means, with respect to each
Performance Period, the companies determined in accordance with the
provisions of Article V for such Performance Period.
(u) "Market Value per Share" means, as of any specified
date, the closing sales price of Company Stock on that date (or, if
there are no sales on that date, the last preceding date on which
there was a sale) in the principal securities market in which the
Company Stock is then traded.
(v) "Number 1 Ranking," "Number 2 Ranking," and "Number 3
Ranking" shall have the meanings assigned to such terms in Section
2.1(bb).
(w) "Operating Income Hurdle" with respect to a Performance
Period means the achievement by the Company, during such
Performance Period, of an average annual operating income of $300
million (or, with respect to any Performance Period beginning after
the Effective Date, such other amount as may be established by the
Committee prior to the commencement of the applicable Performance
Period) or more, as reflected on the regularly prepared and
publicly available statements of operations of the Company and its
consolidated subsidiaries prepared in accordance with GAAP,
adjusted to exclude (i) accruals with respect to the Program, (ii)
write-offs of assets (including aircraft and associated parts),
(iii) one-time gains or losses from the disposal of assets, and
(iv) any other item of gain, loss, or expense determined to be
extraordinary or unusual in nature or infrequent in occurrence, in
each case under clauses (i), (ii), (iii) and (iv) as determined by
the Committee in accordance with GAAP.
(x) "Participant" means an Eligible Employee who has
received an Award under the Program with respect to a Performance
Period pursuant to Section 4.1.
(y) "Payment Amount" means, with respect to each
Participant and each Performance Period for which the Performance
Target is satisfied, an amount equal to (i) such Participant's Base
Amount in effect as of the earlier of (1) the last day of such
Performance Period, (2) the date of such Participant's death or
Disability, or (3) the day immediately preceding the date upon
which such Participant suffers a Qualifying Event in connection
with, after, or in contemplation of a Change in Control, multiplied
by (ii) the Payout Percentage applicable to such Participant for
such Performance Period; provided, however, that the Payment Amount
with respect to each Participant with respect to the Performance
Period commencing on January 1, 2000 and ending on December 31,
2000 shall be one-third of the amount calculated in accordance with
the foregoing formula, and the Payment Amount with respect to each
Participant with respect to the Performance Period commencing on
January 1, 2000 and ending on December 31, 2001 shall be two-thirds
of the amount calculated in accordance with the foregoing formula.
Notwithstanding the foregoing, in no event shall the aggregate
Payment Amounts with respect to any Performance Period exceed 5% of
the actual average annual operating income of the Company and its
consolidated subsidiaries with respect to such Performance Period
(the "Program Cap"), as reflected on the regularly prepared and
publicly available statements of operations of the Company and its
consolidated subsidiaries prepared in accordance with GAAP,
adjusted to exclude (i) accruals with respect to the Program, (ii)
write-offs of assets (including aircraft and associated parts),
(iii) one-time gains or losses from the disposal of assets, and
(iv) any other item of gain, loss, or expense determined to be
extraordinary or unusual in nature or infrequent in occurrence, in
each case under clauses (i), (ii), (iii) and (iv) as determined by
the Committee in accordance with GAAP. All Payment Amounts with
respect to any Performance Period in which the Program Cap would,
but for the foregoing limitation, be exceeded shall be reduced pro-
rata so that the aggregate Payment Amounts equal the Program Cap.
(z) "Payout Percentage" means, with respect to each
Performance Period for which the Performance Target is satisfied:
(i) In the case of a Participant who is the
Company's Chief Executive Officer as of the
earlier of (1) the last day of such
Performance Period, (2) the date of such
Participant's death or Disability, or (3) the
day immediately preceding the date upon which
such Participant suffers a Qualifying Event in
connection with, after, or in contemplation of
a Change in Control, (A) 150% if the Company
achieves a Number 1 Ranking for such
Performance Period, (B) 100% if the Company
achieves a Number 2 Ranking for such
Performance Period, and (C) 75% if the Company
achieves a Number 3 Ranking for such
Performance Period;
(ii) In the case of a Participant who is the
Company's President as of the earlier of (1)
the last day of such Performance Period, (2)
the date of such Participant's death or
Disability, or (3) the day immediately
preceding the date upon which such Participant
suffers a Qualifying Event in connection with,
after, or in contemplation of a Change in
Control, (A) 135% if the Company achieves a
Number 1 Ranking for such Performance Period,
(B) 90% if the Company achieves a Number 2
Ranking for such Performance Period, and (C)
70% if the Company achieves a Number 3 Ranking
for such Performance Period;
(iii) In the case of a Participant who is an
Executive Vice President of the Company as of
the earlier of (1) the last day of such
Performance Period, (2) the date of such
Participant's death or Disability, or (3) the
day immediately preceding the date upon which
such Participant suffers a Qualifying Event in
connection with, after, or in contemplation of
a Change in Control, (A) 100% if the Company
achieves a Number 1 Ranking for such
Performance Period, (B) 75% if the Company
achieves a Number 2 Ranking for such
Performance Period, and (C) 50% if the Company
achieves a Number 3 Ranking for such
Performance Period;
(iv) In the case of a Participant who is a Senior
Vice President of the Company (or who is the
President of Continental Express, Inc.) as of
the earlier of (1) the last day of such
Performance Period, (2) the date of such
Participant's death or Disability, or (3) the
day immediately preceding the date upon which
such Participant suffers a Qualifying Event in
connection with, after, or in contemplation of
a Change in Control, (A) 70% if the Company
achieves a Number 1 Ranking for such
Performance Period, (B) 50% if the Company
achieves a Number 2 Ranking for such
Performance Period, and (C) 30% if the Company
achieves a Number 3 Ranking for such
Performance Period;
(v) In the case of a Participant (other than a
Participant described in any of clauses (i),
(ii), (iii) or (iv) above) who is a
participant in the Company's Executive Bonus
Program as of the earlier of (1) the last day
of such Performance Period, (2) the date of
such Participant's death or Disability, or (3)
the day immediately preceding the date upon
which such Participant suffers a Qualifying
Event in connection with, after, or in
contemplation of a Change in Control, (A) 55%
if the Company achieves a Number 1 Ranking for
such Performance Period, (B) 40% if the
Company achieves a Number 2 Ranking for such
Performance Period, and (C) 25% if the Company
achieves a Number 3 Ranking for such
Performance Period;
(vi) In the case of a Participant who is designated
as a Category 1 officer by the Administrator
and is not described in any of clauses (i),
(ii), (iii), (iv) or (v) above as of the
earlier of (1) the last day of such
Performance Period, (2) the date of such
Participant's death or Disability, or (3) the
day immediately preceding the date upon which
such Participant suffers a Qualifying Event in
connection with, after, or in contemplation of
a Change in Control, (A) 85% if the Company
achieves a Number 1 Ranking for such
Performance Period, (B) 55% if the Company
achieves a Number 2 Ranking for such
Performance Period, and (C) 40% if the Company
achieves a Number 3 Ranking for such
Performance Period;
(vii) In the case of a Participant who is designated
as a Category 2 officer by the Administrator
and is not described in any of clauses (i),
(ii), (iii), (iv), (v) or (vi) above as of the
earlier of (1) the last day of such
Performance Period, (2) the date of such
Participant's death or Disability, or (3) the
day immediately preceding the date upon which
such Participant suffers a Qualifying Event in
connection with, after, or in contemplation of
a Change in Control, (A) 65% if the Company
achieves a Number 1 Ranking for such
Performance Period, (B) 40% if the Company
achieves a Number 2 Ranking for such
Performance Period, and (C) 30% if the Company
achieves a Number 3 Ranking for such
Performance Period; and
(viii) In the case of a Participant who is designated
as a Category 3 officer by the Administrator
and is not described in any of clauses (i),
(ii), (iii), (iv), (v), (vi) or (vii) above as
of the earlier of (1) the last day of such
Performance Period, (2) the date of such
Participant's death or Disability, or (3) the
day immediately preceding the date upon which
such Participant suffers a Qualifying Event in
connection with, after, or in contemplation of
a Change in Control, (A) 30% if the Company
achieves a Number 1 Ranking for such
Performance Period, (B) 20% if the Company
achieves a Number 2 Ranking for such
Performance Period, and (C) 15% if the Company
achieves a Number 3 Ranking for such
Performance Period.
Notwithstanding the foregoing, if an Eligible Employee becomes a
Participant and receives an Award with respect to a Performance
Period after the first day of such Performance Period, the
Administrator may, in its sole discretion, reduce the percentages
set forth in this Section 2.1(z) as they shall apply to such
Participant for such Performance Period.
(aa) "Performance Period" means: (i) as to the first
Performance Period under the Program, the period commencing on the
Effective Date and ending on December 31, 2000, (ii) as to the
second Performance Period under the Program, the period commencing
on the Effective Date and ending on December 31, 2001, (iii) as to
the third Performance Period under the Program, the period
commencing on the Effective Date and ending on December 31, 2002,
and (iv) each three-year period commencing on the first day of a
calendar year that begins after the Effective Date.
Notwithstanding the foregoing, no new Performance Period shall
commence on or after the date upon which a Change in Control
occurs, unless otherwise determined by the Committee.
(bb) "Performance Target" means, with respect to a
Performance Period, that (1) the EBITDAR Margin for the Company for
such Performance Period ranks first (a "Number 1 Ranking"), second
(a "Number 2 Ranking"), or third (a "Number 3 Ranking") when
comparing the EBITDAR Margins for such Performance Period for all
companies comprising the Industry Group as of the last day of such
Performance Period, and (2) the Operating Income Hurdle with
respect to such Performance Period has been achieved.
(cc) "Program" means this Continental Airlines, Inc. 1999
Long Term Incentive Performance Award Program, as amended from time
to time.
(dd) "Qualifying Event" means, with respect to a
Participant, (i) the termination of such Participant's employment
with the Company, (ii) the assignment to such Participant by the
Board or the Administrator or other officers or representatives of
the Company (or, if applicable, a Subsidiary) of duties materially
inconsistent with the duties associated with his or her position as
such duties are constituted as of the first day of the Change Year,
(iii) a material diminution in the nature or scope of such
Participant's authority, responsibilities, or title from those
applicable to him or her as of the first day of the Change Year,
(iv) the occurrence of material acts or conduct on the part of the
Company (or, if applicable, a Subsidiary) or its officers or
representatives which prevent such Participant from performing his
or her duties and responsibilities as they existed on the first day
of the Change Year, (v) the Company (or, if applicable, a
Subsidiary) requiring such Participant to be permanently based
anywhere outside a major urban center in the state (or, if
applicable, foreign country, U.S. territory or other applicable
sovereign entity) in which he or she was based as of the first day
of the Change Year, or (vi) the taking of any action by the Company
(or, if applicable, a Subsidiary) that would materially adversely
affect the corporate amenities enjoyed by such Participant on the
first day of the Change Year, except in each case if such
Participant's employment with the Company is terminated (1) for
Cause, (2) upon such Participant's death or Disability, or (3) upon
the voluntary resignation of such Participant (other than in
connection with circumstances which would permit such Participant
to receive severance benefits (including a "Termination Payment" or
"Monthly Severance Amount," as such terms are defined in such
Participant's employment agreement) pursuant to any contract of
employment between such Participant and the Company or any
Subsidiary).
(ee) "Stock Options" means options to acquire shares of
Company Stock, awarded under a stock incentive plan established and
maintained by the Company. Stock Options shall not constitute
incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended. Each Stock Option shall
(i) have a purchase price per share equal to the fair market value
(determined under the stock incentive plan under which such Stock
Option is granted) of a share of Company Stock as of the date of
grant of such Stock Option (which shall be the date of the
Cancellation Notice described in Section 6.6), (ii) become
exercisable on each anniversary of the date of grant thereof (until
such Stock Option is exercisable in full), in an amount equal to
that percentage of the shares covered thereby as is equal to (A)
100% divided by (B) the number of full years (rounded up to the
next highest number of full years, and in no event less than one
year) between the date of grant of such Stock Option and the last
day of the Performance Period for the Award (or portion thereof)
which has been cancelled and replaced by the Stock Option, (iii)
have a term of at least five years from the date of grant, and
(iv) except as described in clauses (ii) and (iii) above, have the
same terms as other non-qualified stock options granted by the
Company to employees under the relevant stock incentive plan
established and maintained by the Company.
(ff) "Subsidiary" means any entity (other than the Company)
with respect to which the Company, directly or indirectly through
one or more other entities, owns equity interests possessing 50
percent or more of the total combined voting power of all equity
interests of such entity (excluding voting power that arises only
upon the occurrence of one or more specified events).
(gg) "Trading Day" means a day during which trading in
securities generally occurs in the principal securities market in
which Company Stock is traded.
2.2 Number, Gender, Headings, and Periods of Time.
Wherever appropriate herein, words used in the singular shall be
considered to include the plural, and words used in the plural
shall be considered to include the singular. The masculine gender,
where appearing in the Program, shall be deemed to include the
feminine gender. The headings of Articles, Sections, and
Paragraphs herein are included solely for convenience. If there is
any conflict between such headings and the text of the Program, the
text shall control. All references to Articles, Sections, and
Paragraphs are to this Program unless otherwise indicated. Any
reference in the Program to a period or number of days, weeks,
months, or years shall mean, respectively, calendar days, calendar
weeks, calendar months, or calendar years unless expressly provided
otherwise.
III. ADMINISTRATION
3.1 Administration by the Administrator. The Program shall
be administered by the Administrator, so that (i) Awards made to,
and the administration (or interpretation of any provision) of the
Plan as it relates to, any person who is subject to Section 16,
shall be made or effected by the Committee, and (ii) Awards made
to, and the administration (or interpretation of any provision) of
the Program as it relates to, any person who is not subject to
Section 16, shall be made or effected by the Chief Executive
Officer of the Company (or, if the Chief Executive Officer is not
a director of the Company, the Committee), unless the Program
specifies that the Committee shall take specific action (in which
case such action may only be taken by the Committee) or the
Committee (as to any Award described in this clause (ii) or the
administration or interpretation of any specific provision of the
Program) specifies that it shall serve as Administrator. The action
of a majority of the members of the Committee will be the act of
the Committee.
3.2 Powers of the Administrator. The Administrator shall
supervise the administration and enforcement of the Program
according to the terms and provisions hereof and shall have the
sole discretionary authority and all of the powers necessary to
accomplish these purposes. The Administrator (which shall be
limited solely to the Committee with respect to clauses (e), (f),
(g), (h), (i) and (j) below) shall have all of the powers specified
for it under the Program, including, without limitation, the power,
right, or authority: (a) to designate an Eligible Employee as a
Participant with respect to a Performance Period at any time prior
to the last day of such period, (b) from time to time to establish
rules and procedures for the administration of the Program, which
are not inconsistent with the provisions of the Program or the
Incentive Plan 2000, and any such rules and procedures shall be
effective as if included in the Program, (c) to construe in its
discretion all terms, provisions, conditions, and limitations of
the Program and any Award, (d) to correct any defect or to supply
any omission or to reconcile any inconsistency that may appear in
the Program in such manner and to such extent as the Administrator
shall deem appropriate, (e) to designate the companies that will
comprise the Industry Group with respect to each Performance Period
that begins after January 1, 2000, as described in Article V, (f)
to make determinations as to EBITDAR and EBITDAR Margin with
respect to each company in the Industry Group for each Performance
Period, (g) to make determinations as to the Operating Income
Hurdle for each Performance Period, (h) to make determinations as
to whether the Performance Targets for the various Performance
Periods were satisfied, (i) to certify in writing, prior to the
payment of any amount under the Program with respect to a
Performance Period, whether the Performance Target relating to such
Performance Period and any other material terms of the Program have
in fact been satisfied, (j) to determine whether to cancel and
replace Awards, and make all related determinations and valuations,
under Section 6.6, and (k) to make all other determinations
necessary or advisable for the administration of the Program. The
Administrator may correct any defect or supply any omission or
reconcile any inconsistency in the Program or in any Award or Award
Notice in the manner and to the extent it shall deem expedient to
carry it into effect.
3.3 Administrator Decisions Conclusive; Standard of Care.
The Administrator shall, in its sole discretion exercised in good
faith (which, for purposes of this Section 3.3, shall mean the
application of reasonable business judgment), make all decisions
and determinations and take all actions necessary in connection
with the administration of the Program. All such decisions,
determinations, and actions by the Administrator shall be final,
binding, and conclusive upon all persons. However, in the event of
any conflict in any such determination as between the Committee and
the Chief Executive Officer of the Company, each acting in capacity
as Administrator of the Plan, the determination of the Committee
shall be conclusive. The Administrator shall not be liable for any
action or determination taken or made in good faith or upon
reliance in good faith on the records of the Company or information
presented to the Administrator by the Company's officers,
employees, or other persons (including the Company's outside
auditors) as to matters the Administrator reasonably believes are
within such other person's professional or expert competence. If a
Participant disagrees with any decision, determination, or action
made or taken by the Administrator, then the dispute will be
limited to whether the Administrator has satisfied its duty to make
such decision or determination or take such action in good faith.
No liability whatsoever shall attach to or be incurred by any past,
present or future stockholders, officers or directors, as such, of
the Company or any of its Subsidiaries, under or by reason of the
Program or the administration thereof, and each Participant, in
consideration of receiving benefits and participating hereunder,
expressly waives and releases any and all claims relating to any
such liability.
IV. PARTICIPATION AND AWARD NOTICES
4.1 Participation. Each individual who is an Eligible
Employee on the first day of a Performance Period shall
automatically be a Participant and receive an Award with respect to
such Performance Period, unless otherwise determined by the
Administrator prior to the first day of the relevant Performance
Period. Each individual who becomes an Eligible Employee after the
first day of a Performance Period shall become a Participant and
receive an Award with respect to such Performance Period only if
such individual is selected prior to the last day of such
Performance Period by the Administrator in its sole discretion for
participation in the Program with respect to such Performance
Period.
4.2 Award Notices. The Company shall provide an Award
Notice to each Eligible Employee who becomes a Participant with
respect to a Performance Period within 30 days after such Eligible
Employee becomes such a Participant; provided, however, that Award
Notices for the Performance Periods that begin on the Effective
Date shall be provided on or before March 31, 2000. Each Award
Notice shall specify (a) the Performance Period to which the Award
relates and (b) the potential Payout Percentages applicable to such
Award based on the Participant's position as of the date of
issuance of the Award Notice.
V. INDUSTRY GROUP
5.1 Initial Designation. The Industry Group shall consist
of the Company, AMR Corporation, Delta Air Lines, Inc., Northwest
Airlines Corporation, Trans World Airlines, Inc., UAL Corporation,
and US Airways Group, Inc.; provided, however, that (a) within 90
days after the first day of each Performance Period that begins
after January 1, 2000, the Committee may in its discretion add any
United States certificated scheduled mainline air carrier to, or
remove any such company (other than the Company) from, the Industry
Group for such Performance Period and (b) the Industry Group for
each Performance Period shall be subject to adjustment as provided
in Section 5.2.
5.2 Adjustments to the Industry Group During a Performance
Period. Except as provided in clause (a) of the proviso to Section
5.1, no company shall be added to, or removed from, the Industry
Group for a Performance Period during such period; provided,
however, that a company (other than the Company) shall be removed
from the Industry Group for a Performance Period if (a) during such
period, (i) such company ceases to maintain publicly available
statements of operations prepared in accordance with GAAP, (ii)
such company is not the surviving entity in any merger,
consolidation, or other reorganization (or survives only as a
subsidiary of an entity other than a previously wholly owned
subsidiary of such company), (iii) such company sells, leases, or
exchanges all or substantially all of its assets to any other
person or entity (other than a previously wholly owned subsidiary
of such company), or (iv) such company is dissolved and liquidated,
or (b) more than 20% of such company's revenues (determined on a
consolidated basis based on the regularly prepared and publicly
available statements of operations of such company prepared in
accordance with GAAP) for any fiscal year of such company that ends
during such Performance Period are attributable to the operation of
businesses other than such company's airline business and such
company does not provide publicly available statements of
operations with respect to its airline business that are separate
from the statements of operations provided with respect to its
other businesses.
VI. AWARD PAYMENTS
6.1 Determinations and Certification by the Committee. As
soon as administratively feasible after the end of each Performance
Period, the Committee shall determine (a) with respect to each
company comprising the Industry Group as of the last day of such
Performance Period, the EBITDAR and EBITDAR Margin for such company
for such Performance Period, (b) whether the Performance Target for
such Performance Period and whether any other material terms
relating to the payment of an Award have been satisfied, and (c) if
the Performance Target for such Performance Period and any other
material terms relating to the payment of an Award have been
satisfied, whether the Company achieved a Number 1 Ranking, a
Number 2 Ranking, or a Number 3 Ranking for such Performance
Period. The Committee's determination as to whether the
Performance Target for a Performance Period and any other material
terms relating to the payment of an Award have been satisfied and,
if so, whether the Company achieved a Number 1 Ranking, a Number 2
Ranking, or a Number 3 Ranking for such Performance Period shall be
certified by the Committee in writing and delivered to the
Secretary of the Company. For purposes of the preceding sentence,
approved minutes of the Committee meeting in which the
certification is made shall be treated as a written certification.
6.2 Eligibility for Payment of Awards. Upon the
Committee's written certification in accordance with Section 6.1
that a Performance Target for a Performance Period and any other
material terms relating to the payment of an Award have been
satisfied, each Participant who has received an Award with respect
to such Performance Period and who has remained continuously
employed by the Company from the date he or she received such Award
until the last day of such Performance Period shall be entitled to
the Payment Amount applicable to such Participant's Award for such
Performance Period. Except as provided in Section 6.3 and Section
6.4, if a Participant's employment with the Company terminates for
any reason whatsoever prior to the last day of a Performance
Period, then such Participant shall not be entitled to receive any
payment under the Program with respect to his or her Award for such
Performance Period, unless otherwise determined by the
Administrator. Payment of the amount to which a Participant
becomes entitled pursuant to this Section 6.2 shall be made by the
Company within five business days after the Committee's written
certification of the satisfaction of the applicable Performance
Target.
6.3 Death or Disability. Except as provided in Section
6.4, if during a Performance Period with respect to which a
Participant has received an Award, such Participant dies or becomes
Disabled, then as to such Participant only (a) the Administrator,
based on publicly available data with respect to each Performance
Period that began prior to the date of such Participant's death or
Disability and which has not ended as of such date, shall as
promptly as practicable determine the actual EBITDAR Margin and
operating income performance of the Company and its consolidated
subsidiaries through the most recent practicable date, and shall
determine, based on such data and publicly available data with
respect to the companies contained in the Industry Group (and, if
deemed appropriate by the Administrator, annualizing or otherwise
making assumptions with respect to any relevant data), whether the
Company has achieved the Performance Target through such most
recent practicable date, and if so whether the Company has achieved
a Number 1 Ranking, Number 2 Ranking or Number 3 Ranking through
such most recent practicable date, and (b) the provisions of
Sections 6.1 and 6.2 shall cease to apply with respect to each such
Performance Period. With respect to each such Performance Period
that the Performance Target has been satisfied in the manner
described in clause (a) of the preceding sentence, such Participant
(or, in the case of death, such Participant's estate) shall (i)
receive a payment from the Company, within five business days after
the determination by the Administrator referred to in clause (a) of
the foregoing sentence, equal to the Payment Amount applicable to
such Participant's Award for such Performance Period multiplied by
a fraction, the numerator of which is the number of days during the
period beginning on the first day of such Performance Period and
ending on the date such Participant died or became Disabled, and
the denominator of which is the number of days in the entire
Performance Period, and (ii) not be entitled to any additional
payment under the Program with respect to such Performance Period.
6.4 Change in Control. Upon the occurrence of a Change in
Control, (a) the Performance Target for each Performance Period
that began prior to the date of such Change in Control and which
has not ended as of such date shall be deemed to have been
satisfied, (b) the Company shall be deemed to have achieved a
Number 1 Ranking for each such Performance Period, and (c) the
provisions of Sections 6.1, 6.2 and 6.3 shall cease to apply with
respect to each such Performance Period. If a Change in Control
occurs and thereafter (or in connection therewith or in
contemplation thereof) during a Performance Period described in the
preceding sentence a Participant who has received an Award with
respect to such Performance Period dies, becomes Disabled or
suffers a Qualifying Event, then, with respect to each such
Performance Period, such Participant (or, in the case of death,
such Participant's estate) shall (i) upon the occurrence of the
death, Disability or Qualifying Event, receive a payment from the
Company equal to the Payment Amount applicable to such
Participant's Award for such Performance Period multiplied by a
fraction, the numerator of which is the number of days during the
period beginning on the first day of such Performance Period and
ending on the date such Participant died, became Disabled or
suffered the Qualifying Event, and the denominator of which is the
number of days in the entire Performance Period, and (ii) not be
entitled to any additional payment under the Program with respect
to such Performance Period. If a Change in Control occurs and a
Participant who has received an Award with respect to a Performance
Period described in the first sentence of this Section 6.4 did not
die, become Disabled or suffer a Qualifying Event during such
Performance Period as described in the preceding sentence and such
Participant remained continuously employed by the Company from the
date he or she received such Award until the last day of such
Performance Period, then, with respect to each such Performance
Period, such Participant shall receive a payment from the Company
on the last day of such Performance Period in an amount equal to
the Payment Amount applicable to such Participant's Award for such
Performance Period.
6.5 Form of Payment of Awards. All payments to be made
under the Program to a Participant with respect to an Award shall
be paid in a single lump sum payment (unless otherwise specified in
an Award Notice), which payment shall be in cash, unless in the
sole discretion of the Committee such payment is made either (a) in
shares of Company Stock (subject to any limitations contained in
the Incentive Plan 2000), but if and only if at the time of payment
the Company has an effective registration statement under the
Securities Act of 1933, as amended, covering the issuance of
Company Stock under the Program, or (b) in a combination of cash
and/or shares of Company Stock. If the Committee elects to direct
the Company to pay all or a portion of a payment due under the
Program in shares of Company Stock, then the number of shares of
Company Stock shall be determined by dividing the amount of such
payment to be paid in shares of Company Stock by the Market Value
per Share on the Trading Day immediately preceding the date of such
payment, and rounding such number down to the nearest whole share.
6.6 Cancellation and Replacement of Awards by the
Committee. The Committee may at any time prior to the last day of
a Performance Period (other than after, or in contemplation of, a
Change in Control, or as to any Award, after the death or
Disability of the Participant), in its sole discretion, with or
without cause, for any reason that in the opinion of the Committee
is in the best interests of the Company, direct the Company to
cancel all or any portion of a Participant's Award for such
Performance Period, and simultaneously replace such Award (or
portion thereof) so cancelled with Stock Options. In determining
whether the decision to cancel all or a portion of a Participant's
Award is in the best interests of the Company, the Committee shall
make its determination in good faith (which, for this purpose,
shall mean that the Committee shall exercise reasonable business
judgment). This contractual duty to make such decision in good
faith is in lieu of, and subsumes, any and all other express or
implied duties, in contract, tort, or otherwise, that might
otherwise be imposed upon the Committee or the Company with respect
to such decision. A decision by the Committee to cause such a
cancellation may vary among Participants and may vary among the
Awards held by an individual Participant. To effect such a
cancellation, the Committee shall cause the Company to deliver to
the Participant a written notice (the "Cancellation Notice")
specifying the Participant's Award (or portion thereof) to be
cancelled, accompanied by a grant document for the Stock Options
replacing the cancelled Award (or portion thereof). Upon delivery
of the Cancellation Notice accompanied by such grant document for
the Stock Options replacing the cancelled Award (or portion
thereof), the Award (or portion thereof) that is to be cancelled as
specified in such notice shall be canceled. Any portion of such
Award not so cancelled shall remain outstanding. The Stock Options
to be granted to a Participant upon cancellation of all or any
portion of such Participant's Award shall have a Black-Scholes
value (determined by the Committee in good faith and using
assumptions consistent with those used by the Company in
calculating Black-Scholes values for proxy statement purposes) at
least as great as the value of the Award (or portion thereof) being
cancelled, with the value of an Award (or portion thereof) being
cancelled to be equal to the payment a Participant who satisfied
all conditions to payment would have received with respect thereto
(based on the Participant's position and Base Amount in effect on
the date of cancellation of such Participant's Award) if the
Company had satisfied the Performance Target and achieved a Number
2 Ranking during the relevant Performance Period.
VII. STOCKHOLDER APPROVAL, TERMINATION,
AND AMENDMENT OF PROGRAM
7.1 Stockholder Approval. The Program shall be effective
as of the Effective Date; provided that the Incentive Plan 2000 is
approved by the Company's stockholders in the manner required under
section 162(m) of the Code at the Company's 2000 annual meeting of
stockholders. Notwithstanding any provision herein to the contrary,
no payment under the Program shall be made to or on behalf of any
Participant unless the Incentive Plan 2000 is so approved by the
Company's stockholders. If the Company's stockholders do not so
approve the Incentive Plan 2000, then (a) all Awards under the
Program shall be void ab initio and of no further effect and (b)
the Program shall terminate.
7.2 Termination and Amendment. The Committee may amend
the Program at any time and from time to time, and the Committee
may at any time terminate the Program (in its entirety or as it
applies to one or more specified Subsidiaries) with respect to
Performance Periods that have not commenced as of the date of such
Committee action; provided, however, that the Program may not be
amended in a manner that would impair the rights of any Participant
with respect to any outstanding Award without the consent of such
Participant, or without the further approval of the stockholders of
the Company if such amendment would result in the Program no longer
satisfying the requirements of section 162(m) of the Code, and this
Program may not be amended or terminated in contemplation of or in
connection with a Change in Control, nor may any Participant's
participation herein be terminated in contemplation of or in
connection with a Change in Control, unless adequate and effective
provision for the making of all payments otherwise payable (based
on Participants' Base Amounts as in effect immediately prior to
such Change in Control) pursuant to Section 6.4 of this Program (as
in effect on the date of stockholder approval described in Section
7.1) with respect to such Change in Control shall be made in
connection with any such amendment or termination. The Committee
shall remain in existence after the termination of the Program for
the period determined necessary by the Committee to facilitate the
termination of the Program, and all provisions of the Program that
are necessary, in the opinion of the Committee, for equitable
operation of the Program during such period shall remain in force.
VIII. MISCELLANEOUS PROVISIONS
8.1 No Effect on Employment Relationship. For all purposes
of the Program, a Participant shall be considered to be in the
employment of the Company as long as he or she remains employed on
a full-time basis by the Company or any Subsidiary. Nothing in the
adoption of the Program, the grant of Awards, or the payment of
amounts under the Program shall confer on any person the right to
continued employment by the Company or any Subsidiary or affect in
any way the right of the Company (or a Subsidiary, if applicable)
to terminate such employment at any time. Unless otherwise provided
in a written employment agreement, the employment of each
Participant shall be on an at-will basis, and the employment
relationship may be terminated at any time by either the
Participant or the Participant's employer for any reason
whatsoever, with or without cause. Any question as to whether and
when there has been a termination of a Participant's employment for
purposes of the Program, and the reason for such termination, shall
be determined solely by and in the discretion of the Administrator,
and its determination shall be final, binding, and conclusive on
all parties.
8.2 Prohibition Against Assignment or Encumbrance. No
Award or other right, title, interest, or benefit hereunder shall
ever be assignable or transferable, or liable for, or charged with
any of the torts or obligations of a Participant or any person
claiming under a Participant, or be subject to seizure by any
creditor of a Participant or any person claiming under a
Participant. No Participant or any person claiming under a
Participant shall have the power to anticipate or dispose of any
Award or other right, title, interest, or benefit hereunder in any
manner until the same shall have actually been distributed free and
clear of the terms of the Program. Payments with respect to an
Award shall be payable only to the Participant (or (a) in the event
of a Disability that renders such Participant incapable of
conducting his or her own affairs, any payment due under the
Program to such Participant shall be made to his or her duly
appointed legal representative and (b) in the event of the death of
a Participant, any payment due under the Program to such
Participant shall be made to his or her estate). The provisions of
the Program shall be binding on all successors and permitted
assigns of a Participant, including without limitation the estate
of such Participant and the executor, administrator or trustee of
such estate, or any receiver or trustee in bankruptcy or
representative of the Participant's creditors.
8.3 Unfunded, Unsecured Program. The Program shall
constitute an unfunded, unsecured obligation of the Company to make
payments of incentive compensation to certain individuals from its
general assets in accordance with the Program. Each Award granted
under the Program merely constitutes a mechanism for measuring such
incentive compensation and does not constitute a property right or
interest in the Company, any Subsidiary, or any of their assets.
Neither the establishment of the Program, the granting of Awards,
nor any other action taken in connection with the Program shall be
deemed to create an escrow or trust fund of any kind.
8.4 No Rights of Participant. No Participant shall have
any security or other interest in any assets of the Company or any
Subsidiary or in Company Stock as a result of participation in the
Program. Participants and all persons claiming under Participants
shall rely solely on the unsecured promise of the Company set forth
herein, and nothing in the Program, an Award or an Award Notice
shall be construed to give a Participant or anyone claiming under
a Participant any right, title, interest, or claim in or to any
specific asset, fund, entity, reserve, account, or property of any
kind whatsoever owned by the Company or any Subsidiary or in which
the Company or any Subsidiary may have an interest now or in the
future; but each Participant shall have the right to enforce any
claim hereunder in the same manner as a general creditor. Neither
the establishment of the Program nor participation hereunder shall
create any right in any Participant to make any decision, or
provide input with respect to any decision, relating to the
business of the Company or any Subsidiary.
8.5 Tax Withholding. The Company and the Subsidiaries
shall deduct and withhold, or cause to be withheld, from a
Participant's payment, including the delivery of shares, made under
the Program, or from any other payment to such Participant, an
amount necessary to satisfy any and all tax withholding obligations
arising under applicable local, state, federal, or foreign laws
associated with such payment. The Company and the Subsidiaries may
take any other action as may in their opinion be necessary to
satisfy all obligations for the payment and withholding of such
taxes.
8.6 No Effect on Other Compensation Arrangements. Nothing
contained in the Program or any Participant's Award or Award Notice
shall prevent the Company or any Subsidiary from adopting or
continuing in effect other or additional compensation arrangements
affecting any Participant. Nothing in the Program shall be
construed to affect the provisions of any other compensation plan
or program maintained by the Company or any Subsidiary.
8.7 Subsidiaries.The Company may require any Subsidiary
employing a Participant to assume and guarantee the Company's
obligations hereunder to such Participant, either at all times or
solely in the event that such Subsidiary ceases to be a Subsidiary.
8.8 Governing Law. The Program shall be construed in
accordance with the laws of the State of Texas.
IN WITNESS WHEREOF, the undersigned officer of the Company
acting pursuant to authority granted to him by the Committee has
executed this instrument on this 14th day of October, 1999,
effective as of January 1, 2000.
CONTINENTAL AIRLINES, INC.
By: _____________________
Jeffery A. Smisek
Executive Vice President
EXHIBIT 10.25(n)
Supplemental Agreement No. 13
to
Purchase Agreement No. 1951
between
The Boeing Company
and
Continental Airlines, Inc.
Relating to Boeing Model 737 Aircraft
THIS SUPPLEMENTAL AGREEMENT, entered into as of
October 13, 1999, by and between THE BOEING COMPANY, a Delaware
corporation with its principal office in Seattle, Washington,
(Boeing) and CONTINENTAL AIRLINES, INC., a Delaware corporation
with its principal office in Houston, Texas (Buyer);
WHEREAS, the parties hereto entered into Purchase Agreement
No. 1951 dated July 23, 1996 (the Agreement), as amended and
supplemented, relating to Boeing Model 737-500, 737-600, 737-700,
737-800, and 737-900 aircraft (the Aircraft); and
WHEREAS, Buyer has requested to [CONFIDENTIAL MATERIAL OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]; and
WHEREAS, Buyer has requested to [CONFIDENTIAL MATERIAL OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]; and
WHEREAS, Buyer has requested to [CONFIDENTIAL MATERIAL OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]; and
WHEREAS, Buyer has requested to exercise [CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT]; and
WHEREAS, Buyer has requested to exercise [CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT]; and
WHEREAS, Boeing and Buyer have mutually agreed that the
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]; and
WHEREAS, Boeing and Buyer have mutually agreed that the
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]; and
WHEREAS, Boeing and Buyer have mutually agreed to amend the
Agreement to incorporate the effect of these and certain other
changes;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties agree to amend the Agreement as follows:
1. Table of Contents and Articles:
1.1 Remove and replace, in its entirety, the "Table of
Contents", with the Table of Contents attached hereto, to reflect
the changes made by this Supplemental Agreement No. 13.
1.2 Remove and replace, in its entirely, page T-2 of Table
1 entitled "Aircraft Deliveries and Descriptions" that relates to
Model 737-700 Aircraft with new page T-2 attached hereto for the
Model 737-700 Aircraft reflecting the [CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT].
1.3 Remove and replace, in its entirely, page T-3 of Table
1 entitled "Aircraft Deliveries and Descriptions" that relates to
Model 737-800 Aircraft with new page T-3 attached hereto for the
Model 737-800 Aircraft reflecting the [CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT].
2. Letter Agreements:
Remove and replace, in its entirety, Letter Agreement 1951-
9R5, "Option Aircraft - Model 737-724 Aircraft" with Letter
Agreement 1951-9R6, "Option Aircraft - Model 737-724 Aircraft",
attached hereto, to reflect the exercise of the [CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT] Option Aircraft.
The Agreement will be deemed to be supplemented to the extent
herein provided as of the date hereof and as so supplemented will
continue in full force and effect.
EXECUTED IN DUPLICATE as of the day and year first written above.
THE BOEING COMPANY CONTINENTAL AIRLINES, INC.
By: /s/ D. M. Hurt By: /s/ Brian Davis
Its: Attorney-In-Fact Its: Vice President
<PAGE>
TABLE OF CONTENTS
Page SA
Number Number
ARTICLES
1. Subject Matter of Sale. . . . . . . . 1-1 SA 5
2. Delivery, Title and Risk
of Loss . . . . . . . . . . . . . . . 2-1
3. Price of Aircraft . . . . . . . . . . 3-1 SA 5
4. Taxes . . . . . . . . . . . . . . . . 4-1
5. Payment . . . . . . . . . . . . . . . 5-1
6. Excusable Delay . . . . . . . . . . . 6-1
7. Changes to the Detail
Specification . . . . . . . . . . . . 7-1 SA 5
8. Federal Aviation Requirements and
Certificates and Export License . . . 8-1 SA 5
9. Representatives, Inspection,
Flights and Test Data . . . . . . . . 9-1
10. Assignment, Resale or Lease . . . . . 10-1
11. Termination for Certain Events. . . . 11-1
12. Product Assurance; Disclaimer and
Release; Exclusion of Liabilities;
Customer Support; Indemnification
and Insurance . . . . . . . . . . . . 12-1
13. Buyer Furnished Equipment and
Spare Parts . . . . . . . . . . . . . 13-1
14. Contractual Notices and Requests. . . 14-1
15. Miscellaneous . . . . . . . . . . . . 15-1
<PAGE>
TABLE OF CONTENTS
Page SA
Number Number
TABLES
1. Aircraft Deliveries and
Descriptions - 737-500. . . . . . . . T-1 SA 3
Aircraft Deliveries and
Descriptions - 737-700. . . . . . . . T-2 SA 13
Aircraft Deliveries and
Descriptions - 737-800. . . . . . . . T-3 SA 13
Aircraft Deliveries and
Descriptions - 737-600. . . . . . . . T-4 SA 4
Aircraft Deliveries and
Descriptions - 737-900. . . . . . . . T-5 SA 5
EXHIBITS
A-1 Aircraft Configuration - Model 737-724 SA 2
A-2 Aircraft Configuration - Model 737-824 SA 2
A-3 Aircraft Configuration - Model 737-624 SA 1
A-4 Aircraft Configuration - Model 737-524 SA 3
A-5 Aircraft Configuration - Model 737-924 SA 5
B Product Assurance Document. . . . . . SA 1
C Customer Support Document - Code Two -
Major Model Differences . . . . . . . SA 1
C1 Customer Support Document - Code Three -
Minor Model Differences . . . . . . . SA 1
D Aircraft Price Adjustments - New
Generation Aircraft (1995 Base Price) SA 1
D1 Airframe and Engine Price Adjustments -
Current
Generation Aircraft . . . . . . . . . SA 1
D2 Aircraft Price Adjustments - New
Generation Aircraft (1997 Base Price) SA 5
E Buyer Furnished Equipment
Provisions Document . . . . . . . . . SA 5
F Defined Terms Document. . . . . . . . SA 5
<PAGE>
TABLE OF CONTENTS
SA
Number
LETTER AGREEMENTS
1951-1 Not Used. . . . . . . . . . . . . . . . .
1951-2R3 Seller Purchased Equipment. . . . . . . . SA 5
1951-3R7 Option Aircraft-Model 737-824 Aircraft. . SA 11
1951-4R1 Waiver of Aircraft Demonstration. . . . . SA 1
1951-5R2 Promotional Support - New Generation. . . SA 5
Aircraft
1951-6 Configuration Matters . . . . . . . . . .
1951-7R1 Spares Initial Provisioning . . . . . . . SA 1
1951-8R2 Escalation Sharing - New Generation
Aircraft. . . . . . . . . . . . . . . . . SA 4
1951-9R6 Option Aircraft-Model 737-724 Aircraft. . SA 13
1951-11R1 Escalation Sharing-Current Generation
Aircraft. . . . . . . . . . . . . . . . . SA 4
1951-12 Option Aircraft - Model 737-924 Aircraft. SA 5
1951-13 Configuration Matters - Model 737-924 . . SA 5
<PAGE>
TABLE OF CONTENTS
SA
Number
RESTRICTED LETTER AGREEMENTS
6-1162-MMF-295 Performance Guarantees - Model
737-724 Aircraft. . . . . . . . . .
6-1162-MMF-296 Performance Guarantees - Model
737-824 Aircraft. . . . . . . . . .
6-1162-MMF-308R3 Disclosure of Confidential . . . . SA 5
Information
6-1162-MMF-309R1 [CONFIDENTIAL MATERIAL OMITTED AND. SA 1
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT]
6-1162-MMF-311R3 [CONFIDENTIAL MATERIAL OMITTED AND. SA 5
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT]
6-1162-MMF-312R1 Special Purchase Agreement
Provisions. . . . . . . . . . . . . SA 1
6-1162-MMF-319 Special Provisions Relating to
the Rescheduled Aircraft. . . . . .
6-1162-MMF-378R1 Performance Guarantees - Model
737-524 Aircraft. . . . . . . . . . SA 3
6-1162-GOC-015 [CONFIDENTIAL MATERIAL OMITTED AND. SA 2
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT]
6-1162-GOC-131R2 Special Matters . . . . . . . . . . SA 5
6-1162-DMH-365 Performance Guarantees - Model
737-924 Aircraft. . . . . . . . . . SA 5
6-1162-DMH-624 [CONFIDENTIAL MATERIAL OMITTED AND. SA 8
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT]
6-1162-DMH-680 Delivery Delay Resolution Program . SA 9
<PAGE>
TABLE OF CONTENTS
SUPPLEMENTAL AGREEMENTS DATED AS OF:
Supplemental Agreement No. 1 . . . . . . . . . . October 10, 1996
Supplemental Agreement No. 2 . . . . . . . . . . March 5, 1997
Supplemental Agreement No. 3 . . . . . . . . . . July 17, 1997
Supplemental Agreement No. 4 . . . . . . . . . . October 10,1997
Supplemental Agreement No. 5 . . . . . . . . . . May 21,1998
Supplemental Agreement No. 6 . . . . . . . . . . July 30,1998
Supplemental Agreement No. 7 . . . . . . . . . . November 12,1998
Supplemental Agreement No. 8 . . . . . . . . . . December 7,1998
Supplemental Agreement No. 9 . . . . . . . . . . February 18,1999
Supplemental Agreement No. 10. . . . . . . . . . March 19,1999
Supplemental Agreement No. 11. . . . . . . . . . May 14,1999
Supplemental Agreement No. 12. . . . . . . . . . July 2,1999
Supplemental Agreement No. 13. . . . . . . . . . October 13, 1999
<PAGE>
Table 1 to
Purchase Agreement 1951
Aircraft Deliveries and Descriptions
Model 737-700 Aircraft
CFM56-7B24 Engines
Detail Specification No. D6-38808-42 dated January 6, 1997
Exhibit A-1
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL INFORMATION]
<PAGE>
Table 1 to
Purchase Agreement 1951
Aircraft Deliveries and Descriptions
Model 737-700 Aircraft
CFM56-7B24 Engines
Detail Specification No. D6-38808-42 dated January 6, 1997
Exhibit A-2
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL INFORMATION]
<PAGE>
1951-9R6
October 13, 1999
Continental Airlines, Inc.
1600 Smith Street
Houston, Texas 77002
Subject: Letter Agreement No. 1951-9R6 to
Purchase Agreement No. 1951 - Option Aircraft -
Model 737-724 Aircraft
Ladies and Gentlemen:
This Letter Agreement amends Purchase Agreement No. 1951 dated July
23, 1996(the Agreement) between The Boeing Company (Boeing) and
Continental Airlines, Inc. (Buyer) relating to Model 737-724
aircraft (the Aircraft). This Letter Agreement supersedes and
replaces in its entirety Letter Agreement 1951-9R5 dated May 14,
1999.
All terms used and not defined herein shall have the same meaning
as in the Agreement.
In consideration of Buyer's purchase of the Aircraft, Boeing hereby
agrees to manufacture and sell up to - [CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]
additional Model 737-724 Aircraft (the Option Aircraft) to Buyer,
on the same terms and conditions set forth in the Agreement, except
as otherwise described in Attachment A hereto, and subject to the
terms and conditions set forth below.
1. Delivery.
The Option Aircraft will be delivered to Buyer during or
before the months set forth in the following schedule:
Month and Year Number of
of Delivery Option Aircraft
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
2. Price. [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT].
3. Option Aircraft Deposit.
In consideration of Boeing's grant to Buyer of options to
purchase the Option Aircraft as set forth herein, Buyer will pay a
deposit to Boeing of [CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT] for each Option Aircraft (the
Option Deposit) on the date of this Letter Agreement. In the event
Buyer exercises an option herein for an Option Aircraft, the amount
of the Option Deposit for such Option Aircraft will be credited
against the first advance payment due for such Option Aircraft
pursuant to the advance payment schedule set forth in Article 5 of
the Agreement.
In the event that Buyer does not exercise its option to purchase a
particular Option Aircraft pursuant to the terms and conditions set
forth herein, Boeing shall be entitled to retain the Option Deposit
for such Option Aircraft.
4. Option Exercise.
To exercise its option to purchase the Option Aircraft, Buyer
shall give written notice thereof to Boeing on or before the first
business day of the month in each Option Exercise Date shown below:
Option Aircraft Option Exercise Date
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
5. Contract Terms.
Within thirty (30) days after Buyer exercises an option to
purchase Option Aircraft pursuant to paragraph 4 above, Boeing and
Buyer will use their best reasonable efforts to enter into a
supplemental agreement amending the Agreement to add the applicable
Option Aircraft to the Agreement as a firm Aircraft (the Option
Aircraft Supplemental Agreement).
In the event the parties have not entered into such an Option
Aircraft Supplemental Agreement within the time period contemplated
herein, either party shall have the right, exercisable by written
or telegraphic notice given to the other within ten (10) days after
such period, to cancel the purchase of such Option Aircraft.
6. Cancellation of Option to Purchase.
Either Boeing or Buyer may cancel the option to purchase an
Option Aircraft if any of the following events are not accomplished
by the respective dates contemplated in this Letter Agreement, or
in the Agreement, as the case may be:
(i) purchase of the Aircraft under the Agreement for any
reason not attributable to the cancelling party;
(ii) payment by Buyer of the Option Deposit with respect
to such Option Aircraft pursuant to paragraph 3 herein; or
(iii) exercise of the option to purchase such Option
Aircraft pursuant to the terms hereof.
Any cancellation of an option to purchase by Boeing which is based
on the termination of the purchase of an Aircraft under the
Agreement shall be on a one-for-one basis, for each Aircraft so
terminated.
Cancellation of an option to purchase provided by this letter
agreement shall be caused by either party giving written notice to
the other within ten (10) days after the respective date in
question. Upon receipt of such notice, all rights and obligations
of the parties with respect to an Option Aircraft for which the
option to purchase has been cancelled shall thereupon terminate.
Boeing shall promptly refund to Buyer, without interest, any
payments received from Buyer with respect to the affected Option
Aircraft. Boeing shall be entitled to retain the Option Deposit
unless cancellation is attributable to Boeing's fault, in which
case the Option Deposit shall also be returned to Buyer without
interest.
7. Applicability.
Except as otherwise specifically provided, limited or
excluded herein, all Option Aircraft that are added to the
Agreement by an Option Aircraft Supplemental Agreement as firm
Aircraft shall benefit from all the applicable terms, conditions
and provisions of the Agreement.
<PAGE>
If the foregoing accurately reflects your understanding of the
matters treated herein, please so indicate by signature below.
Very truly yours,
THE BOEING COMPANY
By /s/ D. M. Hurt
Its Attorney-In-Fact
ACCEPTED AND AGREED TO this
Date: October 13, 1999
CONTINENTAL AIRLINES, INC.,
By /s/ Brian Davis
Its Vice President
Attachment
<PAGE>
Model 737-724 Aircraft
1. Option Aircraft Description and Changes.
1.1 Aircraft Description. The Option Aircraft are
described by Boeing Detail Specification D6-38808-42, dated as of
January 6, 1997, as amended and revised pursuant to the Agreement.
1.2 Changes. The Option Aircraft Detail Specification
shall be revised to include:
(1) Changes applicable to the basic Model 737-700
aircraft which are developed by Boeing between the date of the
Detail Specification and the signing of an Option Aircraft
Supplemental Agreement.
(2) Changes mutually agreed upon.
(3) Changes required to obtain a Standard
Certificate of Airworthiness.
1.3 Effect of Changes. Changes to the Detail
Specification pursuant to the provisions of the clauses above shall
include the effects of such changes upon Option Aircraft weight,
balance, design and performance.
2. Price Description.
2.1 Price Adjustments.
2.1.1 Base Price Adjustments. The base aircraft
price (pursuant to Article 3 of the Agreement) of the Option
Aircraft will be adjusted to Boeing's and the engine manufacturer's
then-current prices as of the date of execution of the Option
Aircraft Supplemental Agreement.
2.1.2 Special Features. The price for special
features incorporated in the Option Aircraft Detail Specification
will be adjusted to Boeing's then-current prices for such features
as of the date of execution of the Option Aircraft Supplemental
Agreement [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT].
2.1.3 Escalation Adjustments. The base airframe
and special features price will be escalated according to the
applicable airframe and engine manufacturer escalation provisions
contained in Exhibit D of the Agreement.
Buyer agrees that the engine escalation provisions will be adjusted
if they are changed by the engine manufacturer prior to signing the
Option Aircraft Supplemental Agreement. In such case, the then-
current engine escalation provisions in effect at the time of
execution of the Option Aircraft Supplemental Agreement will be
incorporated into such agreement.
2.1.4 Price Adjustments for Changes. Boeing may
adjust the basic price and the advance payment base prices for any
changes mutually agreed upon by Buyer and Boeing subsequent to the
date that Buyer and Boeing enter into the Option Aircraft
Supplemental Agreement.
2.1.5 BFE to SPE. An estimate of the total price
for items of Buyer Furnished Equipment (BFE) changed to Seller
Purchased Equipment (SPE) pursuant to the Detail Specification is
included in the Option Aircraft price build-up. The purchase price
of the Option Aircraft will be adjusted by the price charged to
Boeing for such items plus 10% of such price.
3. Advance Payments.
3.1 Buyer shall pay to Boeing advance payments for the
Option Aircraft pursuant to the schedule for payment of advance
payments provided in the Agreement.
EXHIBIT 10.25(o)
Supplemental Agreement No. 14
to
Purchase Agreement No. 1951
between
The Boeing Company
and
Continental Airlines, Inc.
Relating to Boeing Model 737 Aircraft
THIS SUPPLEMENTAL AGREEMENT, entered into as of
December 13, 1999, by and between THE BOEING COMPANY, a Delaware
corporation with its principal office in Seattle, Washington,
(Boeing) and CONTINENTAL AIRLINES, INC., a Delaware corporation
with its principal office in Houston, Texas (Buyer);
WHEREAS, the parties hereto entered into Purchase Agreement
No. 1951 dated July 23, 1996 (the Agreement), as amended and
supplemented, relating to Boeing Model 737-500, 737-600, 737-700,
737-800, and 737-900 aircraft (the Aircraft); and
WHEREAS, Buyer has requested to exercise [CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT]; and
WHEREAS, Boeing and Buyer have mutually agreed on a
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]; and
WHEREAS, Boeing and Buyer have mutually agreed that the
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]; and
WHEREAS, Boeing and Buyer have mutually agreed to amend the
Agreement to incorporate the effect of these and certain other
changes;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties agree to amend the Agreement as follows:
1. Table of Contents and Articles:
1.1 Remove and replace, in its entirety, the "Table of
Contents", with the Table of Contents attached hereto, to reflect
the changes made by this Supplemental Agreement No. 14.
1.3 Remove and replace, in its entirely, page T-3 of Table
1 entitled "Aircraft Deliveries and Descriptions" that relates to
Model 737-800 Aircraft with new page T-3 attached hereto for the
Model 737-800 Aircraft reflecting the [CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT].
2. Letter Agreements:
2.1 Remove and replace, in its entirety, Letter Agreement
1951-3R7, "Option Aircraft - Model 737-824 Aircraft" with Letter
Agreement 1951-3R8, "Option Aircraft - Model 737-824 Aircraft",
attached hereto, to reflect the exercise of the [CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT].
2.2 Add new Letter Agreement 6-1162-DMH-1020 [CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT].
The Agreement will be deemed to be supplemented to the extent
herein provided as of the date hereof and as so supplemented will
continue in full force and effect.
EXECUTED IN DUPLICATE as of the day and year first written above.
THE BOEING COMPANY CONTINENTAL AIRLINES, INC.
By: /s/ D. M. Hurt By: /s/ Brian Davis
Its: Attorney-In-Fact Its: Vice President
<PAGE>
TABLE OF CONTENTS
Page SA
Number Number
ARTICLES
1. Subject Matter of Sale . . . . . . . . . 1-1 SA 5
2. Delivery, Title and Risk
of Loss. . . . . . . . . . . . . . . . . 2-1
3. Price of Aircraft. . . . . . . . . . . . 3-1 SA 5
4. Taxes. . . . . . . . . . . . . . . . . . 4-1
5. Payment. . . . . . . . . . . . . . . . . 5-1
6. Excusable Delay. . . . . . . . . . . . . 6-1
7. Changes to the Detail
Specification. . . . . . . . . . . . . . 7-1 SA 5
8. Federal Aviation Requirements and
Certificates and Export License. . . . . 8-1 SA 5
9. Representatives, Inspection,
Flights and Test Data. . . . . . . . . . 9-1
10. Assignment, Resale or Lease. . . . . . . 10-1
11. Termination for Certain Events . . . . . 11-1
12. Product Assurance; Disclaimer and
Release; Exclusion of Liabilities;
Customer Support; Indemnification
and Insurance. . . . . . . . . . . . . . 12-1
13. Buyer Furnished Equipment and
Spare Parts. . . . . . . . . . . . . . . 13-1
14. Contractual Notices and Requests . . . . 14-1
15. Miscellaneous. . . . . . . . . . . . . . 15-1
<PAGE>
TABLE OF CONTENTS
Page SA
Number Number
TABLES
1. Aircraft Deliveries and
Descriptions - 737-500 . . . . . . . . . T-1 SA 3
Aircraft Deliveries and
Descriptions - 737-700 . . . . . . . . . T-2 SA 13
Aircraft Deliveries and
Descriptions - 737-800 . . . . . . . . . T-3 SA 14
Aircraft Deliveries and
Descriptions - 737-600 . . . . . . . . . T-4 SA 4
Aircraft Deliveries and
Descriptions - 737-900 . . . . . . . . . T-5 SA 5
EXHIBITS
A-1 Aircraft Configuration - Model 737-724 . SA 2
A-2 Aircraft Configuration - Model 737-824 . SA 2
A-3 Aircraft Configuration - Model 737-624 . SA 1
A-4 Aircraft Configuration - Model 737-524 . SA 3
A-5 Aircraft Configuration - Model 737-924 . SA 5
B Product Assurance Document . . . . . . . SA 1
C Customer Support Document - Code Two -
Major Model Differences. . . . . . . . . SA 1
C1 Customer Support Document - Code Three -
Minor Model Differences. . . . . . . . . SA 1
D Aircraft Price Adjustments - New
Generation Aircraft (1995 Base Price). . SA 1
D1 Airframe and Engine Price Adjustments -
Current
Generation Aircraft. . . . . . . . . . . SA 1
D2 Aircraft Price Adjustments - New
Generation Aircraft (1997 Base Price). . SA 5
E Buyer Furnished Equipment
Provisions Document. . . . . . . . . . . SA 5
F Defined Terms Document . . . . . . . . . SA 5
<PAGE>
TABLE OF CONTENTS
SA
Number
LETTER AGREEMENTS
1951-1 Not Used. . . . . . . . . . . . . . . . .
1951-2R3 Seller Purchased Equipment. . . . . . . . SA 5
1951-3R8 Option Aircraft-Model 737-824 Aircraft. . SA 14
1951-4R1 Waiver of Aircraft Demonstration. . . . . SA 1
1951-5R2 Promotional Support - New Generation. . . SA 5
Aircraft
1951-6 Configuration Matters . . . . . . . . . .
1951-7R1 Spares Initial Provisioning . . . . . . . SA 1
1951-8R2 Escalation Sharing - New Generation
Aircraft. . . . . . . . . . . . . . . . . SA 4
1951-9R6 Option Aircraft-Model 737-724 Aircraft. . SA 13
1951-11R1 Escalation Sharing-Current Generation
Aircraft. . . . . . . . . . . . . . . . . SA 4
1951-12 Option Aircraft - Model 737-924 Aircraft. SA 5
1951-13 Configuration Matters - Model 737-924 . . SA 5
<PAGE>
TABLE OF CONTENTS
SA
Number
RESTRICTED LETTER AGREEMENTS
6-1162-MMF-295 Performance Guarantees - Model
737-724 Aircraft . . . . . . . . .
6-1162-MMF-296 Performance Guarantees - Model
737-824 Aircraft . . . . . . . . .
6-1162-MMF-308R3 Disclosure of Confidential . . . . SA 5
Information
6-1162-MMF-309R1 [CONFIDENTIAL MATERIAL OMITTED AND SA 1
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT]
6-1162-MMF-311R3 [CONFIDENTIAL MATERIAL OMITTED AND SA 5
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT]
6-1162-MMF-312R1 Special Purchase Agreement
Provisions . . . . . . . . . . . . SA 1
6-1162-MMF-319 Special Provisions Relating to
the Rescheduled Aircraft . . . . .
6-1162-MMF-378R1 Performance Guarantees - Model
737-524 Aircraft . . . . . . . . . SA 3
6-1162-GOC-015 [CONFIDENTIAL MATERIAL OMITTED AND SA 2
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT]
6-1162-GOC-131R2 Special Matters. . . . . . . . . . SA 5
6-1162-DMH-365 Performance Guarantees - Model
737-924 Aircraft . . . . . . . . . SA 5
6-1162-DMH-624 [CONFIDENTIAL MATERIAL OMITTED AND SA 8
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT]
6-1162-DMH-680 Delivery Delay Resolution Program. SA 9
6-1162-DMH-1020 [CONFIDENTIAL MATERIAL OMITTED AND SA 14
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT]
<PAGE>
TABLE OF CONTENTS
SUPPLEMENTAL AGREEMENTS DATED AS OF:
Supplemental Agreement No. 1 . . . . . . . October 10,1996
Supplemental Agreement No. 2 . . . . . . . March 5, 1997
Supplemental Agreement No. 3 . . . . . . . July 17, 1997
Supplemental Agreement No. 4 . . . . . . . October 10,1997
Supplemental Agreement No. 5 . . . . . . . May 21,1998
Supplemental Agreement No. 6 . . . . . . . July 30,1998
Supplemental Agreement No. 7 . . . . . . . November 12,1998
Supplemental Agreement No. 8 . . . . . . . December 7,1998
Supplemental Agreement No. 9 . . . . . . . February 18,1999
Supplemental Agreement No. 10. . . . . . . March 19,1999
Supplemental Agreement No. 11. . . . . . . May 14,1999
Supplemental Agreement No. 12. . . . . . . July 2,1999
Supplemental Agreement No. 13. . . . . . . October 13,1999
Supplemental Agreement No. 14. . . . . . . December 13,1999
<PAGE>
Table 1 to
Purchase Agreement 1951
Aircraft Deliveries and Descriptions
Model 737-700 Aircraft
CFM56-7B24 Engines
Detail Specification No. D6-38808-42 dated January 6, 1997
Exhibit A-1
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
<PAGE>
Table 1 to
Purchase Agreement 1951
Aircraft Deliveries and Descriptions
Model 737-700 Aircraft
CFM56-7B24 Engines
Detail Specification No. D6-38808-42 dated January 6, 1997
Exhibit A-2
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
<PAGE>
1951-3R8
December 13, 1999
Continental Airlines, Inc.
1600 Smith Street
Houston, Texas 77002
Subject: Letter Agreement No. 1951-3R8 to
Purchase Agreement No. 1951 -
Option Aircraft - Model 737-824 Aircraft
Ladies and Gentlemen:
This Letter Agreement amends Purchase Agreement No. 1951 dated July
23, 1996(the Agreement) between The Boeing Company (Boeing) and
Continental Airlines, Inc. (Buyer) relating to Model 737-824
aircraft (the Aircraft). This Letter Agreement supersedes and
replaces in its entirety Letter Agreement 1951-3R7 dated May 14,
1999.
All terms used and not defined herein shall have the same meaning
as in the Agreement.
In consideration of Buyer's purchase of the Aircraft, Boeing hereby
agrees to manufacture and sell up to [CONFIDENTIAL MATERIAL OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] additional Model
737-824 Aircraft (the Option Aircraft) to Buyer, on the same terms
and conditions set forth in the Agreement, except as otherwise
described in Attachment A hereto, and subject to the terms and
conditions set forth below.
1. Delivery.
The Option Aircraft will be delivered to Buyer during or
before the months set forth in the following schedule:
<PAGE>
Month and Year Number of
of Delivery Option Aircraft
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
2. Price. [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT].
3. Option Aircraft Deposit.
In consideration of Boeing's grant to Buyer of options to
purchase the Option Aircraft as set forth herein, Buyer will pay a
deposit to Boeing of [CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT] for each Option Aircraft (the
Option Deposit) on the date of this Letter Agreement. In the event
Buyer exercises an option herein for an Option Aircraft, the amount
of the Option Deposit for such Option Aircraft will be credited
against the first advance payment due for such Option Aircraft
pursuant to the advance payment schedule set forth in Article 5 of
the Agreement.
In the event that Buyer does not exercise its option to purchase a
particular Option Aircraft pursuant to the terms and conditions set
forth herein, Boeing shall be entitled to retain the Option Deposit
for such Option Aircraft.
4. Option Exercise.
To exercise its option to purchase the Option Aircraft, Buyer
shall give written notice thereof to Boeing on or before the first
business day of the month in each Option Exercise Date shown below:
Option Aircraft Option Exercise Date
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
5. Contract Terms.
Within thirty (30) days after Buyer exercises an option to
purchase Option Aircraft pursuant to paragraph 4 above, Boeing and
Buyer will use their best reasonable efforts to enter into a
supplemental agreement amending the Agreement to add the applicable
Option Aircraft to the Agreement as a firm Aircraft (the Option
Aircraft Supplemental Agreement).
In the event the parties have not entered into such an Option
Aircraft Supplemental Agreement within the time period contemplated
herein, either party shall have the right, exercisable by written
or telegraphic notice given to the other within ten (10) days after
such period, to cancel the purchase of such Option Aircraft.
6. Cancellation of Option to Purchase.
Either Boeing or Buyer may cancel the option to purchase an
Option Aircraft if any of the following events are not accomplished
by the respective dates contemplated in this Letter Agreement, or
in the Agreement, as the case may be:
(i) purchase of the Aircraft under the Agreement for any
reason not attributable to the cancelling party;
(ii) payment by Buyer of the Option Deposit with respect
to such Option Aircraft pursuant to paragraph 3 herein; or
(iii) exercise of the option to purchase such Option
Aircraft pursuant to the terms hereof.
Any cancellation of an option to purchase by Boeing which is based
on the termination of the purchase of an Aircraft under the
Agreement shall be on a one-for-one basis, for each Aircraft so
terminated.
Cancellation of an option to purchase provided by this letter
agreement shall be caused by either party giving written notice to
the other within ten (10) days after the respective date in
question. Upon receipt of such notice, all rights and obligations
of the parties with respect to an Option Aircraft for which the
option to purchase has been cancelled shall thereupon terminate.
Boeing shall promptly refund to Buyer, without interest, any
payments received from Buyer with respect to the affected Option
Aircraft. Boeing shall be entitled to retain the Option Deposit
unless cancellation is attributable to Boeing's fault, in which
case the Option Deposit shall also be returned to Buyer without
interest.
7. Applicability.
Except as otherwise specifically provided, limited or
excluded herein, all Option Aircraft that are added to the
Agreement by an Option Aircraft Supplemental Agreement as firm
Aircraft shall benefit from all the applicable terms, conditions
and provisions of the Agreement.
If the foregoing accurately reflects your understanding of the
matters treated herein, please so indicate by signature below.
Very truly yours,
THE BOEING COMPANY
By /s/ D. M. Hurt
Its Attorney In Fact
ACCEPTED AND AGREED TO this
Date: December 13, 1999
CONTINENTAL AIRLINES, INC.,
By /s/ Brian Davis
Its Vice President
Attachment
<PAGE>
Model 737-824 Aircraft
1. Option Aircraft Description and Changes.
1.1 Aircraft Description. The Option Aircraft are
described by Boeing Detail Specification D6-38808, Revision E,
dated September 15, 1995, as amended and revised pursuant to the
Agreement.
1.2 Changes. The Option Aircraft Detail Specification
shall be revised to include:
(1) Changes applicable to the basic Model 737-800
aircraft which are developed by Boeing between the date of the
Detail Specification and the signing of an Option Aircraft
Supplemental Agreement.
(2) Changes mutually agreed upon.
(3) Changes required to obtain a Standard
Certificate of Airworthiness.
1.3 Effect of Changes.Changes to the Detail Specification
pursuant to the provisions of the clauses above shall include the
effects of such changes upon Option Aircraft weight, balance,
design and performance.
2. Price Description.
2.1 Price Adjustments.
2.1.1 Base Price Adjustments. The base aircraft
price (pursuant to Article 3 of the Agreement) of the Option
Aircraft will be adjusted to Boeing's and the engine manufacturer's
then-current prices as of the date of execution of the Option
Aircraft Supplemental Agreement.
2.1.2 Special Features. The price for special
features incorporated in the Option Aircraft Detail Specification
will be adjusted to Boeing's then-current prices for such features
as of the date of execution of the Option Aircraft Supplemental
Agreement [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT].
2.1.3 Escalation Adjustments. The base airframe and
special features price will be escalated according to the
applicable airframe and engine manufacturer escalation provisions
contained in Exhibit D of the Agreement.
Buyer agrees that the engine escalation provisions will be adjusted
if they are changed by the engine manufacturer prior to signing the
Option Aircraft Supplemental Agreement. In such case, the then-
current engine escalation provisions in effect at the time of
execution of the Option Aircraft Supplemental Agreement will be
incorporated into such agreement.
2.1.4 Price Adjustments for Changes. Boeing may
adjust the basic price and the advance payment base prices for any
changes mutually agreed upon by Buyer and Boeing subsequent to the
date that Buyer and Boeing enter into the Option Aircraft
Supplemental Agreement.
2.1.5 BFE to SPE. An estimate of the total price for
items of Buyer Furnished Equipment (BFE) changed to Seller
Purchased Equipment (SPE) pursuant to the Detail Specification is
included in the Option Aircraft price build-up. The purchase price
of the Option Aircraft will be adjusted by the price charged to
Boeing for such items plus 10% of such price.
3. Advance Payments.
3.1 Buyer shall pay to Boeing advance payments for the
Option Aircraft pursuant to the schedule for payment of advance
payments provided in the Purchase Agreement.
<PAGE>
December 13, 1999
6-1162-DMH-1020
Continental Airlines, Inc.
1600 Smith Street
Houston, TX 77002
Subject: Letter Agreement 6-1162-DMH-1020 to Purchase
Agreement No. 1951 - [CONFIDENTIAL MATERIAL OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
Ladies and Gentlemen:
This Letter Agreement amends Purchase Agreement No. 1951 dated as
of July 23, 1996 as previously amended (the Agreement) between The
Boeing Company (Boeing) and Continental Airlines, Inc. (Buyer)
relating to Model 737 aircraft (the Aircraft).
All terms used herein and in the Agreement, and not defined herein,
will have the same meaning as in the Agreement.
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
If the foregoing accurately reflects your understanding of the
matters treated herein, please so indicate by signature below.
Very truly yours,
THE BOEING COMPANY
By:__/s/ D. M. Hurt________
Its: Attorney-In-Fact
ACCEPTED AND AGREED TO
as of this date:__December 13, 1999
CONTINENTAL AIRLINES, INC.
By:___/s/ Brian Davis_____
Its: Vice President
EXHIBIT 18.1
(Ernst & Young Logo)
Ernst & Young LLP
One Houston Center
Suite 2400
1221 McKinney Street
Houston, Texas 77010-2007
Phone: (713) 750-1500
Fax: (713) 750-1501
www.ey.com
January 17, 2000
The Board of Directors and Stockholders
Continental Airlines, Inc.
1600 Smith Street
Houston, Texas 77002
Dear Sirs:
Note 1 of the Notes to Consolidated Financial Statements of
Continental Airlines, Inc. included in its Form 10-K for the year
ended December 31, 1999 describes a change in the method of
accounting for the sale of mileage credits to participating
partners in the OnePass program from recognizing such revenue when
the credits are sold, net of accruing the incremental cost of
providing the future air travel service, to deferring the revenue
and recognizing it over a period approximating the period during
which the mileage credits are redeemed and the service is provided.
We conclude that such change in the method of accounting is to an
acceptable method which, based on your judgement to make this
change and for the stated reason, is preferable in your
circumstances.
Very truly yours,
/s/ Ernst & Young LLP
EXHIBIT 21.1
SUBSIDIARIES OF CONTINENTAL AIRLINES, INC.
SUBSIDIARY STATE OF INCORPORATION
Air Micronesia, Inc. Delaware
Continental Express, Inc. Delaware
Continental Micronesia, Inc. Delaware
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the incorporation by reference of our reports dated
January 17, 2000 with respect to the consolidated financial
statements and schedule of Continental Airlines, Inc. (the
"Company") included in the Annual Report (Form 10-K) for the year
ended December 31, 1999 into the following:
(i) the Company's Registration Statements on Form S-8 (Nos. 33-
81324, 33-60009 and 333-06993) relating to the Company's
1994 Incentive Equity Plan;
(ii) the Company's Registration Statement on Form S-8 (No. 333-
23165) relating to the Company's 1997 Stock Incentive Plan;
(iii) the Company's Registration Statement on Form S-8 (No. 333-
57297) relating to the Company's 1998 Stock Incentive Plan;
(iv) the Company's Registration Statements on Form S-8 (Nos. 33-
81326 and 33-59995) relating to the Company's 1994
Restricted Stock Grant;
(v) the Company's Registration Statement on Form S-8 (No. 333-
16723) relating to the Company's 1997 Employee Stock
Purchase Plan;
(vi) the Company's Registration Statement on Form S-8 (No. 33-
81328) relating to the Company's 1994 Employee Stock
Purchase Plan;
(vii) the Company's Registration Statement on Form S-8 (No. 333-
68233) relating to the Company's Deferred Compensation
Plan;
(viii) the Registration Statement on Form S-4 (No. 333-60409)
relating to the 8-1/8% Senior Notes issued by Calair
Capital Corporation and guaranteed by the Company;
(ix) the Company's Registration Statement on Form S-3 (No. 333-
09739) relating to Warrants, Class A Common Stock and Class
B Common Stock and sales by certain Selling Securityholders
and the related Prospectus;
(x) the Company's Registration Statement on Form S-3 (No. 333-
31285) relating to the Company's Pass Through Certificates
for $250,000,000 and the related Prospectus;
(xi) the Company's Registration Statement on Form S-3 (No. 333-
29255) relating to the Company's Debt Securities (Debt
Shelf) and the related Prospectus;
(xii) the Company's Registration Statement on Form S-3 (No. 333-
61601) relating to the Company's Pass Through Certificates
for $2,500,000,000 and the related Prospectus;
(xiii) the Company's Registration Statement on Form S-3 (No. 333-
79827) relating to the Company's Debt Securities (Debt
Shelf) and the related Prospectus; and
(xiv) the Companys Registration Statement on Form S-3 (No. 333-
91765) relating to the Companys Pass Through Certificates
for $1,500,000,000 and the related Prospectus.
/s/ Ernst & Young LLP
Houston, Texas
February 8, 2000
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a
director and/or officer of Continental Airlines, Inc. (the
"Company"), does hereby constitute and appoint Lawrence W. Kellner,
Jeffery A. Smisek and Scott R. Peterson, or any of them, the
undersigned's true and lawful attorney or attorneys to execute in
the name, place and stead of the undersigned the Company's Annual
Report on Form 10-K for the year ended December 31, 1999 (and any
amendments thereto), to be filed by the Company under the
Securities Exchange Act of 1934, as amended, as fully and
effectively in all respects as the undersigned could do if
personally present.
IN WITNESS WHEREOF, the undersigned has signed this Power of
Attorney on and as of the date set forth below.
Date: February 8, 2000 By: /s/ Gordon M. Bethune
Print Name: Gordon M. Bethune
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a
director and/or officer of Continental Airlines, Inc. (the
"Company"), does hereby constitute and appoint Lawrence W. Kellner,
Jeffery A. Smisek and Scott R. Peterson, or any of them, the
undersigned's true and lawful attorney or attorneys to execute in
the name, place and stead of the undersigned the Company's Annual
Report on Form 10-K for the year ended December 31, 1999 (and any
amendments thereto), to be filed by the Company under the
Securities Exchange Act of 1934, as amended, as fully and
effectively in all respects as the undersigned could do if
personally present.
IN WITNESS WHEREOF, the undersigned has signed this Power of
Attorney on and as of the date set forth below.
Date: February 8, 2000 By: /s/ Thomas J. Barrack, Jr.
Print Name: Thomas J. Barrack, Jr.
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a
director and/or officer of Continental Airlines, Inc. (the
"Company"), does hereby constitute and appoint Lawrence W. Kellner,
Jeffery A. Smisek and Scott R. Peterson, or any of them, the
undersigned's true and lawful attorney or attorneys to execute in
the name, place and stead of the undersigned the Company's Annual
Report on Form 10-K for the year ended December 31, 1999 (and any
amendments thereto), to be filed by the Company under the
Securities Exchange Act of 1934, as amended, as fully and
effectively in all respects as the undersigned could do if
personally present.
IN WITNESS WHEREOF, the undersigned has signed this Power of
Attorney on and as of the date set forth below.
Date: February 8, 2000 By: /s/ David Bonderman
Print Name: David Bonderman
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a
director and/or officer of Continental Airlines, Inc. (the
"Company"), does hereby constitute and appoint Lawrence W. Kellner,
Jeffery A. Smisek and Scott R. Peterson, or any of them, the
undersigned's true and lawful attorney or attorneys to execute in
the name, place and stead of the undersigned the Company's Annual
Report on Form 10-K for the year ended December 31, 1999 (and any
amendments thereto), to be filed by the Company under the
Securities Exchange Act of 1934, as amended, as fully and
effectively in all respects as the undersigned could do if
personally present.
IN WITNESS WHEREOF, the undersigned has signed this Power of
Attorney on and as of the date set forth below.
Date: February 8, 2000 By: /s/ Gregory D. Brenneman
Print Name: Gregory D. Brenneman
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a
director and/or officer of Continental Airlines, Inc. (the
"Company"), does hereby constitute and appoint Lawrence W. Kellner,
Jeffery A. Smisek and Scott R. Peterson, or any of them, the
undersigned's true and lawful attorney or attorneys to execute in
the name, place and stead of the undersigned the Company's Annual
Report on Form 10-K for the year ended December 31, 1999 (and any
amendments thereto), to be filed by the Company under the
Securities Exchange Act of 1934, as amended, as fully and
effectively in all respects as the undersigned could do if
personally present.
IN WITNESS WHEREOF, the undersigned has signed this Power of
Attorney on and as of the date set forth below.
Date: February 8, 2000 By: /s/ Kirbyjon Caldwell
Print Name: Kirbyjon Caldwell
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a
director and/or officer of Continental Airlines, Inc. (the
"Company"), does hereby constitute and appoint Lawrence W. Kellner,
Jeffery A. Smisek and Scott R. Peterson, or any of them, the
undersigned's true and lawful attorney or attorneys to execute in
the name, place and stead of the undersigned the Company's Annual
Report on Form 10-K for the year ended December 31, 1999 (and any
amendments thereto), to be filed by the Company under the
Securities Exchange Act of 1934, as amended, as fully and
effectively in all respects as the undersigned could do if
personally present.
IN WITNESS WHEREOF, the undersigned has signed this Power of
Attorney on and as of the date set forth below.
Date: February 8, 2000 By: /s/ Patrick Foley
Print Name: Patrick Foley
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a
director and/or officer of Continental Airlines, Inc. (the
"Company"), does hereby constitute and appoint Lawrence W. Kellner,
Jeffery A. Smisek and Scott R. Peterson, or any of them, the
undersigned's true and lawful attorney or attorneys to execute in
the name, place and stead of the undersigned the Company's Annual
Report on Form 10-K for the year ended December 31, 1999 (and any
amendments thereto), to be filed by the Company under the
Securities Exchange Act of 1934, as amended, as fully and
effectively in all respects as the undersigned could do if
personally present.
IN WITNESS WHEREOF, the undersigned has signed this Power of
Attorney on and as of the date set forth below.
Date: February 8, 2000 By: /s/ Douglas McCorkindale
Print Name: Douglas McCorkindale
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a
director and/or officer of Continental Airlines, Inc. (the
"Company"), does hereby constitute and appoint Lawrence W. Kellner,
Jeffery A. Smisek and Scott R. Peterson, or any of them, the
undersigned's true and lawful attorney or attorneys to execute in
the name, place and stead of the undersigned the Company's Annual
Report on Form 10-K for the year ended December 31, 1999 (and any
amendments thereto), to be filed by the Company under the
Securities Exchange Act of 1934, as amended, as fully and
effectively in all respects as the undersigned could do if
personally present.
IN WITNESS WHEREOF, the undersigned has signed this Power of
Attorney on and as of the date set forth below.
Date: February 8, 2000 By: /s/ George G. C. Parker
Print Name: George G. C. Parker
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a
director and/or officer of Continental Airlines, Inc. (the
"Company"), does hereby constitute and appoint Lawrence W. Kellner,
Jeffery A. Smisek and Scott R. Peterson, or any of them, the
undersigned's true and lawful attorney or attorneys to execute in
the name, place and stead of the undersigned the Company's Annual
Report on Form 10-K for the year ended December 31, 1999 (and any
amendments thereto), to be filed by the Company under the
Securities Exchange Act of 1934, as amended, as fully and
effectively in all respects as the undersigned could do if
personally present.
IN WITNESS WHEREOF, the undersigned has signed this Power of
Attorney on and as of the date set forth below.
Date: February 8, 2000 By: /s/ Richard W. Pogue
Print Name: Richard W. Pogue
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a
director and/or officer of Continental Airlines, Inc. (the
"Company"), does hereby constitute and appoint Lawrence W. Kellner,
Jeffery A. Smisek and Scott R. Peterson, or any of them, the
undersigned's true and lawful attorney or attorneys to execute in
the name, place and stead of the undersigned the Company's Annual
Report on Form 10-K for the year ended December 31, 1999 (and any
amendments thereto), to be filed by the Company under the
Securities Exchange Act of 1934, as amended, as fully and
effectively in all respects as the undersigned could do if
personally present.
IN WITNESS WHEREOF, the undersigned has signed this Power of
Attorney on and as of the date set forth below.
Date: February 8, 2000 By: /s/ William S. Price III
Print Name: William S. Price III
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a
director and/or officer of Continental Airlines, Inc. (the
"Company"), does hereby constitute and appoint Lawrence W. Kellner,
Jeffery A. Smisek and Scott R. Peterson, or any of them, the
undersigned's true and lawful attorney or attorneys to execute in
the name, place and stead of the undersigned the Company's Annual
Report on Form 10-K for the year ended December 31, 1999 (and any
amendments thereto), to be filed by the Company under the
Securities Exchange Act of 1934, as amended, as fully and
effectively in all respects as the undersigned could do if
personally present.
IN WITNESS WHEREOF, the undersigned has signed this Power of
Attorney on and as of the date set forth below.
Date: February 8, 2000 By: /s/ Donald L. Sturm
Print Name: Donald L. Sturm
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a
director and/or officer of Continental Airlines, Inc. (the
"Company"), does hereby constitute and appoint Lawrence W. Kellner,
Jeffery A. Smisek and Scott R. Peterson, or any of them, the
undersigned's true and lawful attorney or attorneys to execute in
the name, place and stead of the undersigned the Company's Annual
Report on Form 10-K for the year ended December 31, 1999 (and any
amendments thereto), to be filed by the Company under the
Securities Exchange Act of 1934, as amended, as fully and
effectively in all respects as the undersigned could do if
personally present.
IN WITNESS WHEREOF, the undersigned has signed this Power of
Attorney on and as of the date set forth below.
Date: February 8, 2000 By: /s/ Karen Hastie Williams
Print Name: Karen Hastie Williams
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a
director and/or officer of Continental Airlines, Inc. (the
"Company"), does hereby constitute and appoint Lawrence W. Kellner,
Jeffery A. Smisek and Scott R. Peterson, or any of them, the
undersigned's true and lawful attorney or attorneys to execute in
the name, place and stead of the undersigned the Company's Annual
Report on Form 10-K for the year ended December 31, 1999 (and any
amendments thereto), to be filed by the Company under the
Securities Exchange Act of 1934, as amended, as fully and
effectively in all respects as the undersigned could do if
personally present.
IN WITNESS WHEREOF, the undersigned has signed this Power of
Attorney on and as of the date set forth below.
Date: February 8, 2000 By: /s/ Charles A. Yamarone
Print Name: Charles A. Yamarone
<TABLE> <S> <C>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,198
<SECURITIES> 392
<RECEIVABLES> 506
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<INVENTORY> 236
<CURRENT-ASSETS> 2,606
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0
<COMMON> 1
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<TOTAL-LIABILITY-AND-EQUITY> 8,223
<SALES> 8,639
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