<PAGE> 1
Filed pursuant to Rule 424(b)(3)
File No. 333-45834
This preliminary prospectus supplement relates to an effective
registration statement under the Securities Act of 1933, but it is not
complete and may be changed. This preliminary prospectus supplement is not
an offer to sell these securities and it is not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED NOVEMBER 10, 2000
PROSPECTUS SUPPLEMENT TO PROSPECTUS, DATED SEPTEMBER 25, 2000
$841,156,000
[CONTINENTAL AIRLINES LOGO]
2000-2 Pass Through Trusts
Pass Through Certificates, Series 2000-2
------------------
Four classes of the Continental Airlines Pass Through Certificates, Series
2000-2, will be issued in this offering: Class A-1, A-2, B and C. A separate
trust will be established for each class of certificates. The proceeds from the
sale of certificates will initially be held in escrow. The trusts will use the
escrowed funds to acquire equipment notes. The equipment notes will be issued to
finance the acquisition by Continental Airlines of 23 new Boeing aircraft
scheduled for delivery from February 2001 to December 2001. The aircraft will be
leased or purchased by Continental. Payments on the equipment notes held in each
trust will be passed through to the holders of certificates of such trust.
The equipment notes issued for each aircraft will have a security interest
in such aircraft. Interest on the equipment notes will be payable semiannually
on each April 2 and October 2, beginning on April 2, 2001. Principal payments on
the equipment notes held for the Class A-1, B and C certificates are scheduled
on April 2 and October 2 in certain years, beginning on October 2, 2001. The
entire principal of the equipment notes held for the Class A-2 certificates will
be scheduled for payment on October 2, 2010.
The Class A-1 and A-2 certificates will rank equally in right of
distributions and will rank senior to the other certificates. The Class B
certificates will rank junior to the Class A-1 and A-2 certificates and will
rank senior to the Class C certificates. The Class C certificates will rank
junior to the other certificates.
Landesbank Hessen-Thuringen Girozentrale will provide a liquidity facility
for each class of certificates, in each case in an amount sufficient to make
three semiannual interest payments.
The certificates will not be listed on any national securities exchange.
INVESTING IN THE CERTIFICATES INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE
S-18.
<TABLE>
<CAPTION>
PASS THROUGH PRINCIPAL INTEREST FINAL EXPECTED PRICE TO
CERTIFICATES AMOUNT RATE DISTRIBUTION DATE PUBLIC(1)
------------ ------------ -------- ----------------- ---------
<S> <C> <C> <C> <C>
Class A-1............................................ $386,530,000 % April 2, 2021 100%
Class A-2............................................ 162,076,000 October 2, 2010 100
Class B.............................................. 153,588,000 April 2, 2018 100
Class C.............................................. 138,962,000 April 2, 2011 100
</TABLE>
(1) Plus accrued interest, if any, from the date of issuance.
The underwriters will purchase all of the certificates if any are
purchased. The aggregate proceeds from the sale of the certificates will be
$ . Continental will pay the underwriters a commission of $ . Delivery
of the certificates in book-entry form only will be made on or about November
, 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus supplement or the accompanying prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
CREDIT SUISSE FIRST BOSTON
MORGAN STANLEY DEAN WITTER
CHASE SECURITIES INC.
GOLDMAN, SACHS & CO.
SALOMON SMITH BARNEY
The date of this prospectus supplement is November , 2000.
<PAGE> 2
PRESENTATION OF INFORMATION
These offering materials consist of two documents: (a) this Prospectus
Supplement, which describes the terms of the certificates that we are currently
offering, and (b) the accompanying Prospectus, which provides general
information about our pass through certificates, some of which may not apply to
the certificates that we are currently offering. The information in this
Prospectus Supplement replaces any inconsistent information included in the
accompanying Prospectus.
We have given certain capitalized terms specific meanings for purposes of
this Prospectus Supplement. The "Index of Terms" attached as Appendix I to this
Prospectus Supplement lists the page in this Prospectus Supplement on which we
have defined each such term.
At varying places in this Prospectus Supplement and the Prospectus, we
refer you to other sections of such documents for additional information by
indicating the caption heading of such other sections. The page on which each
principal caption included in this Prospectus Supplement and the Prospectus can
be found is listed in the Table of Contents below. All such cross references in
this Prospectus Supplement are to captions contained in this Prospectus
Supplement and not in the Prospectus, unless otherwise stated.
------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT SUMMARY......... S-5
Summary of Terms of Certificates.... S-5
Equipment Notes and the Aircraft.... S-6
Loan to Aircraft Value Ratios....... S-7
Cash Flow Structure................. S-8
The Offering........................ S-9
Summary Financial and Operating
Data............................. S-15
RISK FACTORS.......................... S-18
Risk Factors Relating to the
Company.......................... S-18
Risk Factors Relating to the Airline
Industry......................... S-20
Risk Factors Relating to the
Certificates and the Offering.... S-21
RECENT DEVELOPMENTS................... S-23
Repurchase of Continental Stock from
Northwest........................ S-23
Offer for Certain Assets of US
Airways.......................... S-25
Concorde Accident................... S-25
USE OF PROCEEDS....................... S-25
THE COMPANY........................... S-26
Domestic Operations................. S-26
International Operations............ S-27
DESCRIPTION OF THE CERTIFICATES....... S-30
General............................. S-30
Subordination....................... S-31
Payments and Distributions.......... S-32
Pool Factors........................ S-35
Reports to Certificateholders....... S-37
Indenture Defaults and Certain
Rights Upon an Indenture
Default.......................... S-37
Purchase Rights of
Certificateholders............... S-39
PTC Event of Default................ S-40
Merger, Consolidation and Transfer
of Assets........................ S-40
Modifications of the Pass Through
Trust Agreements and Certain
Other Agreements................. S-41
Obligation to Purchase Equipment
Notes............................ S-43
Possible Issuance of Class D
Certificates..................... S-46
Liquidation of Original Trusts...... S-46
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Termination of the Trusts........... S-47
The Trustees........................ S-47
Book-Entry; Delivery and Form....... S-47
DESCRIPTION OF THE DEPOSIT
AGREEMENTS.......................... S-48
General............................. S-48
Unused Deposits..................... S-48
Distribution Upon Occurrence of
Triggering Event................. S-49
Depositary.......................... S-49
DESCRIPTION OF THE ESCROW
AGREEMENTS.......................... S-50
DESCRIPTION OF THE LIQUIDITY
FACILITIES.......................... S-51
General............................. S-51
Drawings............................ S-51
Reimbursement of Drawings........... S-54
Liquidity Events of Default......... S-55
Liquidity Provider.................. S-55
DESCRIPTION OF THE INTERCREDITOR
AGREEMENT........................... S-56
Intercreditor Rights................ S-56
Priority of Distributions........... S-57
Voting of Equipment Notes........... S-61
Addition of Trustee for Class D
Certificates..................... S-61
The Subordination Agent............. S-61
DESCRIPTION OF THE AIRCRAFT AND THE
APPRAISALS.......................... S-62
The Aircraft........................ S-62
The Appraisals...................... S-63
Deliveries of Aircraft.............. S-64
Substitute Aircraft................. S-64
DESCRIPTION OF THE EQUIPMENT NOTES.... S-66
General............................. S-66
Subordination....................... S-67
Principal and Interest Payments..... S-67
Redemption.......................... S-68
Security............................ S-69
Loan to Value Ratios of Equipment
Notes............................ S-70
Limitation of Liability............. S-72
</TABLE>
S-2
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Indenture Defaults, Notice and
Waiver........................... S-73
Remedies............................ S-74
Modification of Indentures and
Leases........................... S-76
Owner Participant's Right to
Restructure...................... S-77
Indemnification..................... S-77
The Leases and Certain Provisions of
the Owned Aircraft Indentures.... S-77
CERTAIN U.S. FEDERAL INCOME TAX
CONSEQUENCES........................ S-85
General............................. S-85
Tax Status of the Trusts............ S-85
Taxation of Certificateholders
Generally........................ S-86
Effect of Reallocation of Payments
under the Intercreditor
Agreement........................ S-87
Dissolution of Original Trusts and
Formation of New Trusts.......... S-88
Sale or Other Disposition of the
Certificates..................... S-88
Foreign Certificateholders.......... S-88
Backup Withholding.................. S-89
CERTAIN DELAWARE TAXES................ S-89
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CERTAIN ERISA CONSIDERATIONS.......... S-89
UNDERWRITING.......................... S-93
NOTICE TO CANADIAN RESIDENTS.......... S-94
Resale Restrictions................. S-94
Representations of Purchasers....... S-94
Rights of Action (Ontario
Purchasers)...................... S-94
Enforcement of Legal Rights......... S-94
Notice to British Columbia
Residents........................ S-95
Taxation and Eligibility for
Investment....................... S-95
LEGAL MATTERS......................... S-95
EXPERTS............................... S-95
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE........................... S-95
INDEX OF TERMS........................Appendix I
APPRAISAL LETTERS....................Appendix II
MANDATORY ECONOMIC TERMS --
MAXIMUM LTV FOR EQUIPMENT NOTES...............
</TABLE>
.
PROSPECTUS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
WHERE YOU CAN FIND MORE INFORMATION... 1
FORWARD-LOOKING STATEMENTS............ 1
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE........................... 2
SUMMARY............................... 3
The Offering........................ 3
Certificates........................ 3
Pass Through Trusts................. 3
Equipment Notes..................... 4
THE COMPANY........................... 6
USE OF PROCEEDS....................... 6
RATIO OF EARNINGS TO FIXED
CHARGES............................. 7
DESCRIPTION OF THE CERTIFICATES....... 7
General............................. 7
Book-Entry Registration............. 10
Payments and Distributions.......... 13
Pool Factors........................ 14
Reports to Certificateholders....... 14
Voting of Equipment Notes........... 15
Events of Default and Certain Rights
Upon an Event of Default......... 15
Merger, Consolidation and Transfer
of Assets........................ 17
Modifications of the Basic
Agreement........................ 18
Modification of Indenture and
Related Agreements............... 19
Cross-Subordination Issues.......... 19
Termination of the Pass Through
Trusts........................... 19
Delayed Purchase of Equipment
Notes............................ 19
Liquidity Facility.................. 20
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Pass Through Trustee............ 20
DESCRIPTION OF THE EQUIPMENT NOTES.... 20
General............................. 21
Principal and Interest Payments..... 21
Redemption.......................... 21
Security............................ 21
Ranking of Equipment Notes.......... 23
Payments and Limitation of
Liability........................ 23
Defeasance of the Indentures and the
Equipment Notes in Certain
Circumstances.................... 24
Assumption of Obligations by
Continental...................... 24
Liquidity Facility.................. 24
Intercreditor Issues................ 25
U.S. INCOME TAX MATTERS............... 26
General............................. 26
Tax Status of the Pass Through
Trusts........................... 26
Taxation of Certificateholders
Generally........................ 26
Effect of Subordination of
Certificateholders of
Subordinated Trusts.............. 27
Original Issue Discount............. 27
Sale or Other Disposition of the
Certificates..................... 27
Foreign Certificateholders.......... 28
Backup Withholding.................. 28
ERISA CONSIDERATIONS.................. 28
PLAN OF DISTRIBUTION.................. 28
LEGAL OPINIONS........................ 30
EXPERTS............................... 30
</TABLE>
------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY BE USED ONLY WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY BE ACCURATE ONLY
ON THE DATE OF THIS DOCUMENT.
S-3
<PAGE> 4
(THIS PAGE INTENTIONALLY LEFT BLANK)
S-4
<PAGE> 5
PROSPECTUS SUPPLEMENT SUMMARY
This summary highlights selected information from this Prospectus
Supplement and the accompanying Prospectus and may not contain all of the
information that is important to you. For more complete information about the
Certificates and Continental Airlines, you should read this entire Prospectus
Supplement and the accompanying Prospectus, as well as the materials filed with
the Securities and Exchange Commission that are considered to be part of this
Prospectus Supplement and the Prospectus. See "Incorporation of Certain
Documents by Reference" in this Prospectus Supplement and in the Prospectus.
SUMMARY OF TERMS OF CERTIFICATES*
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS B CLASS C
CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Aggregate Face Amount......................... $386,530,000 $162,076,000 $153,588,000 $138,962,000
Ratings:
Moody's..................................... Aa3 Aa3 A2 Baa1
Standard & Poor's........................... AA+ AA+ AA- A-
Initial Loan to Aircraft Value
(cumulative)(1)............................. 42.1% 42.1% 53.6% 63.9%
Expected Highest Loan to Aircraft Value
(cumulative)(2)............................. 42.1% 42.1% 53.6% 63.9%
Expected Principal Distribution Window (in
years)...................................... 0.9 - 20.4 9.9 0.9 - 17.4 0.9 - 10.4
Initial Average Life (in years from Issuance
Date)....................................... 12.6 9.9 10.0 7.0
Regular Distribution Dates.................... April 2 and April 2 and April 2 and April 2 and
October 2 October 2 October 2 October 2
Final Expected Regular Distribution Date...... April 2, 2021 October 2, 2010 April 2, 2018 April 2, 2011
Final Maturity Date........................... October 2, 2022 April 2, 2012 October 2, 2019 October 2, 2012
Minimum Denomination.......................... $1,000 $1,000 $1,000 $1,000
Section 1110 Protection....................... Yes Yes Yes Yes
Liquidity Facility Coverage................... 3 semiannual 3 semiannual 3 semiannual 3 semiannual
interest interest interest interest
payments payments payments payments
</TABLE>
---------------
* The Classes and amounts of Certificates offered and the terms of such
Certificates are indicative only and subject to change.
(1) These percentages are calculated assuming that the first 23 aircraft
scheduled for delivery among the 32 aircraft from which Continental may
choose are financed hereunder and are determined as of October 2, 2001, the
first Regular Distribution Date after such aircraft are scheduled to have
been delivered. In making such calculations, we have assumed that all such
aircraft are delivered prior to such date, that the maximum principal amount
of Equipment Notes is issued and that the aggregate appraised value of such
aircraft is $1,300,633,333 as of such date. The appraised value is only an
estimate and reflects certain assumptions. See "Description of the Aircraft
and the Appraisals -- The Appraisals".
(2) See "-- Loan to Aircraft Value Ratios".
S-5
<PAGE> 6
EQUIPMENT NOTES AND THE AIRCRAFT
The 23 Boeing aircraft to be financed pursuant to this offering will
consist of ten Boeing 737-824 aircraft, seven Boeing 737-924 aircraft, four
767-224ER aircraft and two Boeing 767-424ER aircraft. Such Boeing 737-824,
737-924 and 767-224ER aircraft will be selected by Continental from among
fourteen Boeing 737-824 aircraft, ten 737-924 aircraft and six Boeing 767-224ER
aircraft, which are scheduled for delivery from February 2001 to December 2001.
See "Description of the Aircraft and the Appraisals -- The Appraisals" for a
description of the 32 aircraft from which Continental may select the 23 aircraft
that may be financed with the proceeds of this offering. Set forth below is
certain information about the Equipment Notes expected to be held in the Trusts
and the aircraft expected to secure such Equipment Notes (assuming for purposes
of the chart below that the first 23 aircraft scheduled for delivery among the
32 aircraft from which Continental may choose are financed hereunder):
<TABLE>
<CAPTION>
MAXIMUM
EXPECTED SCHEDULED PRINCIPAL AMOUNT
REGISTRATION MANUFACTURER'S DELIVERY OF EQUIPMENT APPRAISED
AIRCRAFT TYPE NUMBER SERIAL NUMBER MONTH(1) NOTES(2) VALUE(3)
------------- ------------ -------------- -------------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
Boeing 737-824.................... N73259 30803 May 2001 $30,442,500 $45,100,000
Boeing 737-824.................... N35260 30855 June 2001 30,442,500 45,100,000
Boeing 737-824.................... N77261 31582 July 2001 30,712,500 45,500,000
Boeing 737-824.................... N33262 32402 July 2001 30,712,500 45,500,000
Boeing 737-824.................... N37263 31583 August 2001 30,712,500 45,500,000
Boeing 737-824.................... N33264 31584 August 2001 30,712,500 45,500,000
Boeing 737-824.................... N76265 31585 August 2001 30,712,500 45,500,000
Boeing 737-824.................... N33266 32403 August 2001 30,712,500 45,500,000
Boeing 737-824.................... N37267 31586 September 2001 30,712,500 45,500,000
Boeing 737-824.................... N38268 31587 September 2001 30,712,500 45,500,000
Boeing 737-924.................... N30401 30118 May 2001 31,812,000 48,200,000
Boeing 737-924.................... N79402 30119 June 2001 31,812,000 48,200,000
Boeing 737-924.................... N38403 30120 July 2001 32,076,000 48,600,000
Boeing 737-924.................... N32404 30121 July 2001 32,076,000 48,600,000
Boeing 737-924.................... N72405 30122 August 2001 32,076,000 48,600,000
Boeing 737-924.................... N73406 30124 September 2001 32,076,000 48,600,000
Boeing 737-924.................... N35407 30125 September 2001 32,076,000 48,600,000
Boeing 767-224ER.................. N68155 30434 February 2001 50,780,400 76,940,000
Boeing 767-224ER.................. N76156 30435 March 2001 50,857,400 77,056,667
Boeing 767-224ER.................. N67157 30436 April 2001 51,044,400 77,340,000
Boeing 767-224ER.................. N67158 30437 May 2001 51,121,400 77,456,667
Boeing 767-424ER.................. N76055 29450 March 2001 65,214,600 98,810,000
Boeing 767-424ER.................. N66056 29451 June 2001 65,623,800 99,430,000
</TABLE>
---------------
(1) The delivery deadline for purposes of this offering is February 1, 2002 (or
later under certain circumstances). The actual delivery date for any
aircraft may be subject to delay or acceleration. See "Description of the
Aircraft and the Appraisals -- Deliveries of Aircraft". Continental has the
option to substitute other aircraft if the delivery of any Aircraft is
expected to be delayed for more than 30 days after the month scheduled for
delivery or beyond the delivery deadline. See "Description of the Aircraft
and the Appraisals -- Substitute Aircraft".
(2) The actual principal amount issued for an Aircraft may be less depending on
the circumstances of the financing of such Aircraft. The aggregate principal
amount of all of the Equipment Notes will not exceed the aggregate face
amount of the Certificates. For information concerning the maximum principal
amount of Equipment Notes applicable to the other Boeing 737-824, 737-924
and 767-224ER aircraft that Continental may choose to finance pursuant to
this offering in lieu of an aircraft of such models listed above, see
"Description of the Certificates -- Obligation to Purchase Equipment Notes".
(3) The appraised value of each Aircraft set forth above is the lesser of the
average and median values of such Aircraft as appraised by three independent
appraisal and consulting firms, projected as of the scheduled delivery month
of each Aircraft. Such appraisals are based upon varying assumptions and
methodologies. An appraisal is only an estimate of value and should not be
relied upon as a measure of realizable value. See "Risk Factors -- Risk
Factors Relating to the Certificates and the Offering -- Appraisals and
Realizable Value of Aircraft". The appraised value of each of the other
Boeing 737-824, 737-924 and 767-224ER aircraft that Continental may choose
to finance pursuant to this offering is higher than the appraised value of
each of the Aircraft of the same model listed above. See "Description of the
Aircraft and the Appraisals -- The Appraisals".
S-6
<PAGE> 7
LOAN TO AIRCRAFT VALUE RATIOS*
The following table sets forth loan to Aircraft value ratios ("LTVs") for
each Class of Certificates as of October 2, 2001 (the first Regular Distribution
Date that occurs after all Aircraft assumed to be financed in this offering are
scheduled to have been delivered) and each April 2 Regular Distribution Date
thereafter. The LTVs for any Class of Certificates for the period prior to
October 2, 2001 are not meaningful, since during such period all of the
Equipment Notes expected to be acquired by the Trusts and the related Aircraft
will not be included in the calculation. The table should not be considered a
forecast or prediction of expected or likely LTVs but simply a mathematical
calculation based on one set of assumptions. See "Risk Factors -- Risk Factors
Relating to the Certificates and the Offering -- Appraisals and Realizable Value
of Aircraft".
<TABLE>
<CAPTION>
ASSUMED OUTSTANDING BALANCE(2) LTV(3)
AGGREGATE --------------------------------------------------------- ---------------------------
AIRCRAFT CLASS A-1 CLASS A-2 CLASS B CLASS C CLASS A-1 CLASS A-2
DATE VALUE(1) CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
---- -------------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 2, 2001...... $1,300,633,333 $385,015,913 $162,076,000 $150,411,849 $133,089,855 42.1% 42.1%
April 2, 2002........ 1,279,824,333 369,475,475 162,076,000 146,175,025 124,865,071 41.5 41.5
April 2, 2003........ 1,240,805,333 348,224,618 162,076,000 138,476,865 121,438,443 41.1 41.1
April 2, 2004........ 1,201,786,333 327,964,668 162,076,000 136,167,965 120,156,446 40.8 40.8
April 2, 2005........ 1,162,767,333 310,284,487 162,076,000 132,601,175 105,476,539 40.6 40.6
April 2, 2006........ 1,123,748,333 295,808,343 162,076,000 127,240,996 93,704,808 40.7 40.7
April 2, 2007........ 1,084,729,333 281,282,336 162,076,000 122,744,293 87,770,981 40.9 40.9
April 2, 2008........ 1,045,710,333 268,612,846 162,076,000 117,988,312 60,359,023 41.2 41.2
April 2, 2009........ 1,006,691,333 253,780,646 162,076,000 115,956,123 51,287,654 41.3 41.3
April 2, 2010........ 967,672,333 244,779,637 162,076,000 78,132,173 41,115,983 42.0 42.0
April 2, 2011........ 581,001,667 239,788,730 0 63,017,044 0 41.3 N/A
April 2, 2012........ 556,460,567 231,919,442 0 57,300,805 0 41.7 N/A
April 2, 2013........ 531,919,467 221,891,604 0 47,995,183 0 41.7 N/A
April 2, 2014........ 507,378,367 210,415,961 0 32,138,020 0 41.5 N/A
April 2, 2015........ 482,837,267 189,991,645 0 20,827,783 0 39.3 N/A
April 2, 2016........ 458,296,167 163,291,724 0 15,310,402 0 35.6 N/A
April 2, 2017........ 428,366,700 135,299,473 0 9,565,837 0 31.6 N/A
April 2, 2018........ 395,645,233 117,644,897 0 0 0 29.7 N/A
April 2, 2019........ 362,923,767 98,532,199 0 0 0 27.1 N/A
April 2, 2020........ 330,202,300 64,944,667 0 0 0 19.7 N/A
April 2, 2021........ N/A 0 0 0 0 N/A N/A
<CAPTION>
LTV(3)
---------------------------
CLASS B CLASS C
DATE CERTIFICATES CERTIFICATES
---- ------------ ------------
<S> <C> <C>
October 2, 2001...... 53.6% 63.9%
April 2, 2002........ 53.0 62.7
April 2, 2003........ 52.3 62.1
April 2, 2004........ 52.1 62.1
April 2, 2005........ 52.0 61.1
April 2, 2006........ 52.1 60.4
April 2, 2007........ 52.2 60.3
April 2, 2008........ 52.5 58.2
April 2, 2009........ 52.8 57.9
April 2, 2010........ 50.1 54.4
April 2, 2011........ 52.1 N/A
April 2, 2012........ 52.0 N/A
April 2, 2013........ 50.7 N/A
April 2, 2014........ 47.8 N/A
April 2, 2015........ 43.7 N/A
April 2, 2016........ 39.0 N/A
April 2, 2017........ 33.8 N/A
April 2, 2018........ N/A N/A
April 2, 2019........ N/A N/A
April 2, 2020........ N/A N/A
April 2, 2021........ N/A N/A
</TABLE>
---------------
* The Classes of Certificates, the Aircraft, the periodic outstanding balances
and the resulting LTVs for each Class of Certificates are indicative only
and subject to change.
(1) We have assumed that the initial appraised value of each Aircraft,
determined as described under "-- Equipment Notes and the Aircraft",
declines by approximately 3% per year for the first fifteen years after the
year of delivery of such Aircraft and by approximately 4% per year
thereafter.
(2) In calculating the outstanding balances, we have assumed that the Trusts
will acquire the maximum principal amount of Equipment Notes for all
Aircraft.
(3) The LTVs for each Class of Certificates were obtained for each Regular
Distribution Date by dividing (i) the expected outstanding balance of such
Class together with the expected outstanding balance of all other Classes
equal or senior in right of payment to such Class after giving effect to the
distributions expected to be made on such date, by (ii) the assumed value of
all of the Aircraft on such date based on the assumptions described above.
The outstanding balances and LTVs may change if, among other things, the
aggregate principal amount of the Equipment Notes acquired by the Trusts is
less than the maximum permitted under the terms of this offering or the
amortization of the Equipment Notes differs from the assumed amortization
schedule calculated for purposes of this Prospectus Supplement.
The above table was compiled on an aggregate basis. However, the Equipment
Notes for an Aircraft will not have a security interest in any other Aircraft.
This means that any excess proceeds realized from the sale of an Aircraft or
other exercise of remedies will not be available to cover any shortfalls on the
Equipment Notes relating to any other Aircraft. See "Description of the
Equipment Notes -- Loan to Value Ratios of Equipment Notes" for examples of LTVs
for the Equipment Notes issued in respect of individual Aircraft, which may be
more relevant in a default situation than the aggregate values shown above.
S-7
<PAGE> 8
CASH FLOW STRUCTURE
Set forth below is a diagram illustrating the structure for the offering of the
Certificates and certain cash flows.
[FLOW CHART]
[Diagram omitted, which shows that Continental will pay to the Loan Trustee for
Leased Aircraft and Owned Aircraft (a) the lease rental payments, which are
assigned by the Owner Trustee, on Leased Aircraft and (b) the mortgage payments
on Owned Aircraft. From such lease rental payments and mortgage payments, the
Loan Trustee will make Equipment Note payments on the Series A-1 Equipment
Notes, the Series A-2 Equipment Notes, the Series B Equipment Notes and the
Series C Equipment Notes with respect to all Aircraft to the Subordination
Agent. Excess rental payments will be paid by the Loan Trustee to the lessors
for Leased Aircraft. From such Equipment Note payments, the Subordination Agent
will pay principal, premium, if any, and interest distributions to the Class A-1
Trustee, the Class A-2 Trustee, the Class B Trustee and the Class C Trustee, who
will pay such principal, premium, if any, and interest distributions to the
Class A-1 Certificateholders, the Class A-2 Certificateholders, the Class B
Certificateholders and the Class C Certificateholders, respectively. The
Subordination Agent may also receive advances, if any, and pay reimbursements,
if any, to the applicable Liquidity Provider. The Depositary will make interest
payments on the Deposits to the Escrow Agent. From such interest payments, the
Escrow Agent will make payments to the Class A-1 Certificateholders, the Class
A-2 Certificateholders, the Class B Certificateholders and the Class C
Certificateholders.]
---------------
(1) Each Aircraft leased to Continental will be subject to a separate Lease and
a related Indenture; each Aircraft owned by Continental will be subject to a
separate Indenture.
(2) The proceeds of the offering of each Class of Certificates will initially be
held in escrow and deposited with the Depositary. The Depositary will hold
such funds as interest-bearing Deposits. Each Trust will withdraw funds from
the Deposits relating to such Trust to purchase Equipment Notes from time to
time as each Aircraft is financed. The scheduled payments of interest on the
Equipment Notes and on the Deposits relating to a Trust, taken together,
will be sufficient to pay accrued interest on the outstanding Certificates
of such Trust. The Liquidity Facilities will not cover interest on the
Deposits.
S-8
<PAGE> 9
THE OFFERING
Certificates Offered.......... - Class A-1 Certificates
- Class A-2 Certificates
- Class B Certificates
- Class C Certificates
Each Class of Certificates will represent a
fractional undivided interest in a related
Trust.
Use of Proceeds............... The proceeds from the sale of the Certificates
of each Trust will initially be held in escrow
and deposited with the Depositary. Each Trust
will withdraw funds from the escrow relating to
such Trust to acquire Equipment Notes. The
Equipment Notes will be issued to finance the
acquisition by Continental of 23 new Boeing
aircraft.
Subordination Agent, Trustee,
Paying Agent and Loan
Trustee..................... Wilmington Trust Company
Escrow Agent.................. First Security Bank, National Association
Depositary.................... Credit Suisse First Boston, New York branch
Liquidity Provider............ Landesbank Hessen-Thuringen Girozentrale
Trust Property................ The property of each Trust will include:
- Equipment Notes acquired by such Trust.
- All monies receivable under the Liquidity
Facility for such Trust.
- Funds from time to time deposited with the
Trustee in accounts relating to such Trust.
Regular Distribution Dates.... April 2 and October 2, commencing on April 2,
2001.
Record Dates.................. The fifteenth day preceding the related
Distribution Date.
Distributions................. The Trustee will distribute all payments of
principal, premium (if any) and interest
received on the Equipment Notes held in each
Trust to the holders of the Certificates of
such Trust, subject to the subordination
provisions applicable to the Certificates.
Scheduled payments of principal and interest
made on the Equipment Notes will be distributed
on the applicable Regular Distribution Dates.
Payments of principal, premium (if any) and
interest made on the Equipment Notes resulting
from any early redemption or purchase of such
Equipment Notes will be distributed on a
special distribution date after not less than
15 days' notice to Certificateholders.
Subordination................. Distributions on the Certificates will be made
in the following order:
- First, to the holders of the Class A-1 and
Class A-2 Certificates.
- Second, to the holders of the Class B
Certificates.
S-9
<PAGE> 10
- Third, to the holders of the Class C
Certificates.
If Continental is in bankruptcy or certain
other specified events have occurred but
Continental is continuing to meet certain of
its obligations, the subordination provisions
applicable to the Certificates permit
distributions to be made to junior Certificates
prior to making distributions in full on the
senior Certificates.
Control of Loan Trustee....... The holders of at least a majority of the
outstanding principal amount of Equipment Notes
issued under each Indenture will be entitled to
direct the Loan Trustee under such Indenture in
taking action as long as no Indenture Default
is continuing thereunder. If an Indenture
Default is continuing, subject to certain
conditions, the "Controlling Party" will direct
the Loan Trustees (including in exercising
remedies, such as accelerating such Equipment
Notes or foreclosing the lien on the Aircraft
securing such Equipment Notes).
The Controlling Party will be:
- The Class A-1 Trustee or Class A-2 Trustee,
whichever represents the Class with the
larger principal amount of Certificates
outstanding at the time that the Indenture
Default occurs.
- Upon payment of final distributions to the
holders of such larger Class, the other of
the Class A-1 Trustee or Class A-2 Trustee.
- Upon payment of final distributions to the
holders of Class A-1 and A-2 Certificates,
the Class B Trustee.
- Upon payment of final distributions to the
holders of Class B Certificates, the Class C
Trustee.
- Under certain circumstances, and
notwithstanding the foregoing, the liquidity
provider with the largest amount owed to it.
In exercising remedies during the nine months
after the earlier of (a) the acceleration of
the Equipment Notes issued pursuant to any
Indenture or (b) the bankruptcy of Continental,
the Controlling Party may not direct the sale
of such Equipment Notes or the Aircraft subject
to the lien of such Indenture for less than
certain specified minimums or modify lease
rental payments for such Aircraft below a
specified threshold.
Right to Buy Other Classes of
Certificates................ If Continental is in bankruptcy or certain
other specified events have occurred, the
Certificateholders may have the right to buy
certain other Classes of Certificates on the
following basis:
- If the Class A-1 or Class A-2
Certificateholders are then represented by
the Controlling Party, the Certificateholders
of such other Class will have the right to
purchase all of such Class of Certificates
represented by the Controlling Party.
- The Class B Certificateholders will have the
right to purchase all of the Class A-1 and
Class A-2 Certificates.
S-10
<PAGE> 11
- The Class C Certificateholders will have the
right to purchase all of the Class A-1, Class
A-2 and Class B Certificates.
The purchase price in each case described above
will be the outstanding balance of the
applicable Class of Certificates plus accrued
and unpaid interest.
Liquidity Facilities.......... Under the Liquidity Facility for each Trust,
the Liquidity Provider will, if necessary, make
advances in an aggregate amount sufficient to
pay interest on the applicable Certificates on
up to three successive semiannual Regular
Distribution Dates at the applicable interest
rate for such Certificates. The Liquidity
Facilities cannot be used to pay any other
amount in respect of the Certificates and will
not cover interest payable on amounts held in
escrow as Deposits with the Depositary.
Notwithstanding the subordination provisions
applicable to the Certificates, the holders of
the Certificates to be issued by each Trust
will be entitled to receive and retain the
proceeds of drawings under the Liquidity
Facility for such Trust.
Upon each drawing under any Liquidity Facility
to pay interest on the Certificates, the
Subordination Agent will reimburse the
applicable Liquidity Provider for the amount of
such drawing. Such reimbursement obligation and
all interest, fees and other amounts owing to
the Liquidity Provider under each Liquidity
Facility and certain other agreements will rank
equally with comparable obligations relating to
the other Liquidity Facilities and will rank
senior to the Certificates in right of payment.
Escrowed Funds................ Funds in escrow for the Certificateholders of
each Trust will be held by the Depositary as
Deposits relating to such Trust Funds may be
withdrawn by the Trustees from time to time to
purchase Equipment Notes prior to the deadline
established for purposes of this offering. On
each Regular Distribution Date, the Depositary
will pay interest accrued on the Deposits
relating to such Trust at a rate per annum
equal to the interest rate applicable to the
Certificates issued by such Trust. The Deposits
relating to each Trust and interest paid
thereon will not be subject to the
subordination provisions applicable to the
Certificates. The Deposits cannot be used to
pay any other amount in respect of the
Certificates.
Unused Escrowed Funds......... All of the Deposits held in escrow may not be
used to purchase Equipment Notes by the
deadline established for purposes of this
offering. This may occur because of delays in
the delivery of Aircraft, variations in the
terms of each Aircraft financing or other
reasons. See "Description of the
Certificates -- Obligation to Purchase
Equipment Notes". If any funds remain as
Deposits with respect to any Trust after such
deadline, they will be withdrawn by the Escrow
Agent for such Trust and distributed, with
accrued and unpaid interest, to the
Certificateholders of such Trust after at least
15 days' prior written notice. See "Description
of the Deposit Agreements -- Unused Deposits".
S-11
<PAGE> 12
Obligation to Purchase
Equipment Notes.............. The Trustees will be obligated to purchase the
Equipment Notes issued with respect to each
Aircraft pursuant to the Note Purchase
Agreement. Continental may enter into a
leveraged lease financing or a secured debt
financing with respect to each Aircraft
pursuant to forms of financing agreements
attached to the Note Purchase Agreement.
However, the terms of the financing agreements
entered into may differ from the forms of such
agreements described in this Prospectus
Supplement. In the case of a Leased Aircraft,
this is because a third party -- the Owner
Participant -- will provide a portion of the
financing of the Aircraft and may request
changes. Although such changes are permitted,
under the Note Purchase Agreement, the terms of
such financing agreements must (a) contain the
Mandatory Document Terms set forth in the Note
Purchase Agreement and (b) not vary the
Mandatory Economic Terms set forth in the Note
Purchase Agreement. In addition, Continental
must certify to the Trustees that any such
modifications do not materially and adversely
affect the Certificateholders. Continental must
also obtain written confirmation from each
Rating Agency that the use of financing
agreements modified in any material respect
from the forms attached to the Note Purchase
Agreement will not result in a withdrawal,
suspension or downgrading of the rating of any
Class of Certificates. The Trustees will not be
obligated to purchase Equipment Notes if, at
the time of issuance, Continental is in
bankruptcy or certain other specified events
have occurred. See "Description of the
Certificates -- Obligation to Purchase
Equipment Notes".
Equipment Notes
(a) Issuer.................... Leased Aircraft. If Continental leases an
Aircraft, the related Equipment Notes will be
issued by a financial institution, acting as
Owner Trustee. The Owner Trustee will not be
individually liable for such Equipment Notes.
However, Continental's scheduled rental
obligations under the related Lease will be in
amounts sufficient to pay scheduled payments on
such Equipment Notes.
Owned Aircraft. If Continental purchases an
Aircraft, the related Equipment Notes will be
issued by Continental.
(b) Interest.................. The Equipment Notes held in each Trust will
accrue interest at the rate per annum for the
Certificates issued by such Trust set forth on
the cover page of this Prospectus Supplement.
Interest will be payable on April 2 and October
2 of each year, commencing on the first such
date after issuance of such Equipment Notes.
Interest is calculated on the basis of a
360-day year consisting of twelve 30-day
months.
(c) Principal................. Amortizing Notes. Principal payments on the
Series A-1, Series B and Series C Equipment
Notes are scheduled on April 2 and October 2 in
certain years, commencing on October 2, 2001.
Bullet Maturity Notes. The entire principal
amount of the Series A-2 Equipment Notes is
scheduled to be paid on October 2, 2010.
S-12
<PAGE> 13
(d) Redemption and Purchase... Aircraft Event of Loss. If an Event of Loss
occurs with respect to an Aircraft, all of the
Equipment Notes issued with respect to such
Aircraft will be redeemed, unless such Aircraft
is replaced by Continental under the related
financing agreements. The redemption price in
such case will be the unpaid principal amount
of such Equipment Notes, together with accrued
interest, but without any premium.
Optional Redemption. The issuer of the
Equipment Notes with respect to an Aircraft may
elect to redeem them prior to maturity. The
redemption price in such case will be the
unpaid principal amount of such Equipment
Notes, together with accrued interest plus a
Make-Whole Premium. See "Description of the
Equipment Notes -- Redemption".
Purchase by Owner. In the case of a Leased
Aircraft, if a Lease Event of Default is
continuing, the applicable Owner Trustee or
Owner Participant may elect to purchase all of
the Equipment Notes with respect to such
Aircraft, subject to the terms of the
applicable Leased Aircraft Indenture.
The purchase price in such case will be the
unpaid principal amount of such Equipment
Notes, together with accrued interest, but
without any premium (provided that a Make-Whole
Premium will be payable under certain
circumstances specified in the Leased Aircraft
Indenture). In the case of an Owned Aircraft,
Continental will have no comparable right to
purchase the Equipment Notes under such
circumstances.
(e) Security.................. The Equipment Notes issued with respect to each
Aircraft will be secured by a security interest
in such Aircraft and, in the case of each
Leased Aircraft, in the related Owner Trustee's
rights under the Lease with respect to such
Aircraft (with certain limited exceptions).
The Equipment Notes issued in respect of an
Aircraft will not be secured by any other
Aircraft or Leases. This means that any excess
proceeds from the sale of an Aircraft or other
exercise of remedies with respect to such
Aircraft will not be available to cover any
shortfall with respect to any other Aircraft.
There will not be cross-default provisions in
the Indentures or in the Leases. This means
that if the Equipment Notes issued with respect
to one or more Aircraft are in default and the
Equipment Notes issued with respect to the
remaining Aircraft are not in default, no
remedies will be exercisable with respect to
the remaining Aircraft.
(f) Section 1110 Protection... Continental's outside counsel will provide its
opinion to the Trustees that the benefits of
Section 1110 of the U.S. Bankruptcy Code will
be available with respect to the Equipment
Notes.
Certain Federal Income Tax
Consequences................ Each Certificate Owner generally should report
on its federal income tax return its pro rata
share of income from the relevant Deposits and
income from the Equipment Notes and other
S-13
<PAGE> 14
property held by the relevant Trust. See
"Certain U.S. Federal Income Tax Consequences".
Certain ERISA
Considerations............... Each person who acquires a Certificate will be
deemed to have represented that either: (a) no
employee benefit plan assets have been used to
purchase such Certificate or (b) the purchase
and holding of such Certificate are exempt from
the prohibited transaction restrictions of the
Employee Retirement Income Security Act of 1974
and the Internal Revenue Code of 1986 pursuant
to one or more prohibited transaction statutory
or administrative exemptions. See "Certain
ERISA Considerations".
Rating of the Certificates.... It is a condition to the issuance of the
Certificates that the Certificates be rated by
Moody's and Standard & Poor's not less than the
ratings set forth below:
<TABLE>
<CAPTION>
STANDARD
CERTIFICATES MOODY'S & POOR'S
------------ ------- --------
<S> <C> <C> <C>
Class A-1........................... Aa3 AA+
Class A-2........................... Aa3 AA+
Class B............................. A2 AA-
Class C............................. Baa1 A-
</TABLE>
A rating is not a recommendation to purchase,
hold or sell Certificates, since such rating
does not address market price or suitability
for a particular investor. There can be no
assurance that such ratings will not be lowered
or withdrawn by a Rating Agency.
<TABLE>
<CAPTION>
STANDARD
MOODY'S & POOR'S
------- --------
<S> <C> <C> <C>
Rating of the Depositary.................. Short Term............................ P-1 A-1+
Threshold Rating for the Liquidity
Providers............................... Short Term
Class A-1, Class A-2 and Class B.... P-1 A-1+
Class C............................. P-1 A-1
Liquidity Provider Rating................. The Liquidity Provider meets the Threshold Rating
requirement for all classes of Certificates.
</TABLE>
S-14
<PAGE> 15
SUMMARY FINANCIAL AND OPERATING DATA
The following tables summarize certain consolidated financial data and
certain operating data with respect to Continental. The following selected
consolidated financial data for the years ended December 31, 1999, 1998 and 1997
is derived from the audited consolidated financial statements of Continental
including the notes thereto incorporated by reference in the Prospectus and
should be read in conjunction therewith. The following selected consolidated
financial data for the years ended December 31, 1996 and 1995 is derived from
the selected financial data contained in Continental's Annual Report on Form
10-K for the year ended December 31, 1999, incorporated by reference in the
Prospectus, and the audited consolidated financial statements of Continental for
the years ended December 31, 1996 and 1995 and should be read in conjunction
therewith. The consolidated financial data of Continental for the three and nine
months ended September 30, 2000 and 1999 is derived from the unaudited
consolidated financial statements of Continental incorporated by reference in
this Prospectus Supplement, which include all adjustments (consisting solely of
normal recurring accruals) that Continental considers necessary for the fair
presentation of the financial position and results of operations for these
periods. Operating results for the three and nine months ended September 30,
2000 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2000.
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------- --------------- ---------------------------------------------
2000 1999 2000 1999 1999 1998 1997 1996 1995
------ ------ ------ ------ ------ ------ ------ ------ ------
(IN MILLIONS OF DOLLARS, EXCEPT OPERATING DATA, PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL DATA -- OPERATIONS:
Operating Revenue.................... $2,622 $2,264 $7,470 $6,487 $8,639 $7,927 $7,194 $6,347 $5,816
Operating Expenses................... 2,368 2,062 6,883 5,885 8,039(1) 7,226(2) 6,478 5,822(3) 5,431
------ ------ ------ ------ ------ ------ ------ ------ ------
Operating Income..................... 254 202 587 602 600 701 716 525 385
Nonoperating Income (Expense), net... (30) (35) (90) (77) 198(4) (53) (76) (97) (75)
------ ------ ------ ------ ------ ------ ------ ------ ------
Income before Income Taxes, Minority
Interest, Extraordinary Charges and
Cumulative Effect of Change in
Accounting Principles.............. 224 167 497 525 798(5) 648 640 428 310
Net Income........................... $ 135 $ 104 $ 298 $ 288 $ 455 $ 383 $ 385 $ 319 $ 224
====== ====== ====== ====== ====== ====== ====== ====== ======
Earnings per Common Share............ $ 2.26 $ 1.47 $ 4.85 $ 4.11 $ 6.54(6) $ 6.34 $ 6.65 $ 5.75 $ 4.07
====== ====== ====== ====== ====== ====== ====== ====== ======
Earnings per Common Share Assuming
Dilution........................... $ 2.21 $ 1.44 $ 4.76 $ 3.86 $ 6.20(7) $ 5.02 $ 4.99 $ 4.17 $ 3.37
====== ====== ====== ====== ====== ====== ====== ====== ======
Ratio of Earnings to Fixed
Charges(8)......................... 1.83x 1.70x 1.61x 1.74x 1.80x 1.94x 2.07x 1.81x 1.53x
====== ====== ====== ====== ====== ====== ====== ====== ======
OPERATING DATA(9):
Revenue passenger miles
(millions)(10)..................... 17,325 16,394 48,821 45,050 60,022 53,910 47,906 41,914 40,023
Available seat miles
(millions)(11)..................... 22,356 21,573 64,691 60,961 81,946 74,727 67,576 61,515 61,006
Passenger load factor(12)............ 77.5% 76.0% 75.5% 73.9% 73.2% 72.1% 70.9% 68.1% 65.6%
Breakeven passenger load
factor(13)(14)..................... 65.6% 66.1% 66.3% 63.6% 65.6% 61.6% 60.1% 60.7% 60.8%
Passenger revenue per available seat
mile (cents)(15)................... 10.06 9.07 9.91 9.24 9.06 9.23 9.29 9.01 8.26
Operating cost per available seat
mile (cents)(14)(16)............... 9.65 8.83 9.73 8.95 9.03 8.89 9.04 8.75 8.35
Average yield per revenue passenger
mile (cents)(17)................... 12.98 11.93 13.13 12.51 12.37 12.79 13.11 13.22 12.59
Average length of aircraft flight
(miles)............................ 1,187 1,141 1,158 1,110 1,114 1,044 967 896 836
</TABLE>
S-15
<PAGE> 16
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(IN MILLIONS OF DOLLARS)
<S> <C> <C>
FINANCIAL DATA -- BALANCE SHEET:
ASSETS:
Cash, Cash Equivalents and Short-Term Investments........... $1,156 $1,590
Other Current Assets........................................ 1,193 1,016
Total Property and Equipment, Net........................... 4,684 4,173
Routes, Gates and Slots, Net................................ 1,093 1,131
Other Assets, Net........................................... 333 313
------ ------
Total Assets........................................... $8,459 $8,223
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities......................................... $3,008 $2,775
Long-Term Debt and Capital Leases........................... 2,904 3,055
Deferred Credits and Other Long-Term Liabilities............ 986 800
Common Stockholders' Equity................................. 1,561 1,593
------ ------
Total Liabilities and Stockholders' Equity............. $8,459 $8,223
====== ======
</TABLE>
---------------
(1) Includes an $81 million fleet disposition/impairment loss resulting from
Continental's decision to accelerate the retirement of six DC-10-30
aircraft and other items in 1999 and the first half of 2000 and to dispose
of related excess inventory. In addition, the impairment charge related to
Boeing 747 aircraft no longer operated by the Company, and certain other
fleet-related items were included in the charge.
(2) Includes a $122 million fleet disposition/impairment loss resulting from
Continental's decision to accelerate the retirement of certain jet and
turboprop aircraft.
(3) Includes a $128 million fleet disposition loss associated primarily with
Continental's decision to accelerate the replacement of certain jet
aircraft.
(4) Includes a $297 million gain on the sale of the Company's interest in
AMADEUS Global Travel Distribution S.A. and 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.com, Inc.
(5) Reflects income before income taxes and cumulative effect of a change in
accounting principle. During 1999, as a result of the recently issued Staff
Accounting Bulletin No. 101 -- "Revenue Recognition in Financial
Statements," Continental changed the method it uses to account for the sale
of mileage credits in the OnePass program to participating partners. 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 costs of
providing future air travel, was recorded in the period in which the
credits were sold. Additionally, Continental adopted Statement of Position
98-5, "Reporting on the Costs of Start-Up Activities", in the first quarter
of 1999. Statement of Position 98-5 amended Statement of Position 88-1,
"Accounting for Developmental and Preoperating Costs, Purchases and
Exchanges of Take-Off and Landing Slots, and Airframe Modifications" by
requiring preoperating costs related to the integration of new types of
aircraft to be expensed as incurred and requiring all unamortized start-up
costs (e.g., pilot training costs related to induction of new aircraft) to
be expensed upon adoption. This resulted in the Company recording a $6
million cumulative effect of a change in accounting principle, net of tax,
in the first quarter of 1999.
(6) Reflects earnings per common share after cumulative effect of changes in
accounting principles. See Note (5) for a description of the changes in
accounting principles. Earnings per common share for the year ended
December 31, 1999 were $7.02 before cumulative effect of such changes in
accounting principles.
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<PAGE> 17
(7) Reflects earnings per common share assuming dilution after cumulative
effect of changes in accounting principles. See Note (5) for a description
of the changes in accounting principles. Earnings per common share assuming
dilution for the year ended December 31, 1999 were $6.64 before cumulative
effect of such changes in accounting principles.
(8) For purposes of calculating this ratio, earnings consist of income before
income taxes, minority interest, extraordinary charges and cumulative
effect of a change in accounting principle plus interest expense (net of
capitalized interest), the portion of rental expense representative of
interest expense and amortization of previously capitalized interest. Fixed
charges consist of interest expense and the portion of rental expense
representative of interest expense.
(9) Includes operating data for CMI, but does not include operating data for
Express's regional jet operations or turboprop operations.
(10) The number of scheduled miles flown by revenue passengers.
(11) The number of seats available for passengers multiplied by the number of
scheduled miles those seats are flown.
(12) Revenue passenger miles divided by available seat miles.
(13) The percentage of seats that must be occupied by revenue passengers in
order for the airline to break even on an income before income taxes basis,
excluding nonrecurring charges, nonoperating items and other special items.
(14) Excludes a $81 million fleet disposition/impairment loss in 1999, a $122
million fleet disposition/impairment loss in 1998 and a $128 million fleet
disposition loss in 1996. See Notes (1), (2) and (3) for description of the
charges.
(15) Passenger revenue divided by available seat miles.
(16) Operating expenses divided by available seat miles.
(17) The average revenue received for each mile a revenue passenger is carried.
S-17
<PAGE> 18
RISK FACTORS
RISK FACTORS RELATING TO THE COMPANY
LEVERAGE AND LIQUIDITY
Continental has a higher proportion of debt compared to its equity capital
than some of its principal competitors. In addition, Continental's cash
resources are less than some of its principal competitors. 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 September 30, 2000, Continental had:
- approximately $3.2 billion (including current maturities) of long-term
debt and capital lease obligations. In addition, Continental has minimum
annual commitments under long-term operating leases of aircraft and
aircraft engines.
- approximately $1.2 billion in cash, cash equivalents and short-term
investments.
Continental has substantial commitments for capital expenditures, including
for the acquisition of new aircraft. As of September 30, 2000, Continental had
agreed to acquire or lease a total of 78 Boeing jet aircraft through 2005.
Continental anticipates taking delivery of 28 Boeing jet aircraft in 2000.
Continental also has options for an additional 99 aircraft (exercisable subject
to certain conditions). The estimated aggregate cost of Continental's firm
commitments for Boeing aircraft is approximately $4.1 billion. We currently plan
to finance our 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 had commitments or letters of
intent for backstop financing for approximately 19% of the anticipated remaining
acquisition cost of future Boeing deliveries. In addition, at September 30,
2000, Continental had firm commitments to purchase 28 spare engines related to
the new Boeing aircraft for approximately $189 million, which will be
deliverable through March 2005.
As of September 30, 2000, Express, Continental's subsidiary that operates
regional jet and turboprop aircraft, had firm commitments for 73 Embraer ERJ-145
50-seat regional jets, 75 ERJ-145XR 50-seat regional jets and 35 ERJ-135 37-seat
regional jets, with options for an additional 100 Embraer ERJ aircraft
exercisable through 2007. Express anticipates taking delivery of 22 ERJ-145 and
12 ERJ-135 regional jets in 2000. Neither Express nor Continental will have any
obligation to take any such firm Embraer aircraft that are not financed by a
third party and leased to Express or Continental.
We expect to finance certain of our capital commitments through operating
leases, which will increase our operating expenses. 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.
Additional financing will be needed to satisfy Continental's capital
commitments. We 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. We cannot predict whether current industry
conditions will continue.
SIGNIFICANT COST OF AIRCRAFT FUEL
Fuel costs constitute a significant portion of Continental's operating
expenses. Fuel costs were approximately 10.2% of operating expenses for the year
ended December 31, 1998, 9.7% for the year ended
S-18
<PAGE> 19
December 31, 1999 and 14.9% for the nine months ended September 30, 2000 (in
each case excluding fleet disposition/impairment losses).
Fuel prices and supplies are influenced significantly by international
political and economic circumstances. We enter 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. Our fuel hedging strategy could result in
Continental 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 a reduction of scheduled airline
service could result. Continuation of current high jet fuel prices and any price
increases would materially affect Continental's operating results.
LABOR MATTERS
In July 2000, we completed a three-year program bringing all Continental
employees to industry standard wages. In July 2000, we announced a phased plan
to bring our employee benefits to industry standard levels by 2003. The plan
provides for increases in vacation, paid holidays, increased 401(k) company
matching contributions and additional past service retirement credit for most
senior employees.
The current status of Continental's and its subsidiaries' principal labor
union agreements is as follows:
- Continental's Pilots. In June 1998, a five-year collective bargaining
agreement, retroactive to October 1997, was ratified by Continental's
pilots. The agreement becomes amendable in October 2002.
- Express's Pilots. In December 1998, Express and its pilots executed a
new agreement. This agreement becomes amendable on October 1, 2002.
- Flight Attendants. In March 2000, Continental's flight attendants
ratified a 54-month collective bargaining agreement. This agreement
becomes amendable in September 2004. In June 2000, Express flight
attendants ratified a 54-month collective bargaining agreement which
becomes amendable in December 2004. In November 2000, Continental
announced a tentative collective bargaining agreement covering flight
attendants of CMI, Continental's subsidiary based in Guam, which is
subject to ratification.
- Dispatchers. The Company's dispatchers ratified a new five-year
collective bargaining agreement in July 1998. The agreement becomes
amendable in October 2003. In July 2000, Express and its dispatchers
ratified a four-year collective bargaining agreement.
- Mechanics. Continental's mechanics are covered by a new agreement signed
in January 1999 that becomes amendable January 8, 2002. CMI's mechanics
are covered by a collective bargaining agreement that becomes amendable
March 31, 2001. In August 1999, Express' mechanics ratified a four-year
collective bargaining agreement. The agreement becomes amendable in
January 2003.
RISKS REGARDING CONTINENTAL/NORTHWEST ALLIANCE
In November 1998, Continental and Northwest Airlines, Inc. (together with
Northwest Airlines Corporation and its affiliates, "Northwest") began
implementing a long-term global alliance involving extensive code-sharing,
frequent flyer reciprocity and other cooperative activities (the "Northwest
Alliance"). Implementation of the Northwest Alliance continued throughout 1999
and is continuing in 2000. In a related transaction on November 20, 1998, a
Northwest affiliate acquired an equity interest in Continental from
Continental's principal shareholder and certain other parties. As of October 31,
2000, the Northwest affiliate held approximately 14.9% of the common equity
interest and 52.6% of the fully diluted voting power of Continental. In
addition, as of October 31, 2000, Northwest held a limited proxy to vote certain
additional shares of Continental common stock that would raise its voting power
to approximately 56.9% of Continental's fully diluted voting power. Continental
and Northwest have reached an agreement in principle under which Continental
would repurchase most of the Continental common stock held by Northwest and make
other
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adjustments to their corporate relationship. See "Recent
Developments -- Repurchase of Continental Stock from Northwest".
Continental's ability to finalize implementation of the Northwest Alliance
and to achieve the anticipated benefits is subject to certain risks and
uncertainties, including:
- Disapproval or delay by regulatory authorities or adverse regulatory
developments.
- Competitive pressures, including developments with respect to alliances
among other air carriers.
- Customer reaction to the alliance, including reaction to differences in
product and benefits provided by Continental and Northwest.
- Economic conditions in the principal markets served by Continental and
Northwest.
- Increased costs or other implementation difficulties, including those
caused by employees.
- Our ability to modify certain contracts that restrict certain aspects of
the alliance.
On October 23, 1998, the Department of Justice ("DOJ") filed a lawsuit
against Northwest and Continental challenging Northwest's acquisition of an
equity 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. Continental continues to implement its alliance with
Northwest. The trial of the DOJ lawsuit began on November 1, 2000 in the U.S.
District Court for the Eastern District of Michigan. In connection with the
agreement in principle providing for the repurchase of Continental stock from
Northwest, Continental and Northwest agreed to support an adjournment of the DOJ
lawsuit until November 14, 2000 (which adjournment was granted by the court on
November 6, 2000). While it is not possible to predict the ultimate outcome of
this litigation, we believe that this litigation will not have a material
adverse effect on Continental.
If the Northwest Transaction occurs, it will significantly affect the
Northwest Alliance. See "Recent Developments -- Repurchase of Continental Stock
from Northwest".
RISK 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 market have
resulted in lower yields and revenue per available seat mile in those markets.
We 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 such airline's segment of flights
connecting with 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
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Continental's. We cannot predict the extent to which Continental will benefit
from its alliances or be disadvantaged by competing alliances.
In recent years, and particularly since its deregulation in 1978, the U.S.
airline industry has also undergone substantial consolidation, and it may in the
future undergo additional consolidation. For example, in May 2000, United, the
nation's largest commercial airline, announced its agreement to acquire US
Airways, the nation's sixth largest commercial airline, subject to regulatory
approvals and other conditions. The impact on Continental of this pending
transaction and any additional consolidation within the U.S. airline industry
cannot be predicted at this time.
REGULATORY MATTERS
Airlines are subject to extensive regulatory and legal compliance
requirements. These requirements impose substantial costs on airlines. In the
last several years, the Federal Aviation Administration ("FAA") has issued a
number of directives and other regulations relating to the maintenance and
operation of aircraft that have required significant expenditures. Such 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. We expect 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, in 1999 "passenger bill of rights"
legislation was introduced in Congress that would, among other things, have
required the payment of compensation to passengers as a result of certain
delays, and limited the ability of carriers to prohibit or restrict usage of
certain tickets in manners currently prohibited or restricted.
Restrictions on the ownership and transfer of airline routes have also been
proposed. In addition, 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. We cannot
provide assurance that laws or regulations enacted in the future will not
adversely affect Continental.
The Federal Aviation Administration 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. In April 2000, legislation was signed eliminating slot
restrictions beginning in 2001 at O'Hare and in 2007 at LaGuardia and Kennedy.
Slot restrictions at O'Hare, LaGuardia and Kennedy have already begun to be
eliminated through exemptions for new entrants and small aircraft serving small
and non-hub airports. Express has been awarded slot exemptions to permit it to
provide extensive service at LaGuardia using regional jets. The Borough of
Queens, the City of New York and the Mayor of New York have asked the U.S. Court
of Appeals for the Second Circuit to review and reverse the Department of
Transportation's decisions awarding slot exemptions at LaGuardia and JFK to
Express and other carriers. The Port Authority of New York and New Jersey has
recently taken action which purports to restrict the provision of additional
service at LaGuardia during certain hours and the FAA has proposed restrictions
on service at LaGuardia. These actions may adversely impact certain of
Continental's planned future services using such slot exemptions.
RISK FACTORS RELATING TO THE CERTIFICATES AND THE OFFERING
APPRAISALS AND REALIZABLE VALUE OF AIRCRAFT
Three independent appraisal and consulting firms have prepared appraisals
of the Aircraft. Letters summarizing such appraisals are annexed to this
Prospectus Supplement as Appendix II. Such appraisals are based on varying
assumptions and methodologies, which differ among the appraisers, and were
prepared without physical inspection of the Aircraft. Appraisals that are based
on other assumptions and methodologies
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may result in valuations that are materially different from those contained in
such appraisals. See "Description of the Aircraft and the Appraisals -- The
Appraisals".
An appraisal is only an estimate of value. It does not indicate the price
at which an Aircraft may be purchased from the Aircraft manufacturer. Nor should
an appraisal be relied upon as a measure of realizable value. The proceeds
realized upon a sale of any Aircraft may be less than its appraised value. In
particular, the appraisals of the Aircraft are estimates of values as of future
delivery dates. The value of an Aircraft if remedies are exercised under the
applicable Indenture will depend on market and economic conditions, the supply
of similar aircraft, the availability of buyers, the condition of the Aircraft
and other factors. Accordingly, there can be no assurance that the proceeds
realized upon any such exercise of remedies would be sufficient to satisfy in
full payments due on the Certificates.
PRIORITY OF DISTRIBUTIONS; SUBORDINATION
Certain Classes of Certificates are subordinated to other Classes in rights
to distributions. See "Description of the Certificates -- Subordination".
Consequently, a payment default under any Equipment Note or a Triggering Event
may cause the distribution to more senior Classes of Certificates of payments
received from payment on one or more junior series of Equipment Notes. If this
should occur, the interest accruing on the remaining Equipment Notes would be
less than the interest accruing on the remaining Certificates. This is because
the remaining Certificates of the junior Classes accrue interest at a higher
rate than the remaining Equipment Notes, which include series applicable to the
senior Classes bearing interest at a lower rate. As a result of this possible
interest shortfall, the holders of one or more junior Classes of Certificates
may not receive the full amount due to them after a payment default under any
Equipment Note even if all Equipment Notes are eventually paid in full.
CONTROL OVER COLLATERAL; SALE OF COLLATERAL
If an Indenture Default is continuing, subject to certain conditions, the
Loan Trustee under such Indenture will be directed by the "Controlling Party" in
exercising remedies under such Indenture, including accelerating the applicable
Equipment Notes or foreclosing the lien on the Aircraft securing such Equipment
Notes. See "Description of the Certificates -- Indenture Defaults and Certain
Rights Upon an Indenture Default".
The Controlling Party will be:
- The Class A-1 Trustee or Class A-2 Trustee, whichever represents the
Class with the larger principal amount of Certificates outstanding at the
time that the Indenture Default occurs.
- Upon payment of final distributions to the holders of such larger Class,
the other of the Class A-1 Trustee or Class A-2 Trustee.
- Upon payment of final distributions to the holders of Class A-1 and A-2
Certificates, the Class B Trustee.
- Upon payment of final distributions to the holders of Class B
Certificates, the Class C Trustee.
- Under certain circumstances, and notwithstanding the foregoing, the
liquidity provider with the largest amount owed to it.
During the continuation of any Indenture Default, the Controlling Party may
direct the acceleration and sale of the Equipment Notes issued under such
Indenture, subject to certain limitations. See "Description of the Intercreditor
Agreement -- Intercreditor Rights -- Sale of Equipment Notes or Aircraft". The
market for Equipment Notes during any Indenture Default may be very limited, and
there can be no assurance as to the price at which they could be sold. If the
Controlling Party directs the sale of any Equipment Notes for less than their
outstanding principal amount, certain Certificateholders will receive a smaller
amount of principal distributions than anticipated and will not have any claim
for the shortfall against Continental, any Owner Trustee, any Owner Participant
or any Trustee.
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RATINGS OF THE CERTIFICATES
It is a condition to the issuance of the Certificates that the Class A-1
and A-2 Certificates be rated not lower than Aa3 by Moody's and AA+ by Standard
& Poor's, the Class B Certificates be rated not lower than A2 by Moody's and AA-
by Standard & Poor's and the Class C Certificates be rated not lower than Baa1
by Moody's and A- by Standard & Poor's. A rating is not a recommendation to
purchase, hold or sell Certificates, since such rating does not address market
price or suitability for a particular investor. A rating may not remain for any
given period of time and may be lowered or withdrawn entirely by a Rating Agency
if in its judgment circumstances in the future (including the downgrading of
Continental, the Depositary or a Liquidity Provider) so warrant.
The rating of the Certificates is based primarily on the default risk of
the Equipment Notes and the Depositary, the availability of the Liquidity
Facility for the benefit of holders of the Certificates, the collateral value
provided by the Aircraft relating to the Equipment Notes and the subordination
provisions applicable to the Certificates. Standard & Poor's has indicated that
its rating applies to a unit consisting of Certificates representing the Trust
Property and Escrow Receipts initially representing undivided interests in
certain rights to $841,156,000 of Deposits (less any amounts used to purchase
Equipment Notes on the Issuance Date). Amounts deposited under the Escrow
Agreements are not property of Continental and are not entitled to the benefits
of Section 1110 of the U.S. Bankruptcy Code. Neither the Certificates nor the
Escrow Receipts may be separately assigned or transferred.
UNUSED ESCROWED FUNDS
Under certain circumstances, all of the funds held in escrow as Deposits
may not be used to purchase Equipment Notes by the deadline established for
purposes of this offering. See "Description of the Deposit Agreements -- Unused
Deposits". If any funds remain as Deposits with respect to any Trust after such
deadline, they will be withdrawn by the Escrow Agent for such Trust and
distributed, with accrued and unpaid interest but without any premium, to the
Certificateholders of such Trust. Since the maximum principal amount of
Equipment Notes may not be issued with respect to an Aircraft and, in any such
case, the Series C Equipment Notes are more likely not to be issued in the
maximum principal amount as compared to the other Equipment Notes, it is more
likely that a distribution of unused Deposits will be made with respect to the
Class C Certificates as compared to the other Certificates. See "Description of
the Deposit Agreements -- Unused Deposits".
LIMITED ABILITY TO RESELL THE CERTIFICATES
Prior to this offering, there has been no public market for the
Certificates. Neither Continental nor any Trust intends to apply for listing of
the Certificates on any securities exchange or otherwise. The Underwriters may
assist in resales of the Certificates, but they are not required to do so. A
secondary market for the Certificates may not develop. If a secondary market
does develop, it might not continue or it might not be sufficiently liquid to
allow you to resell any of your Certificates.
RECENT DEVELOPMENTS
REPURCHASE OF CONTINENTAL STOCK FROM NORTHWEST
On November 5, 2000, Continental executed an agreement in principle (the
"Northwest Agreement") with Northwest and certain of its affiliates under which
Continental would, among other things, repurchase most of the Class A common
stock (which has ten votes per share) owned by Northwest, reclassify the
remaining shares of Class A common stock into Class B common stock (which has
one vote per share), and make other adjustments to their corporate and alliance
relationship (collectively, the "Northwest Transaction"). Under the Northwest
Agreement, Continental and Northwest agreed to support an adjournment of the DOJ
lawsuit until November 14, 2000 (which adjournment was granted by the court on
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November 6, 2000), while the parties seek to negotiate and execute definitive
agreements on or before November 13, 2000, to the following effect:
Repurchase and Recapitalization. Continental will repurchase from
Northwest 6,685,279 shares of Class A common stock for $450 million in cash
(the "Repurchase"). Immediately thereafter, the remaining 1,975,945 shares
of Class A common stock held by Northwest (as well as all other outstanding
shares of Class A common stock) will be reclassified into Class B common
stock at an exchange ratio of 1.32 shares of Class B common stock per share
of Class A common stock as part of the recapitalization described below
(the "Recapitalization").
Northwest Alliance. The Northwest Alliance will be amended to extend
its term through 2025 and to add additional termination rights (principally
related to changes of control of Northwest or Continental and certain
redemptions of the Preferred Stock).
Preferred Stock. In connection with the amendment to the Northwest
Alliance, Continental will issue Northwest one share of a new series of
preferred stock (the "Preferred Stock") for a nominal price. The Preferred
Stock will give Northwest the right to block certain business combinations
and similar changes of control transactions involving Continental and a
third party major air carrier during the term of the Northwest Alliance and
any dividend or distribution of all or substantially all of Continental's
assets. The Preferred Stock will be redeemable by Continental at a nominal
price (and the blocking rights eliminated) (i) if Northwest transfers or
encumbers the Preferred Stock, (ii) if there is a change of control of
Northwest involving a third party major air carrier, (iii) on expiration or
termination of the Northwest Alliance (other than as a result of a breach
by Continental), or (iv) if Northwest materially breaches its standstill
obligations (referred to below) to Continental or triggers Continental's
rights agreement.
Standstill Agreement. Continental will enter into a customary
standstill agreement with Northwest that contains standstill and conduct
restrictions similar to those currently contained in the corporate
governance agreement between the parties, except that all Continental
securities owned by Northwest after the Repurchase will be voted neutrally
on all matters other than a Continental change of control (in which case
they may be voted at Northwest's discretion) and the percentage of
Continental equity permitted to be owned by Northwest will be adjusted
downward to reflect its holdings following the Repurchase and
Recapitalization, and upward if the number of shares of Continental's
common stock outstanding decreases.
Rights Agreement. Continental's rights agreement will be amended to
take into account the effects of the Recapitalization and the Repurchase,
and to eliminate Northwest as an "Exempt Person."
Charter Amendment. At a special meeting of Continental stockholders,
the charter of Continental will be amended, effective immediately following
the Repurchase, to (i) recapitalize the Class A common stock pursuant to
the Recapitalization, (ii) eliminate all references to Class A and Class D
common stock, (iii) eliminate the special rights of a Northwest affiliate
that currently owns Class A common stock, and (iv) provide that until the
termination of the Preferred Stock blocking rights (or the earlier
redemption of the Preferred Stock), Continental will maintain and renew its
rights agreement and, without the approval of the Preferred Stock holder,
will not amend the rights agreement or redeem the rights thereunder to
permit any change of control of Continental involving a third party major
air carrier.
Governance Agreement and Supplemental Agreement. The corporate
governance agreement between the parties and the related supplemental
agreement will each be terminated at the closing of the transactions.
Execution of definitive documentation for the Northwest Agreement is
conditioned on Continental's having received a fairness opinion from a
nationally recognized investment bank in connection with the Repurchase and the
Recapitalization, and the parties' having obtained a waiver or other termination
of the "rights of offer and re-offer" of 1992 Air, Inc. covering the Class A
common stock owned by Northwest. 1992 Air, Inc. has agreed in principle to
transfer and waive its rights in exchange for a payment from Continental
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of $10 million in cash (or, at Continental's election, Class B common stock,
subject to certain adjustments). Prior to the execution of definitive
agreements, Northwest shall have satisfied its obligations, if any, to the Air
Line Pilots Association regarding an alliance letter agreement between Northwest
and the Association.
Following execution of definitive documentation for the Northwest
Transaction, Continental expects to call a special meeting of stockholders to
vote on the Recapitalization and related charter amendments. Under the Northwest
Agreement, Northwest will vote its shares of Class A common stock for each of
these proposals, and Northwest has sufficient votes to ensure that they are
approved.
Consummation of the Northwest Transaction is expected to be subject to
certain standard closing conditions and settlement of the DOJ lawsuit in a
manner reasonably satisfactory to Continental and Northwest. Continental cannot
predict whether definitive documentation reflecting the Northwest Agreement will
be executed, or whether the terms of any documents actually executed will differ
from the terms contemplated by the Northwest Agreement, or whether the Northwest
Transaction will ultimately be consummated.
OFFER FOR CERTAIN ASSETS OF US AIRWAYS
In October 2000, Continental made an offer to purchase for $215 million in
cash certain assets currently used by US Airways, Inc. ("US Airways") at Reagan
National that United Air Lines, Inc. ("United") proposes to sell if the proposed
merger of United and US Airways occurs. The assets would include 119 jet and 103
commuter slots at Reagan National, as well as eight gates and related ticket
counter, ramp, aircraft parking, office space and other facilities at the
airport. The offer also includes the option to assume the lease of US Airways'
line maintenance hangar at Reagan National.
CONCORDE ACCIDENT
On July 25, 2000, a Concorde aircraft operated by Air France crashed
shortly after takeoff from France's Charles de Gaulle Airport, killing 114
people and destroying the aircraft. The preliminary investigation conducted by
French authorities suggests that one of the aircraft's tires burst and that
pieces of rubber from the tire pierced a wing of the aircraft and ruptured fuel
tanks, leading to a fire and the crash. In early September 2000, Continental
learned that a small piece of metal found on the runway after the Concorde took
off is believed by the French authorities to have caused or contributed to the
tire failure and is suspected by investigators to have come from a Continental
DC-10 aircraft that had taken off on the same runway a short time before the
Concorde.
Several lawsuits involving Continental have been filed to date in
connection with the accident, and Continental anticipates that additional suits
will be filed against it in the future. Such pending litigation, and the
investigation of the Concorde accident, are in preliminary stages. Continental
is cooperating with French and U.S. authorities in the investigation of the
accident. Although the outcome of such suits or any future litigation cannot be
known at this time, Continental's costs to defend these matters and, Continental
believes, any potential liability exposure are covered by insurance.
Consequently, Continental does not expect the foregoing litigation or any
additional suits that may arise from the accident to have a material adverse
effect on the financial position or results of operations of Continental.
USE OF PROCEEDS
The proceeds from the sale of the Certificates being offered hereby will be
used to purchase Equipment Notes during the Delivery Period issued, at
Continental's election, either (i) by each Owner Trustee to finance a portion of
the purchase price of the Leased Aircraft or (ii) by Continental to finance a
portion of the purchase price of the Owned Aircraft. Prior to utilization of
such proceeds to purchase Equipment Notes, such proceeds from the sale of the
Certificates of each Trust will be deposited with the Depositary on behalf of
the applicable Escrow Agent for the benefit of the Certificateholders of such
Trust.
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THE COMPANY
Continental Airlines, Inc. ("Continental" or the "Company") is a major
United States air carrier engaged in the business of transporting passengers,
cargo and mail. Continental is the fifth largest United States airline (as
measured by revenue passenger miles in 1999) and, together with its wholly owned
subsidiaries, Continental Express, Inc. ("Express") and Continental Micronesia,
Inc. ("CMI"), serves 228 airports worldwide. As of October 1, 2000, Continental
flew to 134 domestic and 94 international destinations and offered additional
connecting service through alliances with domestic and foreign carriers.
Continental directly serves 16 European cities, 8 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. The Company's executive offices are located at 1600 Smith
Street, Houston, Texas 77002.
DOMESTIC OPERATIONS
Continental operates its domestic route system primarily through its hubs
at Newark International Airport ("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. As of October 1, 2000,
Continental operated 55% of the average daily jet departures from Newark, 77% of
the average daily jet departures from Bush Intercontinental, and 49% of the
average daily jet departures from Hopkins International (in each case excluding
regional jets). 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.
CONTINENTAL EXPRESS
Continental's 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 two years of age
and seat either 37 or 50 passengers. The turboprop aircraft average
approximately nine years of age and seat 64 or fewer passengers.
As of October 1, 2000, Express served 36 destinations from Newark (29 by
regional jet), 63 destinations from Bush Intercontinental (46 by regional jet)
and 63 destinations from Hopkins International (42 by regional jet). In
addition, commuter feed traffic is currently provided by other code-sharing
partners.
Continental 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 such 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 its turboprop
aircraft. The regional jets also allow Express to serve certain routes that
cannot be served by turboprop aircraft. Express is in the process of developing
a plan to convert to an all regional jet fleet over a multi-year period.
DOMESTIC CARRIER ALLIANCES
Continental has entered into and continues to develop alliances with
domestic carriers:
- In January 1998, Continental announced it had entered into a long-term
global alliance with Northwest. 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
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Northwest regional affiliates. See "Risk Factors -- Risk Factors Relating
to the Company -- Risks Regarding Continental/Northwest Alliance" and
"Recent Developments -- Repurchase of Continental Stock from Northwest".
- Continental has entered into 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 covered 36 city-pairs as
of October 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 arrangement 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. In the fourth quarter of
1999, Continental acquired a 28% equity interest in 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 a connection for
Continental passengers to 35 destinations throughout the Pacific
Northwest.
- In June 2000, Continental announced a code-sharing agreement with
CommutAir. Over the course of the next six months Continental will
implement code-sharing on more than 250 daily CommutAir flights to 20
destinations throughout the eastern United States.
- In August 2000, Continental signed a code-sharing agreement with an
American Airlines affiliate, American Eagle. Continental will code-share
on over 75 American Eagle flights to seven California destinations from
Los Angeles, with the code-share commencing in December 2000.
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
available seat miles for 1999, approximately 36.2% of Continental's jet
operations, including CMI, were dedicated to international traffic. As of
October 1, 2000, the Company offered 161 weekly departures to 16 European cities
and marketed service to 34 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 United States
airline.
Continental's Newark hub is a significant international gateway. From
Newark, at October 1, 2000 Continental served 16 European cities, five Canadian
cities, three Mexican cities, four Central American cities, six South American
cities, eight Caribbean destinations, Tel Aviv and Tokyo. In addition,
Continental markets numerous other destinations through code-sharing
arrangements with foreign carriers. Continental recently announced that it will
inaugurate daily non-stop service between Newark and Hong Kong, effective March
1, 2001 and London/Stansted, effective May 1, 2001, subject to governmental
approval. Continental also announced the addition by the end of 2000 of three
Caribbean destinations: Aguadilla, Puerto Rico, Grand Cayman and Aruba. In
addition, Continental announced the addition by the end of 2000 of seasonal
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service to three destinations in Mexico; Los Cabos, Acapulco and Puerto
Vallarta. All such additions are subject to governmental approval.
The Company's Houston hub is the focus of its operations in Mexico and
Central America. As of October 1, 2000, Continental flew from Houston to 11
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 ten additional cities in Mexico by regional jets.
Continental flies to London, Montreal, Toronto, San Juan and Cancun from
its hub in Cleveland.
CONTINENTAL MICRONESIA
CMI is a United States-certificated international air carrier engaged in
the business of 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 carrier to operate a hub
in the New York City area. Consequently, management believes the Company 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 will enhance its ability to attract foreign alliance
partners. See "Risk Factors -- Risk Factors Relating to the Company -- Risks
Regarding Continental/Northwest Alliance" and "Recent Developments -- Repurchase
of Continental Stock from Northwest".
Continental believes that continuing to develop a network of international
alliance partners will better leverage the Company's hub assets by attracting
high-yield flow traffic and strengthening the Company's position in large, local
(non-connecting) markets and will result in improved returns to the Company.
Further, 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
Continental'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"), British Midland, EVA Airways
Corporation, an airline based in Taiwan, Virgin Atlantic Airways ("Virgin"),
Societe Air France ("Air France"), and Compania Panamena de Aviacion, S.A., 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, 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. Continental has entered into a
joint marketing agreement with Aerolineas Centrales de Colombia, for which
government approval has not yet been sought.
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Certain of Continental's code-sharing agreements involve block-space
arrangements (pursuant to which the 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's agreement with
Virgin includes the purchase by Continental of blocks of seats on nine other
routes flown by Virgin between the United Kingdom and the United States.
The Company might enter into other code-sharing, joint marketing and
block-space agreements in 2000, which may include the Company undertaking the
financial commitment to purchase seats from other carriers.
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<PAGE> 30
DESCRIPTION OF THE CERTIFICATES
The following summary describes all material terms of the Certificates and
supplements (or, to the extent inconsistent therewith, replaces) the description
of the general terms and provisions of the Certificates set forth in the
Prospectus accompanying this Prospectus Supplement (the "Prospectus"). The
summary does not purport to be complete and is qualified in its entirety by
reference to all of the provisions of the Basic Agreement, which was filed with
the Securities and Exchange Commission (the "Commission") as an exhibit to the
Company's Current Report on Form 8-K dated September 25, 1997, and to all of the
provisions of the Certificates, the Trust Supplements, the Deposit Agreements,
the Escrow Agreements, the Intercreditor Agreement and the trust supplements
applicable to the Successor Trusts, each of which will be filed as an exhibit to
a Current Report on Form 8-K to be filed by Continental.
Except as otherwise indicated, the following summary relates to each of the
Trusts and the Certificates issued by each Trust. The terms and conditions
governing each of the Trusts will be substantially the same, except as described
under "-- Subordination" and "-- Purchase Rights of Certificateholders" below
and except that the principal amount and scheduled principal repayments of the
Equipment Notes held by each Trust and the interest rate and maturity date of
the Equipment Notes held by each Trust will differ. The references to Sections
in parentheses in the following summary are to the relevant Sections of the
Basic Agreement unless otherwise indicated.
GENERAL
Each Pass Through Certificate (collectively, the "Certificates") will
represent a fractional undivided interest in one of the four Continental
Airlines 2000-2 Pass Through Trusts (the "Class A-1 Trust", the "Class A-2
Trust", the "Class B Trust", and the "Class C Trust", and, collectively, the
"Trusts"). The Trusts will be formed pursuant to a pass through trust agreement
between Continental and Wilmington Trust Company, as trustee (the "Trustee"),
dated as of September 25, 1997 (the "Basic Agreement"), and four separate
supplements thereto (each, a "Trust Supplement" and, together with the Basic
Agreement, collectively, the "Pass Through Trust Agreements") relating to such
Trusts between Continental and the Trustee, as trustee under each Trust. The
Certificates to be issued by the Class A-1 Trust, the Class A-2 Trust, the Class
B Trust and the Class C Trust are referred to herein as the "Class A-1
Certificates", the "Class A-2 Certificates", the "Class B Certificates" and the
"Class C Certificates".
Each Certificate will represent a fractional undivided interest in the
Trust created by the Basic Agreement and the applicable Trust Supplement
pursuant to which such Certificate is issued. (Section 2.01) The Trust Property
of each Trust (the "Trust Property") will consist of:
- Subject to the Intercreditor Agreement, Equipment Notes acquired under
the Note Purchase Agreement and issued, at Continental's election in
connection with the financing of each Aircraft during the Delivery
Period, either (a) on a nonrecourse basis by an Owner Trustee in each
separate leveraged lease transaction with respect to each Leased Aircraft
to finance a portion of the purchase price of such Leased Aircraft by the
Owner Trustee, in which case the applicable Leased Aircraft will be
leased to Continental, or (b) on a recourse basis by Continental in
connection with each separate secured loan transaction with respect to
each Owned Aircraft to finance a portion of the purchase price of such
Owned Aircraft by Continental.
- The rights of such Trust to acquire Equipment Notes under the Note
Purchase Agreement.
- The rights of such Trust under the applicable Escrow Agreement to request
the Escrow Agent to withdraw from the Depositary funds sufficient to
enable such Trust to purchase Equipment Notes after the Issuance Date on
the delivery of an Aircraft during the Delivery Period.
- The rights of such Trust under the Intercreditor Agreement (including all
monies receivable in respect of such rights).
- All monies receivable under the Liquidity Facility for such Trust.
- Funds from time to time deposited with the Trustee in accounts relating
to such Trust.
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<PAGE> 31
The Certificates of each Trust will be issued in fully registered form only
and will be subject to the provisions described below under "-- Book Entry;
Delivery and Form". Certificates will be issued only in minimum denominations of
$1,000 or integral multiples thereof, except that one Certificate of each Trust
may be issued in a different denomination. (Section 3.01)
The Certificates represent interests in the respective Trusts, and all
payments and distributions thereon will be made only from the Trust Property of
the related Trust. (Section 3.09) The Certificates do not represent an interest
in or obligation of Continental, the Trustees, any of the Loan Trustees or Owner
Trustees in their individual capacities, any Owner Participant or any affiliate
of any thereof.
Pursuant to the Escrow Agreement applicable to each Trust, the
Certificateholders of such Trust as holders of the Escrow Receipts affixed to
each Certificate are entitled to certain rights with respect to the Deposits
relating to such Trust. Accordingly, any transfer of a Certificate will have the
effect of transferring the corresponding rights with respect to the Deposits,
and rights with respect to the Deposits may not be separately transferred by
holders of the Certificates (the "Certificateholders"). Rights with respect to
the Deposits and the Escrow Agreement relating to a Trust, except for the right
to request withdrawals for the purchase of Equipment Notes, will not constitute
Trust Property of such Trust.
SUBORDINATION
The subordination terms of the Certificates vary depending upon whether a
"Triggering Event" has occurred. "Triggering Event" means (x) the occurrence of
an Indenture Default under all Indentures resulting in a PTC Event of Default
with respect to the most senior Class of Certificates then outstanding, (y) the
acceleration of all of the outstanding Equipment Notes (provided that during the
Delivery Period the aggregate principal amount thereof exceeds $300 million) or
(z) certain bankruptcy or insolvency events involving Continental.
BEFORE A TRIGGERING EVENT
On each Regular Distribution Date or Special Distribution Date (each, a
"Distribution Date"), so long as no Triggering Event shall have occurred
(whether or not continuing), all payments received by the Subordination Agent in
respect of Equipment Notes and certain other payments under the related
Indenture will be distributed under the Intercreditor Agreement in the following
order:
- To the Liquidity Provider to the extent required to pay the Liquidity
Expenses.
- To the Liquidity Provider to the extent required to pay interest accrued
on the Liquidity Obligations.
- To the Liquidity Provider to the extent required to pay or reimburse the
Liquidity Provider for certain Liquidity Obligations (other than amounts
payable pursuant to the two preceding clauses) and, if applicable, to
replenish each Cash Collateral Account up to the Required Amount.
- To the trustee for the Class A-1 Trust (the "Class A-1 Trustee") and the
trustee for the Class A-2 Trust (the "Class A-2 Trustee") to the extent
required to pay Expected Distributions on the Class A-1 Certificates and
the Class A-2 Certificates. If available funds are insufficient to pay an
Expected Distribution to each such Class in full, available funds will be
distributed to each of the Class A-1 Trustee and Class A-2 Trustee in the
same proportion as such Trustee's proportionate share of the aggregate
amount of such Expected Distributions.
- To the trustee for the Class B Trust (the "Class B Trustee") to the
extent required to pay Expected Distributions on the Class B
Certificates.
- To the trustee for the Class C Trust (the "Class C Trustee") to the
extent required to pay Expected Distributions on the Class C
Certificates.
- If Class D Certificates have been issued (see "-- Possible Issuance of
Class D Certificates") to the trustee for the Class D Trust (the "Class D
Trustee") to the extent required to pay "Expected
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<PAGE> 32
Distributions" (to be defined in a manner equivalent to the definition
for other Classes of Certificates) on the Class D Certificates.
- To the Subordination Agent and each Trustee for the payment of certain
fees and expenses.
AFTER A TRIGGERING EVENT
Upon the occurrence of a Triggering Event and at all times thereafter, all
payments received by the Subordination Agent in respect of the Equipment Notes
and certain other payments will be distributed under the Intercreditor Agreement
in the following order:
- To the Subordination Agent, any Trustee, any Certificateholder and the
Liquidity Provider to the extent required to pay Administration Expenses.
- To the Liquidity Provider to the extent required to pay the Liquidity
Expenses.
- To the Liquidity Provider to the extent required to pay interest accrued
on the Liquidity Obligations.
- To the Liquidity Provider to the extent required to pay the outstanding
amount of all Liquidity Obligations and, if applicable, with respect to
any particular Liquidity Facility, unless (x) less than 65% of the
aggregate outstanding principal amount of all Equipment Notes are
Performing Equipment Notes and a Liquidity Event of Default shall have
occurred and is continuing under such Liquidity Facility or (y) a Final
Drawing shall have occurred under such Liquidity Facility, to replenish
the Cash Collateral Account with respect to such Liquidity Facility up to
the Required Amount for the related Class of Certificates (less the
amount of any repayments of Interest Drawings under such Liquidity
Facility while sub-clause (x) of this clause is applicable).
- To the Subordination Agent, any Trustee or any Certificateholder to the
extent required to pay certain fees, taxes, charges and other amounts
payable.
- To the Class A-1 Trustee and the Class A-2 Trustee to the extent required
to pay Adjusted Expected Distributions on the Class A-1 Certificates and
the Class A-2 Certificates. If available funds are insufficient to pay an
Adjusted Expected Distribution to each such Class in full, available
funds will be distributed to each of the Class A-1 Trustee and Class A-2
Trustee in the same proportion as such Trustee's proportionate share of
the aggregate amount of such Adjusted Expected Distributions.
- To the Class B Trustee to the extent required to pay Adjusted Expected
Distributions on the Class B Certificates.
- To the Class C Trustee to the extent required to pay Adjusted Expected
Distributions on the Class C Certificates.
- If Class D Certificates have been issued, to the Class D Trustee to the
extent required to pay "Adjusted Expected Distributions" (to be defined
in a manner equivalent to the definition for other Classes of
Certificates) on the Class D Certificates.
For purposes of calculating Expected Distributions or Adjusted Expected
Distributions with respect to the Certificates of any Trust, any premium paid on
the Equipment Notes held in such Trust that has not been distributed to the
Certificateholders of such Trust (other than such premium or a portion thereof
applied to the payment of interest on the Certificates of such Trust or the
reduction of the Pool Balance of such Trust) shall be added to the amount of
Expected Distributions or Adjusted Expected Distributions.
Payments in respect of the Deposits relating to a Trust and monies drawn
under a Liquidity Facility will not be subject to the subordination provisions
of the Intercreditor Agreement.
PAYMENTS AND DISTRIBUTIONS
Payments of interest on the Deposits with respect to each Trust and
payments of principal, premium (if any) and interest on the Equipment Notes or
with respect to other Trust Property held in each Trust will be distributed by
the Paying Agent (in the case of the Deposits) or by the Trustee (in the case of
Trust
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<PAGE> 33
Property of such Trust) to Certificateholders of such Trust on the date receipt
of such payment is confirmed, except in the case of certain types of Special
Payments.
The Deposits held with respect to each Trust and the Equipment Notes held
in each Trust will accrue interest at the applicable rate per annum for
Certificates to be issued by such Trust set forth on the cover page of this
Prospectus Supplement, payable on April 2 and October 2 of each year, commencing
on April 2, 2001 (or, in the case of Equipment Notes issued after such date,
commencing with the first such date to occur after initial issuance thereof).
Such interest payments will be distributed to Certificateholders of such Trust
on each such date until the final Distribution Date for such Trust, subject in
the case of payments on the Equipment Notes to the Intercreditor Agreement.
Interest is calculated on the basis of a 360-day year consisting of twelve
30-day months.
Payments of interest applicable to the Certificates to be issued by each of
the Trusts will be supported by a separate Liquidity Facility to be provided by
the Liquidity Provider for the benefit of the holders of such Certificates in an
aggregate amount sufficient to pay interest thereon at the Stated Interest Rate
for such Trust on up to three successive Regular Distribution Dates (without
regard to any future payments of principal on such Certificates), except that
the Liquidity Facility with respect to such Trust will not cover interest
payable by the Depositary on the Deposits relating to such Trust. The Liquidity
Facility for any Class of Certificates does not provide for drawings thereunder
to pay for principal of or premium on the Certificates of such Class, any
interest on the Certificates of such Class in excess of the Stated Interest
Rates, or, notwithstanding the subordination provisions of the Intercreditor
Agreement, principal of or interest or premium on the Certificates of any other
Class. Therefore, only the holders of the Certificates to be issued by a
particular Trust will be entitled to receive and retain the proceeds of drawings
under the Liquidity Facility for such Trust. See "Description of the Liquidity
Facilities".
Payments of principal of the Series A-1, B and C Equipment Notes are
scheduled to be received by the Trustee on April 2 and October 2 in certain
years depending upon the terms of the Equipment Notes held in such Trust. The
entire principal amount of the Series A-2 Equipment Notes is scheduled for
payment on October 2, 2010.
Scheduled payments of interest on the Deposits and of interest or principal
on the Equipment Notes are herein referred to as "Scheduled Payments", and April
2 and October 2 of each year are herein referred to as "Regular Distribution
Dates". See "Description of the Equipment Notes -- Principal and Interest
Payments". The "Final Maturity Date" for the Class A-1 Certificates is October
2, 2022, for the Class A-2 Certificates is April 2, 2012, for the Class B
Certificates is October 2, 2019, and for the Class C Certificates is October 2,
2012.
The Paying Agent with respect to each Escrow Agreement will distribute on
each Regular Distribution Date to the Certificateholders of the Trust to which
such Escrow Agreement relates all Scheduled Payments received in respect of the
related Deposits, the receipt of which is confirmed by the Paying Agent on such
Regular Distribution Date. The Trustee of each Trust will distribute, subject to
the Intercreditor Agreement, on each Regular Distribution Date to the
Certificateholders of such Trust all Scheduled Payments received in respect of
Equipment Notes held on behalf of such Trust, the receipt of which is confirmed
by the Trustee on such Regular Distribution Date. Each Certificateholder of each
Trust will be entitled to receive its proportionate share, based upon its
fractional interest in such Trust, of any distribution in respect of Scheduled
Payments of interest on the Deposits relating to such Trust and, subject to the
Intercreditor Agreement, of principal or interest on Equipment Notes held on
behalf of such Trust. Each such distribution of Scheduled Payments will be made
by the applicable Paying Agent or Trustee to the Certificateholders of record of
the relevant Trust on the record date applicable to such Scheduled Payment
subject to certain exceptions. (Sections 4.01 and 4.02; Escrow Agreements,
Section 2.03) If a Scheduled Payment is not received by the applicable Paying
Agent or Trustee on a Regular Distribution Date but is received within five days
thereafter, it will be distributed on the date received to such holders of
record. If it is received after such five-day period, it will be treated as a
Special Payment and distributed as described below.
Any payment in respect of, or any proceeds of, any Equipment Note, Trust
Indenture Estate under (and as defined in) any Leased Aircraft Indenture or
Collateral under (and as defined in) any Owned Aircraft
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<PAGE> 34
Indenture other than a Scheduled Payment (each, a "Special Payment") will be
distributed on, in the case of an early redemption or a purchase of any
Equipment Note, the date of such early redemption or purchase (which shall be a
Business Day), and otherwise on the Business Day specified for distribution of
such Special Payment pursuant to a notice delivered by each Trustee as soon as
practicable after the Trustee has received funds for such Special Payment (each
a "Special Distribution Date"). Any such distribution will be subject to the
Intercreditor Agreement. Any unused Deposits to be distributed after the
Delivery Period Termination Date or the occurrence of a Triggering Event,
together with accrued and unpaid interest thereon (each, also a "Special
Payment"), will be distributed on a date 25 days after the Paying Agent has
received notice of the event requiring such distribution (also a "Special
Distribution Date"). However, if such date is within ten days before or after a
Regular Distribution Date, such Special Payment shall be made on such Regular
Distribution Date.
Each Paying Agent, in the case of the Deposits, and each Trustee, in the
case of Trust Property, will mail a notice to the Certificateholders of the
applicable Trust stating the scheduled Special Distribution Date, the related
record date, the amount of the Special Payment and the reason for the Special
Payment. In the case of a redemption or purchase of the Equipment Notes held in
the related Trust or any distribution of unused Deposits after the Delivery
Period Termination Date or the occurrence of a Triggering Event, such notice
will be mailed not less than 15 days prior to the date such Special Payment is
scheduled to be distributed, and in the case of any other Special Payment, such
notice will be mailed as soon as practicable after the Trustee has confirmed
that it has received funds for such Special Payment. (Section 4.02(c); Trust
Supplements, Section 3.01; Escrow Agreements, Sections 2.03 and 2.06) Each
distribution of a Special Payment, other than a final distribution, on a Special
Distribution Date for any Trust will be made by the Paying Agent or the Trustee,
as applicable, to the Certificateholders of record of such Trust on the record
date applicable to such Special Payment. (Section 4.02(b); Escrow Agreements,
Section 2.03) See "-- Indenture Defaults and Certain Rights Upon an Indenture
Default" and "Description of the Equipment Notes -- Redemption".
Each Pass Through Trust Agreement requires that the Trustee establish and
maintain, for the related Trust and for the benefit of the Certificateholders of
such Trust, one or more non-interest bearing accounts (the "Certificate
Account") for the deposit of payments representing Scheduled Payments received
by such Trustee. Each Pass Through Trust Agreement requires that the Trustee
establish and maintain, for the related Trust and for the benefit of the
Certificateholders of such Trust, one or more accounts (the "Special Payments
Account") for the deposit of payments representing Special Payments received by
such Trustee, which shall be non-interest bearing except in certain
circumstances where the Trustee may invest amounts in such account in certain
permitted investments. Pursuant to the terms of each Pass Through Trust
Agreement, the Trustee is required to deposit any Scheduled Payments relating to
the applicable Trust received by it in the Certificate Account of such Trust and
to deposit any Special Payments so received by it in the Special Payments
Account of such Trust. (Section 4.01; Trust Supplements, Section 3.01) All
amounts so deposited will be distributed by the Trustee on a Regular
Distribution Date or a Special Distribution Date, as appropriate. (Section 4.02;
Trust Supplements, Section 3.01)
Each Escrow Agreement requires that the Paying Agent establish and
maintain, for the benefit of the Receiptholders, one or more accounts (the
"Paying Agent Account"), which shall be non-interest bearing. Pursuant to the
terms of the Escrow Agreements, the Paying Agent is required to deposit interest
on Deposits relating to a Trust and any unused Deposits withdrawn by the Escrow
Agent in the related Paying Agent Account. All amounts so deposited will be
distributed by the Paying Agent on a Regular Distribution Date or Special
Distribution Date, as appropriate.
The final distribution for each Trust will be made only upon presentation
and surrender of the Certificates for such Trust at the office or agency of the
Trustee specified in the notice given by the Trustee of such final distribution.
The Trustee will mail such notice of the final distribution to the
Certificateholders of such Trust, specifying the date set for such final
distribution and the amount of such distribution. (Trust Supplements, Section
7.01) See "-- Termination of the Trusts" below. Distributions in respect of
Certificates issued in global form will be made as described in "-- Book Entry;
Delivery and Form" below.
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If any Distribution Date is a Saturday, Sunday or other day on which
commercial banks are authorized or required to close in New York, New York,
Houston, Texas, Wilmington, Delaware, or Salt Lake City, Utah (any other day
being a "Business Day"), distributions scheduled to be made on such Regular
Distribution Date or Special Distribution Date will be made on the next
succeeding Business Day without additional interest.
POOL FACTORS
The "Pool Balance" for each Trust or for the Certificates issued by any
Trust indicates, as of any date, the original aggregate face amount of the
Certificates of such Trust less the aggregate amount of all payments made in
respect of the Certificates of such Trust or in respect of Deposits relating to
such Trust other than payments made in respect of interest or premium or
reimbursement of any costs or expenses incurred in connection therewith. The
Pool Balance for each Trust or for the Certificates issued by any Trust as of
any Distribution Date shall be computed after giving effect to any special
distribution with respect to unused Deposits, payment of principal of the
Equipment Notes or payment with respect to other Trust Property held in such
Trust and the distribution thereof to be made on that date. (Trust Supplements,
Section 2.01)
The "Pool Factor" for each Trust as of any Distribution Date is the
quotient (rounded to the seventh decimal place) computed by dividing (i) the
Pool Balance by (ii) the original aggregate face amount of the Certificates of
such Trust. The Pool Factor for each Trust or for the Certificates issued by any
Trust as of any Distribution Date shall be computed after giving effect to any
special distribution with respect to unused Deposits, payment of principal of
the Equipment Notes or payments with respect to other Trust Property held in
such Trust and the distribution thereof to be made on that date. (Trust
Supplements, Section 2.01) The Pool Factor for each Trust will be 1.0000000 on
the date of issuance of the Certificates; thereafter, the Pool Factor for each
Trust will decline as described herein to reflect reductions in the Pool Balance
of such Trust. The amount of a Certificateholder's pro rata share of the Pool
Balance of a Trust can be determined by multiplying the par value of the
holder's Certificate of such Trust by the Pool Factor for such Trust as of the
applicable Distribution Date. Notice of the Pool Factor and the Pool Balance for
each Trust will be mailed to Certificateholders of such Trust on each
Distribution Date. (Trust Supplements, Section 3.02)
The following table sets forth an illustrative aggregate principal
amortization schedule for the Equipment Notes held in each Trust (the "Assumed
Amortization Schedule") and resulting Pool Factors with respect to such Trust.
The actual aggregate principal amortization schedule applicable to the Class
A-1, B or C Trust and the resulting Pool Factors with respect to such Trust may
differ from those set forth below, since the amortization schedule for the
Series A-1, B or C Equipment Notes issued with respect to an Aircraft may vary
from such illustrative amortization schedule so long as it complies with the
Mandatory Economic Terms. In the case of the Class A-2 Trust, the scheduled date
for payment of principal of the applicable Equipment Notes may not be changed
under the Mandatory Economic Terms. However, the scheduled distribution of
principal payments for any Trust would be affected if any Equipment Notes held
in such Trust are redeemed or purchased or if a default in payment on such
Equipment Notes occurred. Accordingly, the aggregate
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<PAGE> 36
principal amortization schedule applicable to a Trust and the resulting Pool
Factors may differ from those set forth in the following table.
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS B CLASS C
---------------------- ----------------------- ---------------------- ----------------------
SCHEDULED EXPECTED SCHEDULED EXPECTED SCHEDULED EXPECTED SCHEDULED EXPECTED
PRINCIPAL POOL PRINCIPAL POOL PRINCIPAL POOL PRINCIPAL POOL
DATE PAYMENTS FACTOR PAYMENTS FACTOR PAYMENTS FACTOR PAYMENTS FACTOR
---- ----------- -------- ------------ -------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
April 2, 2001........ $ 0 $ 0 $ 0 $ 0
October 2, 2001...... 1,514,087 0 3,176,151 5,872,145
April 2, 2002........ 15,540,438 0 4,236,824 8,224,784
October 2, 2002...... 10,039,617 0 5,795,806 2,916,121
April 2, 2003........ 11,211,240 0 1,902,354 510,507
October 2, 2003...... 8,667,808 0 372,164 1,281,997
April 2, 2004........ 11,592,142 0 1,936,735 0
October 2, 2004...... 6,138,824 0 651,180 12,207,274
April 2, 2005........ 11,541,357 0 2,915,610 2,472,633
October 2, 2005...... 3,970,609 0 850,154 197,289
April 2, 2006........ 10,505,535 0 4,510,025 11,574,442
October 2, 2006...... 3,360,745 0 277,678 0
April 2, 2007........ 11,165,261 0 4,219,026 5,933,827
October 2, 2007...... 2,503,448 0 252,231 0
April 2, 2008........ 10,166,043 0 4,503,750 27,411,958
October 2, 2008...... 2,317,555 0 0 0
April 2, 2009........ 12,514,645 0 2,032,190 9,071,369
October 2, 2009...... 2,504,373 0 37,823,949 0
April 2, 2010........ 6,496,635 0 0 10,171,671
October 2, 2010...... 0 162,076,000 12,239,612 23,374,050
April 2, 2011........ 4,990,907 0 2,875,518 17,741,933
October 2, 2011...... 0 0 0 0
April 2, 2012........ 7,869,288 0 5,716,239 0
October 2, 2012...... 967,790 0 301,090 0
April 2, 2013........ 9,060,048 0 9,004,531 0
October 2, 2013...... 2,074,307 0 327,764 0
April 2, 2014........ 9,401,336 0 15,529,399 0
October 2, 2014...... 2,594,786 0 345,044 0
April 2, 2015........ 17,829,529 0 10,965,193 0
October 2, 2015...... 1,939,540 0 362,739 0
April 2, 2016........ 24,760,381 0 5,154,642 0
October 2, 2016...... 1,224,178 0 380,855 0
April 2, 2017........ 26,768,073 0 5,363,710 0
October 2, 2017...... 1,317,225 0 6,445,935 0
April 2, 2018........ 16,337,352 0 3,119,902 0
October 2, 2018...... 0 0 0 0
April 2, 2019........ 19,112,697 0 0 0
October 2, 2019...... 0 0 0 0
April 2, 2020........ 33,587,532 0 0 0
October 2, 2020...... 15,521,616 0 0 0
April 2, 2021........ 49,423,053 0 0 0
</TABLE>
The Pool Factor and Pool Balance of each Trust will be recomputed if there
has been an early redemption, purchase, or default in the payment of principal
or interest in respect of one or more of the Equipment Notes held in a Trust, as
described in "-- Indenture Defaults and Certain Rights Upon an Indenture
Default" and "Description of the Equipment Notes -- Redemption", or a special
distribution attributable to unused Deposits after the Delivery Period
Termination Date or the occurrence of a Triggering
S-36
<PAGE> 37
Event, as described in "Description of the Deposit Agreements". If the principal
payments scheduled for a Regular Distribution Date prior to the Delivery Period
Termination Date are changed, notice thereof will be mailed to the
Certificateholders by no later than the 15th day prior to such Regular
Distribution Date. In the event of (i) any other change in the scheduled
repayments from the Assumed Amortization Schedule or (ii) any such redemption,
purchase, default or special distribution, the Pool Factors and the Pool
Balances of each Trust so affected will be recomputed after giving effect
thereto and notice thereof will be mailed to the Certificateholders of such
Trust promptly after the Delivery Period Termination Date in the case of clause
(i) and promptly after the occurrence of any event described in clause (ii).
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date, the applicable Paying Agent and Trustee will
include with each distribution by it of a Scheduled Payment or Special Payment
to Certificateholders of the related Trust a statement setting forth the
following information (per $1,000 aggregate principal amount of Certificate for
such Trust, except as to the amounts described in items (a) and (f) below):
(a) The aggregate amount of funds distributed on such Distribution Date
under the Pass Through Trust Agreement and under the Escrow Agreement,
indicating the amount allocable to each source.
(b) The amount of such distribution under the Pass Through Trust
Agreement allocable to principal and the amount allocable to premium, if
any.
(c) The amount of such distribution under the Pass Through Trust
Agreement allocable to interest.
(d) The amount of such distribution under the Escrow Agreement allocable
to interest.
(e) The amount of such distribution under the Escrow Agreement allocable
to unused Deposits, if any.
(f) The Pool Balance and the Pool Factor for such Trust. (Trust
Supplements, Section 3.02(a))
So long as the Certificates are registered in the name of DTC or its
nominee, on the record date prior to each Distribution Date, the applicable
Trustee will request from DTC a securities position listing setting forth the
names of all DTC Participants reflected on DTC's books as holding interests in
the Certificates on such record date. On each Distribution Date, the applicable
Paying Agent and Trustee will mail to each such DTC Participant the statement
described above and will make available additional copies as requested by such
DTC Participant for forwarding to Certificate Owners. (Trust Supplements,
Section 3.02(a))
In addition, after the end of each calendar year, the applicable Trustee
and Paying Agent will furnish to each Certificateholder of each Trust at any
time during the preceding calendar year a report containing the sum of the
amounts determined pursuant to clauses (a), (b), (c), (d) and (e) above with
respect to the Trust for such calendar year or, in the event such person was a
Certificateholder during only a portion of such calendar year, for the
applicable portion of such calendar year, and such other items as are readily
available to such Trustee and which a Certificateholder shall reasonably request
as necessary for the purpose of such Certificateholder's preparation of its U.S.
federal income tax returns. (Trust Supplements, Section 3.02(b)) Such report and
such other items shall be prepared on the basis of information supplied to the
applicable Trustee by the DTC Participants and shall be delivered by such
Trustee to such DTC Participants to be available for forwarding by such DTC
Participants to Certificate Owners in the manner described above. (Trust
Supplements, Section 3.02(b)) At such time, if any, as the Certificates are
issued in the form of definitive certificates, the applicable Paying Agent and
Trustee will prepare and deliver the information described above to each
Certificateholder of record of each Trust as the name and period of ownership of
such Certificateholder appears on the records of the registrar of the
Certificates.
INDENTURE DEFAULTS AND CERTAIN RIGHTS UPON AN INDENTURE DEFAULT
An event of default under an Indenture (an "Indenture Default") will, with
respect to the Leased Aircraft Indentures, include an event of default under the
related Lease (a "Lease Event of Default"). See "Description of the Equipment
Notes -- Indenture Defaults, Notice and Waiver". Since the Equipment
S-37
<PAGE> 38
Notes issued under an Indenture will be held in more than one Trust, a
continuing Indenture Default under such Indenture would affect the Equipment
Notes held by each such Trust. There are no cross-default provisions in the
Indentures or in the Leases (unless otherwise agreed between an Owner
Participant and Continental, which Continental does not expect). Consequently,
events resulting in an Indenture Default under any particular Indenture may or
may not result in an Indenture Default under any other Indenture, and a Lease
Event of Default under any particular Lease may or may not constitute a Lease
Event of Default under any other Lease. If an Indenture Default occurs in fewer
than all of the Indentures, notwithstanding the treatment of Equipment Notes
issued under any Indenture under which an Indenture Default has occurred,
payments of principal and interest on all of the Equipment Notes will continue
to be distributed to the holders of the Certificates as originally scheduled,
subject to the Intercreditor Agreement. See "Description of the Intercreditor
Agreement -- Priority of Distributions".
With respect to each Leased Aircraft, the applicable Owner Trustee and
Owner Participant will, under the related Leased Aircraft Indenture, have the
right under certain circumstances to cure Indenture Defaults that result from
the occurrence of a Lease Event of Default under the related Lease. If the Owner
Trustee or the Owner Participant exercises any such cure right, the Indenture
Default will be deemed to have been cured.
In the event that the same institution acts as Trustee of multiple Trusts,
in the absence of instructions from the Certificateholders of any such Trust,
such Trustee could be faced with a potential conflict of interest upon an
Indenture Default. In such event, each Trustee has indicated that it would
resign as Trustee of one or all such Trusts, and a successor trustee would be
appointed in accordance with the terms of the applicable Pass Through Trust
Agreement. Wilmington Trust Company will be the initial Trustee under each
Trust.
Upon the occurrence and continuation of an Indenture Default, the
Controlling Party will direct the Indenture Trustee under such Indenture in the
exercise of remedies thereunder and may accelerate and sell all (but not less
than all) of the Equipment Notes issued under such Indenture to any person,
subject to certain limitations. See "Description of the Intercreditor
Agreement -- Intercreditor Rights -- Sale of Equipment Notes or Aircraft". The
proceeds of such sale will be distributed pursuant to the provisions of the
Intercreditor Agreement. Any such proceeds so distributed to any Trustee upon
any such sale shall be deposited in the applicable Special Payments Account and
shall be distributed to the Certificateholders of the applicable Trust on a
Special Distribution Date. (Sections 4.01 and 4.02) The market for Equipment
Notes at the time of the existence of an Indenture Default may be very limited
and there can be no assurance as to the price at which they could be sold. If
any such Equipment Notes are sold for less than their outstanding principal
amount, certain Certificateholders will receive a smaller amount of principal
distributions than anticipated and will not have any claim for the shortfall
against Continental, any Liquidity Provider, any Owner Trustee, any Owner
Participant or any Trustee.
Any amount, other than Scheduled Payments received on a Regular
Distribution Date or within five days thereafter, distributed to the Trustee of
any Trust by the Subordination Agent on account of any Equipment Note, Trust
Indenture Estate under (and as defined in) any Leased Aircraft Indenture or
Collateral under (and as defined in) any Owned Aircraft Indenture held in such
Trust following an Indenture Default will be deposited in the Special Payments
Account for such Trust and will be distributed to the Certificateholders of such
Trust on a Special Distribution Date. (Sections 4.01 and 4.02; Trust
Supplements, Section 3.01) In addition, if, following an Indenture Default under
any Leased Aircraft Indenture, the applicable Owner Participant or Owner Trustee
exercises its option to redeem or purchase the outstanding Equipment Notes
issued under such Leased Aircraft Indenture, the price paid by such Owner
Participant or Owner Trustee for the Equipment Notes issued under such Leased
Aircraft Indenture and distributed to such Trust by the Subordination Agent will
be deposited in the Special Payments Account for such Trust and will be
distributed to the Certificateholders of such Trust on a Special Distribution
Date. (Sections 4.01 and 4.02)
Any funds representing payments received with respect to any defaulted
Equipment Notes, or the proceeds from the sale of any Equipment Notes, held by
the Trustee in the Special Payments Account for such Trust will, to the extent
practicable, be invested and reinvested by such Trustee in certain permitted
investments pending the distribution of such funds on a Special Distribution
Date. (Section 4.04) Such
S-38
<PAGE> 39
permitted investments are defined as obligations of the United States or
agencies or instrumentalities thereof for the payment of which the full faith
and credit of the United States is pledged and which mature in not more than 60
days or such lesser time as is required for the distribution of any such funds
on a Special Distribution Date. (Section 1.01)
Each Pass Through Trust Agreement provides that the Trustee of the related
Trust will, within 90 days after the occurrence of any default known to the
Trustee, give to the Certificateholders of such Trust notice, transmitted by
mail, of such uncured or unwaived default with respect to such Trust known to
it, provided that, except in the case of default in a payment of principal,
premium, if any, or interest on any of the Equipment Notes held in such Trust,
the applicable Trustee will be protected in withholding such notice if it in
good faith determines that the withholding of such notice is in the interests of
such Certificateholders. (Section 7.02) The term "default" as used in this
paragraph only with respect to any Trust means the occurrence of an Indenture
Default under any Indenture pursuant to which Equipment Notes held by such Trust
were issued, as described above, except that in determining whether any such
Indenture Default has occurred, any grace period or notice in connection
therewith will be disregarded.
Each Pass Through Trust Agreement contains a provision entitling the
Trustee of the related Trust, subject to the duty of such Trustee during a
default to act with the required standard of care, to be offered reasonable
security or indemnity by the holders of the Certificates of such Trust before
proceeding to exercise any right or power under such Pass Through Trust
Agreement at the request of such Certificateholders. (Section 7.03(e))
Subject to certain qualifications set forth in each Pass Through Trust
Agreement and to the Intercreditor Agreement, the Certificateholders of each
Trust holding Certificates evidencing fractional undivided interests aggregating
not less than a majority in interest in such Trust shall have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee with respect to such Trust or pursuant to the terms of
the Intercreditor Agreement, or exercising any trust or power conferred on such
Trustee under such Pass Through Trust Agreement or the Intercreditor Agreement,
including any right of such Trustee as Controlling Party under the Intercreditor
Agreement or as holder of the Equipment Notes. (Section 6.04)
In certain cases, the holders of the Certificates of a Trust evidencing
fractional undivided interests aggregating not less than a majority in interest
of such Trust may on behalf of the holders of all the Certificates of such Trust
waive any past "event of default" under such Trust (i.e., any Indenture Default
under any Indenture pursuant to which Equipment Notes held by such Trust were
issued) and its consequences or, if the Trustee of such Trust is the Controlling
Party, may direct the Trustee to instruct the applicable Loan Trustee to waive
any past Indenture Default and its consequences, except (i) a default in the
deposit of any Scheduled Payment or Special Payment or in the distribution
thereof, (ii) a default in payment of the principal, premium, if any, or
interest with respect to any of the Equipment Notes and (iii) a default in
respect of any covenant or provision of the Pass Through Trust Agreement that
cannot be modified or amended without the consent of each Certificateholder of
such Trust affected thereby. (Section 6.05) Each Indenture will provide that,
with certain exceptions, the holders of the majority in aggregate unpaid
principal amount of the Equipment Notes issued thereunder may on behalf of all
such holders waive any past default or Indenture Default thereunder.
Notwithstanding such provisions of the Indentures, pursuant to the Intercreditor
Agreement only the Controlling Party will be entitled to waive any such past
default or Indenture Default.
PURCHASE RIGHTS OF CERTIFICATEHOLDERS
Upon the occurrence and during the continuation of a Triggering Event, with
ten days' written notice to the Trustee and each Certificateholder of the same
Class:
- If the Class A-1 or Class A-2 Certificateholders are then represented by
the Controlling Party, the Certificateholders of such other Class will
have the right to purchase all of such Class of Certificates represented
by the Controlling Party.
S-39
<PAGE> 40
- The Class B Certificateholders will have the right to purchase all of the
Class A-1 and Class A-2 Certificates.
- The Class C Certificateholders will have the right to purchase all of the
Class A-1, Class A-2 and Class B Certificates.
- If the Class D Certificates are issued, the Class D Certificateholders
will have the right to purchase all of the Class A-1, Class A-2, Class B
and Class C Certificates.
In each case the purchase price will be equal to the Pool Balance of the
relevant Class or Classes of Certificates plus accrued and unpaid interest
thereon to the date of purchase, without premium, but including any other
amounts then due and payable to the Certificateholders of such Class or Classes.
Such purchase right may be exercised by any Certificateholder of the Class or
Classes entitled to such right. In each case, if prior to the end of the ten-day
notice period, any other Certificateholder of the same Class notifies the
purchasing Certificateholder that the other Certificateholder wants to
participate in such purchase, then such other Certificateholder may join with
the purchasing Certificateholder to purchase the Certificates pro rata based on
the interest in the Trust held by each Certificateholder. (Trust Supplements,
Section 4.01)
PTC EVENT OF DEFAULT
A Pass Through Certificate Event of Default (a "PTC Event of Default")
under each Pass Through Trust Agreement means the failure to pay:
- The outstanding Pool Balance of the applicable Class of Certificates
within ten Business Days of the Final Maturity Date for such Class.
- Interest due on such Class of Certificates within ten Business Days of
any Distribution Date (unless the Subordination Agent shall have made
Interest Drawings, or withdrawals from the Cash Collateral Account for
such Class of Certificates, with respect thereto in an aggregate amount
sufficient to pay such interest and shall have distributed such amount to
the Trustee entitled thereto). (Section 1.01)
Any failure to make expected principal distributions with respect to any
Class of Certificates on any Regular Distribution Date (other than the Final
Maturity Date) will not constitute a PTC Event of Default with respect to such
Certificates. A PTC Event of Default with respect to the most senior outstanding
Class of Certificates resulting from an Indenture Default under all Indentures
will constitute a Triggering Event. See "Description of the Intercreditor
Agreement -- Priority of Distributions" for a discussion of the consequences of
the occurrence of a Triggering Event.
MERGER, CONSOLIDATION AND TRANSFER OF ASSETS
Continental will be prohibited from consolidating with or merging into any
other corporation or transferring substantially all of its assets as an entirety
to any other corporation unless:
- The surviving successor or transferee corporation shall be validly
existing under the laws of the United States or any state thereof or the
District of Columbia.
- The surviving successor or transferee corporation shall be a "citizen of
the United States" (as defined in Title 49 of the United States Code
relating to aviation (the "Transportation Code")) holding an air carrier
operating certificate issued pursuant to Chapter 447 of Title 49, United
States Code, if, and so long as, such status is a condition of
entitlement to the benefits of Section 1110 of the Bankruptcy Code.
- The surviving successor or transferee corporation shall expressly assume
all of the obligations of Continental contained in the Basic Agreement
and any Trust Supplement, the Note Purchase Agreement, the Indentures,
the Participation Agreements and the Leases, and any other operative
documents.
- Continental shall have delivered a certificate and an opinion or opinions
of counsel indicating that such transaction, in effect, complies with
such conditions.
S-40
<PAGE> 41
In addition, after giving effect to such transaction, no Lease Event of
Default, in the case of a Leased Aircraft, or Indenture Default, in the case of
an Owned Aircraft, shall have occurred and be continuing. (Section 5.02; Leases,
Section 13.2; Owned Aircraft Indentures, Section 4.07)
The Basic Agreement, the Trust Supplements, the Note Purchase Agreement,
the Indentures, the Participation Agreements and the Leases will not contain any
covenants or provisions which may afford the applicable Trustee or
Certificateholders protection in the event of a highly leveraged transaction,
including transactions effected by management or affiliates, which may or may
not result in a change in control of Continental.
MODIFICATIONS OF THE PASS THROUGH TRUST AGREEMENTS AND CERTAIN OTHER AGREEMENTS
Each Pass Through Trust Agreement contains provisions permitting, at the
request of the Company, the execution of amendments or supplements to such Pass
Through Trust Agreement or, if applicable, to the Deposit Agreements, the Escrow
Agreements, the Intercreditor Agreement, the Note Purchase Agreement or the
Liquidity Facilities, without the consent of the holders of any of the
Certificates of such Trust:
- To evidence the succession of another corporation to Continental and the
assumption by such corporation of Continental's obligations under such
Pass Through Trust Agreement or the Note Purchase Agreement.
- To add to the covenants of Continental for the benefit of holders of such
Certificates or to surrender any right or power conferred upon
Continental in such Pass Through Trust Agreement, the Intercreditor
Agreement, the Note Purchase Agreement or the Liquidity Facilities.
- To correct or supplement any provision of such Pass Through Trust
Agreement, the Deposit Agreements, the Escrow Agreements, the
Intercreditor Agreement, the Note Purchase Agreement or the Liquidity
Facilities which may be defective or inconsistent with any other
provision in such Pass Through Trust Agreement, the Intercreditor
Agreement, or the Liquidity Facilities, as applicable, or to cure any
ambiguity or to modify any other provision with respect to matters or
questions arising under such Pass Through Trust Agreement, the Deposit
Agreements, the Escrow Agreements, the Intercreditor Agreement, the Note
Purchase Agreement or the Liquidity Facilities, provided that such action
shall not materially adversely affect the interests of the holders of
such Certificates; to correct any mistake in such Pass Through Trust
Agreement, the Intercreditor Agreement or the Liquidity Facilities; or,
as provided in the Intercreditor Agreement, to give effect to or provide
for a Replacement Facility.
- To comply with any requirement of the Commission, any applicable law,
rules or regulations of any exchange or quotation system on which the
Certificates are listed, or any regulatory body.
- To modify, eliminate or add to the provisions of such Pass Through Trust
Agreement, the Deposit Agreements, the Escrow Agreements, the
Intercreditor Agreement, the Note Purchase Agreement or the Liquidity
Facilities to such extent as shall be necessary to continue the
qualification of such Pass Through Trust Agreement (including any
supplemental agreement) under the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act"), or any similar federal statute enacted after
the execution of such Pass Through Trust Agreement, and to add to such
Pass Through Trust Agreement, the Deposit Agreements, the Escrow
Agreements, the Intercreditor Agreement, the Note Purchase Agreement or
the Liquidity Facilities such other provisions as may be expressly
permitted by the Trust Indenture Act.
- To evidence and provide for the acceptance of appointment under such Pass
Through Trust Agreement, the Deposit Agreements, the Escrow Agreements,
the Intercreditor Agreement, the Note Purchase Agreement or the Liquidity
Facilities by a successor Trustee and to add to or change any of the
provisions of such Pass Through Trust Agreement, the Deposit Agreements,
the Escrow Agreements, the Intercreditor Agreement, the Note Purchase
Agreement or the Liquidity Facilities as shall be necessary to provide
for or facilitate the administration of the Trusts under the Basic
Agreement by more than one Trustee.
S-41
<PAGE> 42
In each case, such modification or supplement may not adversely affect the
status of the Trust as a grantor trust under Subpart E, Part I of Subchapter J
of Chapter 1 of Subtitle A of the Internal Revenue Code of 1986, as amended (the
"Code"), for U.S. federal income tax purposes. (Section 9.01; Trust Supplements,
Section 6.01)
Each Pass Through Trust Agreement also contains provisions permitting the
execution, with the consent of the holders of the Certificates of the related
Trust evidencing fractional undivided interests aggregating not less than a
majority in interest of such Trust, of amendments or supplements adding any
provisions to or changing or eliminating any of the provisions of such Pass
Through Trust Agreement, the Deposit Agreements, the Escrow Agreements, the
Intercreditor Agreement, the Note Purchase Agreement or the Liquidity Facilities
to the extent applicable to such Certificateholders or of modifying the rights
and obligations of such Certificateholders under such Pass Through Trust
Agreement, the Deposit Agreements, the Escrow Agreements, the Intercreditor
Agreement, the Note Purchase Agreement or the Liquidity Facilities. No such
amendment or supplement may, without the consent of the holder of each
Certificate so affected thereby:
- Reduce in any manner the amount of, or delay the timing of, any receipt
by the Trustee (or, with respect to the Deposits, the Receiptholders) of
payments with respect to the Equipment Notes held in such Trust or
distributions in respect of any Certificate related to such Trust (or,
with respect to the Deposits, payments upon the Deposits), or change the
date or place of any payment in respect of any Certificate, or make
distributions payable in coin or currency other than that provided for in
such Certificates, or impair the right of any Certificateholder of such
Trust to institute suit for the enforcement of any such payment when due.
- Permit the disposition of any Equipment Note held in such Trust, except
as provided in such Pass Through Trust Agreement, or otherwise deprive
such Certificateholder of the benefit of the ownership of the applicable
Equipment Notes.
- Alter the priority of distributions specified in the Intercreditor
Agreement in a manner materially adverse to such Certificateholders.
- Reduce the percentage of the aggregate fractional undivided interests of
the Trust provided for in such Pass Through Trust Agreement, the consent
of the holders of which is required for any such supplemental trust
agreement or for any waiver provided for in such Pass Through Trust
Agreement.
- Modify any of the provisions relating to the rights of the
Certificateholders in respect of the waiver of events of default or
receipt of payment.
- Adversely affect the status of any Trust as a grantor trust under Subpart
E, Part I of Subchapter J of Chapter 1 of Subtitle A of the Code for U.S.
federal income tax purposes. (Section 9.02; Trust Supplements, Section
6.02)
In the event that a Trustee, as holder (or beneficial owner through the
Subordination Agent) of any Equipment Note in trust for the benefit of the
Certificateholders of the relevant Trust or as Controlling Party under the
Intercreditor Agreement, receives (directly or indirectly through the
Subordination Agent) a request for a consent to any amendment, modification,
waiver or supplement under any Indenture, any Participation Agreement, any
Lease, any Equipment Note or any other related document, the Trustee shall
forthwith send a notice of such proposed amendment, modification, waiver or
supplement to each Certificateholder of the relevant Trust as of the date of
such notice. The Trustee shall request from the Certificateholders a direction
as to:
- Whether or not to take or refrain from taking (or direct the
Subordination Agent to take or refrain from taking) any action which a
holder of such Equipment Note or the Controlling Party has the option to
direct.
- Whether or not to give or execute (or direct the Subordination Agent to
give or execute) any waivers, consents, amendments, modifications or
supplements as a holder of such Equipment Note or as Controlling Party.
S-42
<PAGE> 43
- How to vote (or direct the Subordination Agent to vote) any Equipment
Note if a vote has been called for with respect thereto.
- Provided such a request for Certificateholder direction shall have been
made, in directing any action or casting any vote or giving any consent
as the holder of any Equipment Note (or in directing the Subordination
Agent in any of the foregoing):
- Other than as Controlling Party, the Trustee shall vote for or give
consent to any such action with respect to such Equipment Note in the
same proportion as that of (x) the aggregate face amount of all
Certificates actually voted in favor of or for giving consent to such
action by such direction of Certificateholders to (y) the aggregate face
amount of all outstanding Certificates of the relevant Trust.
- As the Controlling Party, the Trustee shall vote as directed in such
Certificateholder direction by the Certificateholders evidencing
fractional undivided interests aggregating not less than a majority in
interest in the relevant Trust.
For purposes of the immediately preceding paragraph, a Certificate shall
have been "actually voted" if the Certificateholder has delivered to the Trustee
an instrument evidencing such Certificateholder's consent to such direction
prior to one Business Day before the Trustee directs such action or casts such
vote or gives such consent. Notwithstanding the foregoing, but subject to
certain rights of the Certificateholders under the relevant Pass Through Trust
Agreement and subject to the Intercreditor Agreement, the Trustee may, in its
own discretion and at its own direction, consent and notify the relevant Loan
Trustee of such consent (or direct the Subordination Agent to consent and notify
the relevant Loan Trustee of such consent) to any amendment, modification,
waiver or supplement under the relevant Indenture, Participation Agreement or
Lease, any relevant Equipment Note or any other related document, if an
Indenture Default under any Indenture shall have occurred and be continuing, or
if such amendment, modification, waiver or supplement will not materially
adversely affect the interests of the Certificateholders. (Section 10.01)
OBLIGATION TO PURCHASE EQUIPMENT NOTES
The Trustees will be obligated to purchase the Equipment Notes issued with
respect to the Aircraft during the Delivery Period, subject to the terms and
conditions of a note purchase agreement (the "Note Purchase Agreement"). Under
the Note Purchase Agreement, Continental agrees to finance each Aircraft in the
manner provided therein. Continental will have the option of entering into a
leveraged lease financing or a secured debt financing with respect to each
Aircraft.
- If Continental chooses to enter into a leveraged lease financing with
respect to an Aircraft (such Aircraft, a "Leased Aircraft"), the Note
Purchase Agreement provides for the relevant parties to enter into a
participation agreement (each, a "Participation Agreement"), a Lease and
an indenture (each, a "Leased Aircraft Indenture") relating to the
financing of such Leased Aircraft.
- If Continental chooses to enter into a secured debt financing with
respect to an Aircraft (such Aircraft, an "Owned Aircraft"), the Note
Purchase Agreement provides for the relevant parties to enter into a
participation agreement (each, a "Participation Agreement") and an
indenture (each, an "Owned Aircraft Indenture", and together with the
other Owned Aircraft Indentures and the Leased Aircraft Indentures, the
"Indentures") relating to the financing of such Owned Aircraft.
The description of such financing agreements in this Prospectus Supplement
is based on the forms of such agreements attached to the Note Purchase
Agreement. However, the terms of the financing agreements actually entered into
may differ from the forms of such agreements and, consequently, may differ from
the description of such agreements contained in this Prospectus Supplement. See
"Description of the Equipment Notes". Although such changes are permitted, under
the Note Purchase Agreement, the terms of such agreements are required (a) to
contain the Mandatory Document Terms and (b) not to vary the Mandatory Economic
Terms. In addition, Continental is obligated to certify to the Trustees that any
such modifications do not materially and adversely affect the
Certificateholders. Continental must also obtain written confirmation from each
Rating Agency that the use of financing agreements modified in any material
S-43
<PAGE> 44
respect from the forms attached to the Note Purchase Agreement will not result
in a withdrawal, suspension or downgrading of the rating of any Class of
Certificates. Further, under the Note Purchase Agreement, it is a condition
precedent to the obligation of each Trustee to purchase the Equipment Notes
related to the financing of an Aircraft that no Triggering Event shall have
occurred. The Trustees will have no right or obligation to purchase Equipment
Notes after the Delivery Period Termination Date.
The "Mandatory Economic Terms", as defined in the Note Purchase Agreement,
require, among other things, that:
- The aggregate principal amount of all the Equipment Notes issued with
respect to an Aircraft shall not exceed the amounts set forth in the
following table:
<TABLE>
<CAPTION>
MAXIMUM PRINCIPAL
MANUFACTURER'S AMOUNT OF
AIRCRAFT TYPE(1) SERIAL NUMBER EQUIPMENT NOTES
---------------- -------------- -----------------
<S> <C> <C>
Boeing 737-824.............................................. 30803 $30,442,500
Boeing 737-824.............................................. 30855 30,442,500
Boeing 737-824.............................................. 31582 30,712,500
Boeing 737-824.............................................. 32402 30,712,500
Boeing 737-824.............................................. 31583 30,712,500
Boeing 737-824.............................................. 31584 30,712,500
Boeing 737-824.............................................. 31585 30,712,500
Boeing 737-824.............................................. 32403 30,712,500
Boeing 737-824.............................................. 31586 30,712,500
Boeing 737-824.............................................. 31587 30,712,500
Boeing 737-824.............................................. 31588 30,915,000
Boeing 737-824.............................................. 31632 30,915,000
Boeing 737-824.............................................. 31589 30,915,000
Boeing 737-824.............................................. 31590 30,915,000
Boeing 737-924.............................................. 30118 31,812,000
Boeing 737-924.............................................. 30119 31,812,000
Boeing 737-924.............................................. 30120 32,076,000
Boeing 737-924.............................................. 30121 32,076,000
Boeing 737-924.............................................. 30122 32,076,000
Boeing 737-924.............................................. 30124 32,076,000
Boeing 737-924.............................................. 30125 32,076,000
Boeing 737-924.............................................. 30126 32,274,000
Boeing 737-924.............................................. 30127 32,274,000
Boeing 737-924.............................................. 30128 32,274,000
Boeing 767-224ER............................................ 30434 50,780,400
Boeing 767-224ER............................................ 30435 50,857,400
Boeing 767-224ER............................................ 30436 51,044,400
Boeing 767-224ER............................................ 30437 51,121,400
Boeing 767-224ER............................................ 30438 51,354,600
Boeing 767-224ER............................................ 30439 51,671,400
Boeing 767-424ER............................................ 29450 65,214,600
Boeing 767-424ER............................................ 29451 65,623,800
</TABLE>
---------------
(1) Includes all Boeing 737-824, 737-924 and 767-224ER Aircraft from which
Continental will choose the Aircraft to be financed in the Offering, subject
to the terms of the Note Purchase Agreement.
- The LTV for the Equipment Notes issued for each Aircraft computed on the
date of issuance thereof (with value for such Aircraft for these purposes
initially equal to its value (the "Assumed Appraised Value") set forth
under "Description of the Aircraft and the Appraisals -- The Appraisals"
in the column "Appraised Value" and thereafter based on such value after
giving effect to the Depreciation Assumption) will not exceed as of the
issuance date of such Equipment Notes and any Regular Distribution Date
thereafter (assuming no default in the payment of the Equipment Notes and
after
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<PAGE> 45
giving effect to scheduled payments) the LTV for such Aircraft set forth
in the applicable table in Appendix III to this Prospectus Supplement.
- The initial average life of the Series A-1, B and C Equipment Notes for
any Aircraft shall not extend beyond 14.75 years, 12.0 years and 8.5
years, respectively, from the Issuance Date.
- As of the Delivery Period Termination Date, the average life of the Class
A-1 Certificates, the Class B Certificates and the Class C Certificates
shall not be more than 12.7 years, 10.0 years and 7.0 years,
respectively, from the Issuance Date (computed without regard to the
acceleration of any Equipment Notes and after giving effect to any
special distribution on the Certificates thereafter required in respect
of unused Deposits).
- The final expected distribution date of each Class of Certificates shall
be no later than as set forth on the cover page of this Prospectus
Supplement.
- The final maturity date of the Series A-2 Equipment Notes shall be
October 2, 2010, and there shall be no scheduled amortization of such
Equipment Notes.
- The original aggregate principal amount of all of the Equipment Notes of
each Series shall not exceed the original aggregate face amount of the
Certificates issued by the corresponding Trust.
- As of the Delivery Period Termination Date (assuming Equipment Notes are
acquired by the Trusts for all of the Aircraft), the aggregate principal
amount of the Series A-2 Equipment Notes shall equal the original face
amount of the Class A-2 Certificates.
- The interest rate applicable to each Series of Equipment Notes must be
equal to the rate applicable to the Certificates issued by the
corresponding Trust.
- The payment dates for the Equipment Notes and basic rent under the Leases
must be April 2 and October 2.
- Basic rent, stipulated loss values and termination values under the
Leases must be sufficient to pay amounts due with respect to the related
Equipment Notes.
- The amounts payable under the all-risk aircraft hull insurance maintained
with respect to each Aircraft must be sufficient to pay the applicable
stipulated loss value, subject to certain rights of self-insurance.
- (a) The past due rate in the Indentures and the Leases, (b) the
Make-Whole Premium payable under the Indentures, (c) the provisions
relating to the redemption and purchase of Equipment Notes in the
Indentures, (d) the minimum liability insurance amount on Aircraft in the
Leases, (e) the interest rate payable with respect to stipulated loss
value in the Leases, and (f) the indemnification of the Loan Trustees,
Subordination Agent, Liquidity Provider, Trustees, Escrow Agents and
registered holders of the Equipment Notes (in such capacity, the "Note
Holders") with respect to certain taxes and expenses, in each case shall
be provided as set forth in the forms of Participation Agreements, Lease
and Indentures attached as exhibits to the Note Purchase Agreement
(collectively, the "Aircraft Operative Agreements").
The "Mandatory Document Terms" prohibit modifications in any material
adverse respect to certain specified provisions of the Aircraft Operative
Agreements contemplated by the Note Purchase Agreement, as follows:
- In the case of the Indentures, modifications are prohibited (i) to the
Granting Clause of the Indentures so as to deprive the Note Holders of a
first priority security interest in the Aircraft, certain of
Continental's rights under its purchase agreement with the Aircraft
manufacturer and, in the case of a Leased Aircraft, the Lease or to
eliminate the obligations intended to be secured thereby, (ii) to certain
provisions relating to the issuance, redemption, purchase, payments, and
ranking of the Equipment Notes (including the obligation to pay the
Make-Whole Premium in certain circumstances), (iii) to certain provisions
regarding Indenture Defaults, remedies relating thereto and rights of the
Owner Trustee and Owner Participant in such circumstances, (iv) to
certain provisions
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<PAGE> 46
relating to any replaced airframe or engines with respect to an Aircraft
and (v) to the provision that New York law will govern the Indentures.
- In the case of the Lease, modifications are prohibited to certain
provisions regarding the obligation of Continental (i) to pay basic rent,
stipulated loss value and termination value to the Leased Aircraft
Trustee, (ii) to record the Leased Aircraft Indenture with the FAA and to
maintain such Indenture as a first-priority perfected mortgage on the
related Aircraft, (iii) to furnish certain opinions with respect to a
replacement airframe and (iv) to consent to the assignment of the Lease
by the Owner Trustee as collateral under the Leased Aircraft Indenture,
as well as modifications which would either alter the provision that New
York law will govern the Lease or would deprive the Loan Trustee of
rights expressly granted to it under the Leases.
- In the case of the Participation Agreement, modifications are prohibited
(i) to certain conditions to the obligations of the Trustees to purchase
the Equipment Notes issued with respect to an Aircraft involving good
title to such Aircraft, obtaining a certificate of airworthiness with
respect to such Aircraft, entitlement to the benefits of Section 1110
with respect to such Aircraft and filings of certain documents with the
FAA, (ii) to the provisions restricting the Note Holder's ability to
transfer such Equipment Notes, (iii) to certain provisions requiring the
delivery of legal opinions and (iv) to the provision that New York law
will govern the Participation Agreement.
- In the case of all of the Aircraft Operative Agreements, modifications
are prohibited in any material adverse respect as regards the interest of
the Note Holders, the Subordination Agent, the Liquidity Provider or the
Loan Trustee in the definition of "Make-Whole Premium". Notwithstanding
the foregoing, any such Mandatory Document Term may be modified to
correct or supplement any such provision which may be defective or to
cure any ambiguity or correct any mistake, provided that any such action
shall not materially adversely affect the interests of the Note Holders,
the Subordination Agent, the Liquidity Provider, the Mortgagee or the
Certificateholders.
POSSIBLE ISSUANCE OF CLASS D CERTIFICATES
Continental may elect to issue Series D Equipment Notes in connection with
the financing of Aircraft, which will be funded from sources other than this
offering (the "Offering"). Continental may elect to fund the sale of the Series
D Equipment Notes through the sale of Pass Through Certificates (the "Class D
Certificates") issued by a Class D Continental Airlines 2000-2 Pass Through
Trust (the "Class D Trust"). Continental will not issue any Series D Equipment
Notes at any time prior to the consummation of this Offering. The Note Purchase
Agreement provides that Continental's ability to issue any Series D Equipment
Notes is contingent upon its obtaining written confirmation from each Rating
Agency that the issuance of such Series D Equipment Notes will not result in a
withdrawal or downgrading of the rating of any Class of Certificates. If the
Class D Certificates are issued, the Trustee with respect to such Certificates
will become a party to the Intercreditor Agreement. If Series D Equipment Notes
are issued to other than the Class D Trust, such Series D Equipment Notes will
nevertheless be subject to provisions of the Intercreditor Agreement that allow
the Controlling Party, during the continuance of an Indenture Default, to direct
the Loan Trustee in taking action under the applicable Indenture. See
"Description of the Intercreditor Agreement".
LIQUIDATION OF ORIGINAL TRUSTS
On the earlier of (i) the first Business Day after February 1, 2002 or, if
later, the fifth Business Day after the Delivery Period Termination Date and
(ii) the fifth Business Day after the occurrence of a Triggering Event (such
Business Day, the "Transfer Date"), each of the Trusts established on the
Issuance Date (the "Original Trusts") will transfer and assign all of its assets
and rights to a newly created successor trust (each, a "Successor Trust") with
substantially identical terms, except that (i) the Successor Trusts will not
have the right to purchase new Equipment Notes and (ii) Delaware law will govern
the Original Trusts and New York law will govern the Successor Trusts. The
institution acting as Trustee of each of the Original Trusts (each, an "Original
Trustee") will also act as Trustee of the corresponding Successor Trust (each, a
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<PAGE> 47
"New Trustee"). Each New Trustee will assume the obligations of the related
Original Trustee under each transaction document to which such Original Trustee
was a party. Upon the effectiveness of such transfer, assignment and assumption,
each of the Original Trusts will be liquidated and each of the Certificates will
represent the same percentage interest in the Successor Trust as it represented
in the Original Trust immediately prior to such transfer, assignment and
assumption. Unless the context otherwise requires, all references in this
Prospectus Supplement to the Trusts, the Trustees, the Pass Through Trust
Agreements and similar terms shall apply to the Original Trusts until the
effectiveness of such transfer, assignment and assumption, and thereafter shall
be applicable with respect to the Successor Trusts. If for any reason such
transfer, assignment and assumption cannot be effected to any Successor Trust,
the related Original Trust will continue in existence until it is effected. The
Original Trusts may be treated as partnerships for U.S. federal income tax
purposes. The Successor Trusts will, in the opinion of Tax Counsel, be treated
as grantor trusts. See "Certain U.S. Federal Income Tax Consequences".
TERMINATION OF THE TRUSTS
The obligations of Continental and the applicable Trustee with respect to a
Trust will terminate upon the distribution to Certificateholders of such Trust
of all amounts required to be distributed to them pursuant to the applicable
Pass Through Trust Agreement and the disposition of all property held in such
Trust. The applicable Trustee will send to each Certificateholder of such Trust
notice of the termination of such Trust, the amount of the proposed final
payment and the proposed date for the distribution of such final payment for
such Trust. The final distribution to any Certificateholder of such Trust will
be made only upon surrender of such Certificateholder's Certificates at the
office or agency of the applicable Trustee specified in such notice of
termination. (Trust Supplements, Section 7.01)
THE TRUSTEES
The Trustee for each Trust will be Wilmington Trust Company. The Trustees'
address is Wilmington Trust Company, Rodney Square North, 1100 North Market
Street, Wilmington, Delaware 19890-0001, Attention: Corporate Trust
Administration.
BOOK-ENTRY; DELIVERY AND FORM
Upon issuance, each Class of Certificates will be represented by one or
more fully registered global certificates. Each global certificate will be
deposited with, or on behalf of, The Depository Trust Company ("DTC") and
registered in the name of Cede & Co. ("Cede"), the nominee of DTC. DTC was
created to hold securities for its participants ("DTC Participants") and
facilitate the clearance and settlement of securities transactions between DTC
Participants through electronic book-entry changes in accounts of the DTC
Participants, thereby eliminating the need for physical movement of
certificates. DTC Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and certain other organizations.
Indirect access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly. Interests in a
global certificate may also be held through the Euroclear System and
Clearstream, Luxembourg. See "Description of the Certificates -- Book-Entry
Registration" in the Prospectus for a discussion of the book-entry procedures
applicable to the Certificates and the limited circumstances under which
definitive certificates may be issued for the Certificates.
So long as such book-entry procedures are applicable, no person acquiring
an interest in such Certificates ("Certificate Owner") will be entitled to
receive a certificate representing such person's interest in such Certificates.
Unless and until definitive certificates are issued under the limited
circumstances described in the Prospectus, all references to actions by
Certificateholders shall refer to actions taken by DTC upon instructions from
DTC Participants, and all references herein to distributions, notices, reports
and statements to Certificateholders shall refer, as the case may be, to
distributions, notices, reports and statements to DTC or Cede, as the registered
holder of such Certificates, or to DTC Participants for distribution to
Certificate Owners in accordance with DTC procedures.
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<PAGE> 48
DESCRIPTION OF THE DEPOSIT AGREEMENTS
The following summary describes all material terms of the Deposit
Agreements. The summary does not purport to be complete and is qualified in its
entirety by reference to all of the provisions of the Deposit Agreements, each
of which will be filed as an exhibit to a Current Report on Form 8-K to be filed
by Continental with the Commission. The provisions of the Deposit Agreements are
substantially identical except as otherwise indicated.
GENERAL
Under the Escrow Agreements, the Escrow Agent with respect to each Trust
will enter into a separate Deposit Agreement with the Depositary. Pursuant to
the Escrow Agreements, the Depositary will establish separate accounts into
which the proceeds of the Offering attributable to Certificates of the
applicable Trust, to the extent not used to purchase Equipment Notes on the
Issuance Date, will be deposited (each, a "Deposit") on behalf of such Escrow
Agent. Pursuant to the Deposit Agreement with respect to each Trust (each, a
"Deposit Agreement"), on each Regular Distribution Date the Depositary will pay
to the Paying Agent on behalf of the applicable Escrow Agent, for distribution
to the Certificateholders of such Trust, an amount equal to interest accrued on
the Deposits relating to such Trust during the relevant interest period at a
rate per annum equal to the interest rate applicable to the Certificates issued
by such Trust. After the Issuance Date, upon each delivery of an Aircraft during
the Delivery Period, the Trustee for each Trust will request the Escrow Agent
relating to such Trust to withdraw from the Deposits relating to such Trust
funds sufficient to enable the Trustee of such Trust to purchase the Equipment
Note of the series applicable to such Trust issued with respect to such
Aircraft. Accrued but unpaid interest on all such Deposits withdrawn will be
paid on the next Regular Distribution Date. Any portion of any Deposit withdrawn
which is not used to purchase such Equipment Note will be re-deposited by each
Trustee into an account relating to the applicable Trust. The Deposits relating
to each Trust and interest paid thereon will not be subject to the subordination
provisions of the Intercreditor Agreement and will not be available to pay any
other amount in respect of the Certificates.
UNUSED DEPOSITS
The Trustees' obligations to purchase the Equipment Notes issued with
respect to each Aircraft are subject to satisfaction of certain conditions at
the time of financing, as set forth in the Note Purchase Agreement. See
"Description of the Certificates -- Obligation to Purchase Equipment Notes".
Since the Aircraft are scheduled for delivery from time to time during the
Delivery Period, no assurance can be given that all such conditions will be
satisfied at the time of delivery for each such Aircraft. Moreover, since the
Aircraft will be newly manufactured, their delivery as scheduled is subject to
delays in the manufacturing process and to the Aircraft manufacturer's right to
postpone deliveries under its agreement with Continental. See "Description of
the Aircraft and Appraisals -- Deliveries of Aircraft". Depending on the
circumstances of the financing of each Aircraft, the maximum aggregate principal
amount of Equipment Notes may not be issued.
If any funds remain as Deposits with respect to any Trust at the end of the
Delivery Period or, if earlier, upon the acquisition by the Trusts of the
Equipment Notes with respect to all of the Aircraft (the "Delivery Period
Termination Date"), such funds will be withdrawn by the Escrow Agent and
distributed, with accrued and unpaid interest thereon but without premium, to
the Certificateholders of such Trust after at least 15 days' prior written
notice. Since the maximum principal amount of Equipment Notes may not be issued
with respect to an Aircraft and, in any such case, the Series C Equipment Notes
are more likely not to be issued in the maximum principal amount as compared to
the other Equipment Notes, it is more likely that a distribution of unused
Deposits will be made with respect to the Class C Certificates as compared to
the other Certificates.
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<PAGE> 49
DISTRIBUTION UPON OCCURRENCE OF TRIGGERING EVENT
If a Triggering Event shall occur prior to the Delivery Period Termination
Date, the Escrow Agent for each Trust will withdraw any funds then held as
Deposits with respect to such Trust and cause such funds, with accrued and
unpaid interest thereon but without any premium, to be distributed to the
Certificateholders of such Trust by the Paying Agent on behalf of the Escrow
Agent, after at least 15 days' prior written notice. Accordingly, if a
Triggering Event occurs prior to the Delivery Period Termination Date, the
Trusts will not acquire Equipment Notes issued with respect to Aircraft
delivered after the occurrence of such Triggering Event.
DEPOSITARY
Credit Suisse First Boston, New York branch, will act as depositary (the
"Depositary"). Credit Suisse First Boston ("CSFB") is a Swiss bank with total
consolidated assets of approximately Sfr 525 billion ($321 billion) and total
consolidated shareholder's equity of approximately Sfr 14.9 billion ($9.1
billion), in each case at June 30, 2000. CSFB was founded in 1856 in Zurich.
CSFB's registered head office is in Zurich, Switzerland.
CSFB has been licensed by the Superintendent of Banks of the State of New
York to operate a branch in New York. It is also subject to review and
supervision by the Federal Reserve Bank.
CSFB has long-term unsecured debt ratings of A1 from Moody's Investors
Service, Inc. ("Moody's") and AA from Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc. ("Standard & Poor's", and together
with Moody's, the "Rating Agencies"), and short-term unsecured debt ratings of
P-1 from Moody's and A-1+ from Standard & Poor's.
CSFB's New York branch has executive offices at Eleven Madison Avenue, New
York, New York 10010, (212) 325-9000. A copy of the Annual Report of CSFB for
the year ended December 31, 1999 may be obtained from CSFB by delivery of a
written request to its New York branch, Attention: Corporate Affairs.
CSFB is a wholly owned subsidiary of Credit Suisse Group. On November 3,
2000, Credit Suisse Group acquired Donaldson, Lufkin & Jenrette Securities
Corporation, a U.S.-based investment bank and financial services provider, for
total consideration of $11.5 billion (Sfr 19.6 billion).
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<PAGE> 50
DESCRIPTION OF THE ESCROW AGREEMENTS
The following summary describes all material terms of the escrow and paying
agent agreements (the "Escrow Agreements"). The summary does not purport to be
complete and is qualified in its entirety by reference to all of the provisions
of the Escrow Agreements, each of which will be filed as an exhibit to a Current
Report on Form 8-K to be filed by Continental with the Commission. The
provisions of the Escrow Agreements are substantially identical except as
otherwise indicated.
First Security Bank, N.A., as escrow agent in respect of each Trust (the
"Escrow Agent"), Wilmington Trust Company, as paying agent on behalf of the
Escrow Agent in respect of each Trust (the "Paying Agent"), each Trustee and the
Underwriters will enter into a separate Escrow Agreement for the benefit of the
Certificateholders of each Trust as holders of the Escrow Receipts affixed
thereto (in such capacity, a "Receiptholder"). The cash proceeds of the offering
of Certificates of each Trust, to the extent not used to purchase Equipment
Notes on the Issuance Date, will be deposited on behalf of the Escrow Agent (for
the benefit of Receiptholders) with the Depositary as Deposits relating to such
Trust. Each Escrow Agent shall permit the Trustee of the related Trust to cause
funds to be withdrawn from such Deposits on or prior to the Delivery Period
Termination Date to allow such Trustee to purchase the related Equipment Notes
pursuant to the Note Purchase Agreement. In addition, the Escrow Agent shall
direct the Depositary to pay interest on the Deposits accrued in accordance with
the Deposit Agreement to the Paying Agent for distribution to the
Receiptholders.
Each Escrow Agreement requires that the Paying Agent establish and
maintain, for the benefit of the related Receiptholders, one or more Paying
Agent Account(s), which shall be non-interest-bearing. The Paying Agent shall
deposit interest on Deposits and any unused Deposits withdrawn by the Escrow
Agent in the related Paying Agent Account. The Paying Agent shall distribute
these amounts on a Regular Distribution Date or Special Distribution Date, as
appropriate.
Upon receipt by the Depositary of cash proceeds from this Offering, the
Escrow Agent will issue one or more escrow receipts ("Escrow Receipts") which
will be affixed by the relevant Trustee to each Certificate. Each Escrow Receipt
evidences a fractional undivided interest in amounts from time to time deposited
into the Paying Agent Account and is limited in recourse to amounts deposited
into such account. An Escrow Receipt may not be assigned or transferred except
in connection with the assignment or transfer of the Certificate to which it is
affixed. Each Escrow Receipt will be registered by the Escrow Agent in the same
name and manner as the Certificate to which it is affixed.
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<PAGE> 51
DESCRIPTION OF THE LIQUIDITY FACILITIES
The following summary describes all material terms of the Liquidity
Facilities and certain provisions of the Intercreditor Agreement relating to the
Liquidity Facilities. The summary supplements (and, to the extent inconsistent
therewith, replaces) the description of the general terms and provisions
relating to the Liquidity Facilities and the Intercreditor Agreement set forth
in the Prospectus. The summary does not purport to be complete and is qualified
in its entirety by reference to all of the provisions of the Liquidity
Facilities and the Intercreditor Agreement, each of which will be filed as an
exhibit to a Current Report on Form 8-K to be filed by Continental with the
Commission. The provisions of the Liquidity Facilities are substantially
identical except as otherwise indicated.
GENERAL
Landesbank Hessen-Thuringen Girozentrale (the "Liquidity Provider") will
enter into a separate revolving credit agreement (each, a "Liquidity Facility")
with the Subordination Agent with respect to each Trust. Under each Liquidity
Facility, the Liquidity Provider will, if necessary, make one or more advances
("Interest Drawings") to the Subordination Agent in an aggregate amount (the
"Required Amount") sufficient to pay interest on the related Certificates on up
to three consecutive semiannual Regular Distribution Dates at the respective
interest rates shown on the cover page of this Prospectus Supplement for such
Certificates (the "Stated Interest Rates"). If interest payment defaults occur
which exceed the amount covered by or available under the Liquidity Facility for
any Trust, the Certificateholders of such Trust will bear their allocable share
of the deficiencies to the extent that there are no other sources of funds. The
initial liquidity provider with respect to each Trust may be replaced by one or
more other entities with respect to any of such Trusts under certain
circumstances.
DRAWINGS
The aggregate amount available under the Liquidity Facility for each Trust
at October 2, 2001, the first Regular Distribution Date after the first 23
Aircraft available to be financed in the Offering are scheduled to have been
delivered, assuming that such Aircraft are so financed, that Equipment Notes in
the maximum principal amount with respect to all such Aircraft are acquired by
the Trusts and that all interest and principal due on or prior to October 2,
2001, is paid, will be as follows:
<TABLE>
<CAPTION>
TRUST AVAILABLE AMOUNT
----- ----------------
<S> <C>
Class A-1................................................... $
Class A-2...................................................
Class B.....................................................
Class C.....................................................
</TABLE>
Except as otherwise provided below, the Liquidity Facility for each Trust
will enable the Subordination Agent to make Interest Drawings thereunder
promptly on or after any Regular Distribution Date to pay interest then due and
payable on the Certificates of such Trust at the Stated Interest Rate for such
Trust to the extent that the amount, if any, available to the Subordination
Agent on such Regular Distribution Date is not sufficient to pay such interest;
provided, however, that the maximum amount available to be drawn under the
Liquidity Facility with respect to any Trust on any Regular Distribution Date to
fund any shortfall of interest on Certificates of such Trust will not exceed the
then Maximum Available Commitment under such Liquidity Facility. The "Maximum
Available Commitment" at any time under each Liquidity Facility is an amount
equal to the then Required Amount of such Liquidity Facility less the aggregate
amount of each Interest Drawing outstanding under such Liquidity Facility at
such time, provided that following a Downgrade Drawing, a Final Drawing or a
Non-Extension Drawing under a Liquidity Facility, the Maximum Available
Commitment under such Liquidity Facility shall be zero.
The Liquidity Facility for any Class of Certificates does not provide for
drawings thereunder to pay for principal of or premium on the Certificates of
such Class or any interest on the Certificates of such Class in excess of the
Stated Interest Rate for such Class or more than three semiannual installments
of interest thereon or principal of or interest or premium on the Certificates
of any other Class. (Liquidity Facilities,
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<PAGE> 52
Section 2.02; Intercreditor Agreement, Section 3.6) In addition, the Liquidity
Facility with respect to each Trust does not provide for drawings thereunder to
pay any amounts payable with respect to the Deposits relating to such Trust.
Each payment by a Liquidity Provider reduces by the same amount the Maximum
Available Commitment under the related Liquidity Facility, subject to
reinstatement as hereinafter described. With respect to any Interest Drawings,
upon reimbursement of the applicable Liquidity Provider in full for the amount
of such Interest Drawings plus interest thereon, the Maximum Available
Commitment under such Liquidity Facility in respect of interest on the
Certificates of such Trust will be reinstated to an amount not to exceed the
then Required Amount of the related Liquidity Facility. However, such Liquidity
Facility will not be so reinstated at any time if (i) a Liquidity Event of
Default shall have occurred and be continuing and (ii) less than 65% of the then
aggregate outstanding principal amount of all Equipment Notes are Performing
Equipment Notes. With respect to any other drawings under such Liquidity
Facility, amounts available to be drawn thereunder are not subject to
reinstatement. The Required Amount of the Liquidity Facility for any Trust will
be automatically reduced from time to time to an amount equal to the next three
successive interest payments due on the Certificates of such Trust (without
regard to expected future payment of principal of such Certificates) at the
Stated Interest Rate for such Trust. (Liquidity Facilities, Section 2.04(a);
Intercreditor Agreement, Section 3.6(j))
"Performing Equipment Note" means an Equipment Note with respect to which
no payment default has occurred and is continuing (without giving effect to any
acceleration); provided that in the event of a bankruptcy proceeding under the
U.S. Bankruptcy Code in which Continental is a debtor any payment default
existing during the 60-day period under Section 1110(a)(2)(A) of the U.S.
Bankruptcy Code (or such longer period as may apply under Section 1110(b) of the
U.S. Bankruptcy Code or as may apply for the cure of such payment default under
Section 1110(a)(2)(B) of the U.S. Bankruptcy Code) shall not be taken into
consideration until the expiration of the applicable period.
If at any time the short-term unsecured debt rating of the Liquidity
Provider then issued by either Rating Agency is lower than the Threshold Rating
for the relevant Class, then the Liquidity Facility for such Class may be
replaced by a Replacement Facility. In the event that such Liquidity Facility is
not replaced with a Replacement Facility within ten days (or 30 days if Standard
and Poor's downgrades the Liquidity Provider's ratings from A-1+ to A-1, in the
case of the Class A-1 Liquidity Facility, the Class A-2 Liquidity Facility and
the Class B Liquidity Facility) after notice of the downgrading and as otherwise
provided in the Intercreditor Agreement, such Liquidity Facility will be drawn
in full up to the then Maximum Available Commitment under such Liquidity
Facility (the "Downgrade Drawing"). The proceeds of a Downgrade Drawing will be
deposited into a cash collateral account (the "Cash Collateral Account") for
such Class of Certificates and used for the same purposes and under the same
circumstances and subject to the same conditions as cash payments of Interest
Drawings under such Liquidity Facility would be used. (Liquidity Facilities,
Section 2.02(c); Intercreditor Agreement, Section 3.6(c)) If a qualified
Replacement Facility is subsequently provided, the balance of the Cash
Collateral Account will be repaid to the replaced Liquidity Provider.
A "Replacement Facility" for any Liquidity Facility will mean an
irrevocable liquidity facility (or liquidity facilities) in substantially the
form of the replaced Liquidity Facility, including reinstatement provisions, or
in such other form (which may include a letter of credit) as shall permit the
Rating Agencies to confirm in writing their respective ratings then in effect
for the Certificates (before downgrading of such ratings, if any, as a result of
the downgrading of the applicable Liquidity Provider), in a face amount (or in
an aggregate face amount) equal to the amount of interest payable on the
Certificates of such Trust (at the Stated Interest Rate for such Trust, and
without regard to expected future principal payments) on the three Regular
Distribution Dates following the date of replacement of such Liquidity Facility
and issued by a person (or persons) having unsecured short-term debt ratings
issued by both Rating Agencies which are equal to or higher than the Threshold
Rating for the relevant Class. (Intercreditor Agreement, Section 1.1) The
provider of any Replacement Facility will have the same rights (including,
without limitation, priority distribution rights and rights as "Controlling
Party") under the Intercreditor Agreement as the applicable initial Liquidity
Provider.
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<PAGE> 53
"Threshold Rating" means the short-term unsecured debt rating of P-1 by
Moody's and A-1+ by Standard & Poor's, in the case of the Class A-1 Liquidity
Facility, the Class A-2 Liquidity Facility and the Class B Liquidity Facility,
and the short-term unsecured debt rating of P-1 by Moody's and A-1 by Standard &
Poor's, in the case of the Class C Liquidity Facility.
The Liquidity Facility for each Trust provides that the applicable
Liquidity Provider's obligations thereunder will expire on the earliest of:
- 364 days after the initial issuance date of the Certificates (the
"Issuance Date") (counting from, and including, the Issuance Date).
- The date on which the Subordination Agent delivers to such Liquidity
Provider a certification that all of the Certificates of such Trust have
been paid in full.
- The date on which the Subordination Agent delivers to such Liquidity
Provider a certification that a Replacement Facility has been substituted
for such Liquidity Facility.
- The fifth Business Day following receipt by the Subordination Agent of a
Termination Notice from such Liquidity Provider (see "-- Liquidity Events
of Default").
- The date on which no amount is or may (by reason of reinstatement) become
available for drawing under such Liquidity Facility.
Each Liquidity Facility provides that it may be extended for additional
364-day periods by mutual agreement of the relevant Liquidity Provider and the
Subordination Agent.
The Intercreditor Agreement will provide for the replacement of the
Liquidity Facility for any Trust if such Liquidity Facility is scheduled to
expire earlier than 15 days after the Final Maturity Date for the Certificates
of such Trust and such Liquidity Facility is not extended at least 25 days prior
to its then scheduled expiration date. If such Liquidity Facility is not so
extended or replaced by the 25th day prior to its then scheduled expiration
date, such Liquidity Facility will be drawn in full up to the then Maximum
Available Commitment under such Liquidity Facility (the "Non-Extension
Drawing"). The proceeds of the Non-Extension Drawing will be deposited in the
Cash Collateral Account for the related Class of Certificates as cash collateral
to be used for the same purposes and under the same circumstances, and subject
to the same conditions, as cash payments of Interest Drawings under such
Liquidity Facility would be used. (Liquidity Facilities, Section 2.02(b);
Intercreditor Agreement, Section 3.6(d))
Subject to certain limitations, Continental may, at its option, arrange for
a Replacement Facility at any time to replace the liquidity facility for any
Trust (including without limitation any Replacement Facility described in the
following sentence). In addition, if any liquidity provider shall determine not
to extend any liquidity facility, then such liquidity provider may, at its
option, arrange for a Replacement Facility to replace such liquidity facility
(i) during the period no earlier than 40 days and no later than 25 days prior to
the then scheduled expiration date of such liquidity facility and (ii) at any
time after such scheduled expiration date. If any Replacement Facility is
provided at any time after a Downgrade Drawing or a Non-Extension Drawing under
any Liquidity Facility, the funds with respect to such liquidity facility on
deposit in the Cash Collateral Account for such Trust will be returned to the
liquidity provider being replaced. (Intercreditor Agreement, Section 3.6(e))
Upon receipt by the Subordination Agent of a Termination Notice with
respect to any Liquidity Facility from the relevant Liquidity Provider, the
Subordination Agent shall request a final drawing (a "Final Drawing") under such
Liquidity Facility in an amount equal to the then Maximum Available Commitment
thereunder. The Subordination Agent will hold the proceeds of the Final Drawing
in the Cash Collateral Account for the related Trust as cash collateral to be
used for the same purposes and under the same circumstances, and subject to the
same conditions, as cash payments of Interest Drawings under such Liquidity
Facility would be used. (Liquidity Facilities, Section 2.02(d); Intercreditor
Agreement, Section 3.6(i))
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Drawings under any Liquidity Facility will be made by delivery by the
Subordination Agent of a certificate in the form required by such Liquidity
Facility. Upon receipt of such a certificate, the relevant Liquidity Provider is
obligated to make payment of the drawing requested thereby in immediately
available funds. Upon payment by the relevant Liquidity Provider of the amount
specified in any drawing under any Liquidity Facility, such Liquidity Provider
will be fully discharged of its obligations under such Liquidity Facility with
respect to such drawing and will not thereafter be obligated to make any further
payments under such Liquidity Facility in respect of such drawing to the
Subordination Agent or any other person.
REIMBURSEMENT OF DRAWINGS
The Subordination Agent must reimburse amounts drawn under any Liquidity
Facility by reason of an Interest Drawing, Final Drawing, Downgrade Drawing or
Non-Extension Drawing and interest thereon, but only to the extent that the
Subordination Agent has funds available therefor.
INTEREST DRAWINGS AND FINAL DRAWINGS
Amounts drawn by reason of an Interest Drawing or Final Drawing will be
immediately due and payable, together with interest on the amount of such
drawing. From the date of the drawing to (but excluding) the third business day
following the applicable Liquidity Provider's receipt of the notice of such
Interest Drawing, interest will accrue at the Base Rate plus 1.50% per annum.
Thereafter, interest will accrue at LIBOR for the applicable interest period
plus 1.50% per annum. In the case of the Final Drawing, however, the
Subordination Agent may convert the Final Drawing into a drawing bearing
interest at the Base Rate plus 1.50% per annum on the last day of an interest
period for such Drawing.
"Base Rate" means a fluctuating interest rate per annum in effect from time
to time, which rate per annum shall at all times be equal to (a) the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published for such
day (or, if such day is not a business day, for the next preceding business day)
by the Federal Reserve Bank of New York, or if such rate is not so published for
any day that is a business day, the average of the quotations for such day for
such transactions received by the applicable Liquidity Provider from three
Federal funds brokers of recognized standing selected by it, plus (b)
one-quarter of one percent 1/4 of 1%).
"LIBOR" means, with respect to any interest period, (i) the rate per annum
appearing on display page 3750 (British Bankers Association -- LIBOR) of the Dow
Jones Markets Service (or any successor or substitute therefor) at approximately
11:00 A.M. (London time) two business days before the first day of such interest
period, as the rate for dollar deposits with a maturity comparable to such
interest period, or (ii) if the rate calculated pursuant to clause (i) above is
not available, the average (rounded upwards, if necessary, to the next 1/16 of
1%) of the rates per annum at which deposits in dollars are offered for the
relevant interest period by three banks of recognized standing selected by the
applicable Liquidity Provider in the London interbank market at approximately
11:00 A.M. (London time) two business days before the first day of such interest
period in an amount approximately equal to the principal amount of the LIBOR
Advance to which such interest period is to apply and for a period comparable to
such interest period.
DOWNGRADE DRAWINGS AND NON-EXTENSION DRAWINGS
The amount drawn under any Liquidity Facility by reason of a Downgrade
Drawing or a Non-Extension Drawing will be treated as follows:
- Such amount will be released on any Distribution Date to the applicable
Liquidity Provider to the extent that such amount exceeds the Required
Amount.
- Any portion of such amount withdrawn from the Cash Collateral Account for
such Certificates to pay interest on such Certificates will be treated in
the same way as Interest Drawings.
- The balance of such amount will be invested in certain specified eligible
investments.
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Any Downgrade Drawing under any of the Liquidity Facilities, other than any
portion thereof applied to the payment of interest on the Certificates, will
bear interest (x) subject to clause (y) below, at a rate equal to LIBOR for the
applicable interest period plus a specified margin on the outstanding amount
from time to time of such Downgrade Drawing and (y) from and after the date, if
any, on which it is converted into a Final Drawing as described below under
"-- Liquidity Events of Default", at a rate equal to LIBOR for the applicable
interest period (or, as described in the first paragraph under "-- Interest
Drawings and Final Drawings", the Base Rate) plus 1.50% per annum.
Any Non-Extension Drawing under any of the Liquidity Facilities, other than
any portion thereof applied to the payment of interest on the Certificates, will
bear interest (x) subject to clause (y) below, in an amount equal to the
investment earnings on amounts deposited in the Cash Collateral Account
attributable to such Liquidity Facility plus a specified margin on the
outstanding amount from time to time of such Non-Extension Drawing and (y) from
and after the date, if any, on which it is converted into a Final Drawing as
described below under "-- Liquidity Events of Default", at a rate equal to LIBOR
for the applicable interest period (or, as described in the first paragraph
under "-- Interest Drawings and Final Drawings", the Base Rate) plus 1.50% per
annum.
LIQUIDITY EVENTS OF DEFAULT
Events of Default under each Liquidity Facility (each, a "Liquidity Event
of Default") will consist of:
- The acceleration of all the Equipment Notes (provided, that if such
acceleration occurs during the Delivery Period, the aggregate principal
amount thereof exceeds $300 million).
- Certain bankruptcy or similar events involving Continental. (Liquidity
Facilities, Section 1.01)
If (i) any Liquidity Event of Default under any Liquidity Facility has
occurred and is continuing and (ii) less than 65% of the aggregate outstanding
principal amount of all Equipment Notes are Performing Equipment Notes, the
applicable Liquidity Provider may, in its discretion, give a notice of
termination of such Liquidity Facility (a "Termination Notice"). The Termination
Notice will have the following consequences:
- The related Liquidity Facility will expire on the fifth Business Day
after the date on which such Termination Notice is received by the
Subordination Agent.
- The Subordination Agent will promptly request, and the applicable
Liquidity Provider will make, a Final Drawing thereunder in an amount
equal to the then Maximum Available Commitment thereunder.
- Any Drawing remaining unreimbursed as of the date of termination will be
automatically converted into a Final Drawing under such Liquidity
Facility.
- All amounts owing to the applicable Liquidity Provider automatically will
be accelerated.
Notwithstanding the foregoing, the Subordination Agent will be obligated to
pay amounts owing to the Liquidity Provider only to the extent of funds
available therefor after giving effect to the payments in accordance with the
provisions set forth under "Description of the Intercreditor
Agreement -- Priority of Distributions". (Liquidity Facilities, Section 6.01)
Upon the circumstances described below under "Description of the Intercreditor
Agreement -- Intercreditor Rights", a liquidity provider may become the
Controlling Party with respect to the exercise of remedies under the Indentures.
(Intercreditor Agreement, Section 2.6(c))
LIQUIDITY PROVIDER
The initial liquidity provider will be Landesbank Hessen-Thuringen
Girozentrale. Landesbank Hessen-Thuringen Girozentrale has short-term unsecured
debt ratings of P-1 from Moody's and A-1+ from Standard & Poor's.
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DESCRIPTION OF THE INTERCREDITOR AGREEMENT
The following summary describes all material provisions of the
Intercreditor Agreement (the "Intercreditor Agreement") among the Trustees, the
Liquidity Provider and Wilmington Trust Company, as subordination agent (the
"Subordination Agent"). The summary supplements (and, to the extent inconsistent
therewith, replaces) the description of the general terms and provisions
relating to the Intercreditor Agreement set forth in the Prospectus. The summary
does not purport to be complete and is qualified in its entirety by reference to
all of the provisions of the Intercreditor Agreement, which will be filed as an
exhibit to a Current Report on Form 8-K to be filed by Continental with the
Commission.
INTERCREDITOR RIGHTS
CONTROLLING PARTY
Each Loan Trustee will be directed in taking, or refraining from taking,
any action thereunder or with respect to the Equipment Notes issued under such
Indenture, by the holders of at least a majority of the outstanding principal
amount of the Equipment Notes issued under such Indenture, so long as no
Indenture Default (which, with respect to Leased Aircraft, has not been cured by
the applicable Owner Trustee or Owner Participant) shall have occurred and be
continuing thereunder. For so long as the Subordination Agent is the registered
holder of the Equipment Notes, the Subordination Agent will act with respect to
the preceding sentence in accordance with the directions of the Trustees for
whom the Equipment Notes issued under such Indenture are held as Trust Property,
to the extent constituting, in the aggregate, directions with respect to the
required principal amount of Equipment Notes.
After the occurrence and during the continuance of an Indenture Default
under such Indenture (which, with respect to Leased Aircraft, has not been cured
by the applicable Owner Trustee or Owner Participant), each Loan Trustee will be
directed in taking, or refraining from taking, any action thereunder or with
respect to the Equipment Notes issued under the related Indenture, including
acceleration of such Equipment Notes or foreclosing the lien on the related
Aircraft, by the Controlling Party, subject to the limitations described below.
See "Description of the Certificates -- Indenture Defaults and Certain Rights
Upon an Indenture Default" for a description of the rights of the
Certificateholders of each Trust to direct the respective Trustees.
The "Controlling Party" will be:
- The Class A-1 Trustee or Class A-2 Trustee, whichever represents the
Class with the larger principal amount of Certificates outstanding at the
time that the Indenture Default occurs.
- Upon payment of Final Distributions to the holders of such larger Class,
the other of the Class A-1 Trustee or Class A-2 Trustee.
- Upon payment of Final Distributions to the holders of Class A-1 and A-2
Certificates, the Class B Trustee.
- Upon payment of Final Distributions to the holders of Class B
Certificates, the Class C Trustee.
- Under certain circumstances, and notwithstanding the foregoing, the
liquidity provider with the largest amount owed to it, as discussed in
the next paragraph.
At any time after 18 months from the earlier to occur of (x) the date on
which the entire available amount under any Liquidity Facility shall have been
drawn (for any reason other than a Downgrade Drawing or a Non-Extension Drawing)
and remain unreimbursed, (y) the date on which the entire amount of any
Downgrade Drawing or Non-Extension Drawing shall have been withdrawn from the
relevant Cash Collateral Account to pay interest on the relevant Class of
Certificates and remain unreimbursed and (z) the date on which all Equipment
Notes shall have been accelerated (provided that if such acceleration occurs
prior to the Delivery Period Termination Date, the aggregate principal amount
thereof exceeds $300 million), the liquidity provider with the highest
outstanding amount of Liquidity Obligations shall have the right to become the
Controlling Party with respect to any Indenture.
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For purposes of giving effect to the rights of the Controlling Party, the
Trustees (other than the Controlling Party) shall irrevocably agree, and the
Certificateholders (other than the Certificateholders represented by the
Controlling Party) will be deemed to agree by virtue of their purchase of
Certificates, that the Subordination Agent, as record holder of the Equipment
Notes, shall exercise its voting rights in respect of the Equipment Notes as
directed by the Controlling Party. (Intercreditor Agreement, Section 2.6) For a
description of certain limitations on the Controlling Party's rights to exercise
remedies, see "Description of the Equipment Notes -- Remedies".
"Final Distributions" means, with respect to the Certificates of any Trust
on any Distribution Date, the sum of (x) the aggregate amount of all accrued and
unpaid interest on such Certificates (excluding interest payable on the Deposits
relating to such Trust) and (y) the Pool Balance of such Certificates as of the
immediately preceding Distribution Date (less the amount of the Deposits for
such Class of Certificates as of such preceding Distribution Date other than any
portion of such Deposits thereafter used to acquire Equipment Notes pursuant to
the Note Purchase Agreement). For purposes of calculating Final Distributions
with respect to the Certificates of any Trust, any premium paid on the Equipment
Notes held in such Trust which has not been distributed to the
Certificateholders of such Trust (other than such premium or a portion thereof
applied to the payment of interest on the Certificates of such Trust or the
reduction of the Pool Balance of such Trust) shall be added to the amount of
such Final Distributions.
SALE OF EQUIPMENT NOTES OR AIRCRAFT
Upon the occurrence and during the continuation of any Indenture Default
under any Indenture, the Controlling Party may accelerate and, subject to the
provisions of the immediately following sentence, sell all (but not less than
all) of the Equipment Notes issued under such Indenture to any person. So long
as any Certificates are outstanding, during nine months after the earlier of (x)
the acceleration of the Equipment Notes under any Indenture and (y) the
bankruptcy or insolvency of Continental, without the consent of each Trustee, no
Aircraft subject to the lien of such Indenture or such Equipment Notes may be
sold, if the net proceeds from such sale would be less than the Minimum Sale
Price for such Aircraft or such Equipment Notes. In addition, with respect to
any Leased Aircraft, the amount and payment dates of rentals payable by
Continental under the related Lease may not be adjusted during this nine-month
period, if, as a result of such adjustment, the discounted present value of all
such rentals would be less than 75% of the discounted present value of the
rentals payable by Continental under such Lease before giving effect to such
adjustment.
"Minimum Sale Price" means, with respect to any Aircraft or the Equipment
Notes issued in respect of such Aircraft, at any time, the lesser of (1) 75% of
the Appraised Current Market Value of such Aircraft and (2) the aggregate
outstanding principal amount of such Equipment Notes, plus accrued and unpaid
interest thereon. The Minimum Sale Price for such Aircraft and the discounted
present value of all rentals shall be determined using the weighted average
interest rate of the Equipment Notes outstanding under such Indenture as the
discount rate.
PRIORITY OF DISTRIBUTIONS
BEFORE A TRIGGERING EVENT
So long as no Triggering Event shall have occurred (whether or not
continuing), all payments in respect of the Equipment Notes and certain other
payments received on any Distribution Date will be promptly distributed by the
Subordination Agent on such Distribution Date in the following order of
priority:
- To the Liquidity Provider to the extent required to pay the Liquidity
Expenses.
- To the Liquidity Provider to the extent required to pay interest accrued
on the Liquidity Obligations.
- To the Liquidity Provider to the extent required to pay or reimburse the
Liquidity Provider for certain Liquidity Obligations (other than amounts
payable pursuant to the two preceding clauses) and/or, if applicable, to
replenish each Cash Collateral Account up to the Required Amount.
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- To the Class A-1 Trustee and the Class A-2 Trustee to the extent required
to pay Expected Distributions on the Class A-1 Certificates and the Class
A-2 Certificates. If available funds are insufficient to pay an Expected
Distribution to each such Class in full, available funds will be
distributed to each of the Class A-1 Trustee and Class A-2 Trustee in the
same proportion as such Trustee's proportionate share of the aggregate
amount of such Expected Distributions.
- To the Class B Trustee to the extent required to pay Expected
Distributions on the Class B Certificates.
- To the Class C Trustee to the extent required to pay Expected
Distributions on the Class C Certificates.
- If Class D Certificates have been issued, to the Class D Trustee to the
extent required to pay "Expected Distributions" (to be defined in a
manner equivalent to the definition below for other Classes of
Certificates) on the Class D Certificates.
- To the Subordination Agent and each Trustee for the payment of certain
fees and expenses.
"Liquidity Obligations" means the obligations to reimburse or to pay the
Liquidity Provider all principal, interest, fees and other amounts owing to them
under each Liquidity Facility or certain other agreements.
"Liquidity Expenses" means the Liquidity Obligations other than any
interest accrued thereon or the principal amount of any drawing under the
Liquidity Facilities.
"Expected Distributions" means, with respect to the Certificates of any
Trust on any Distribution Date (the "Current Distribution Date"), the sum of (1)
accrued and unpaid interest on such Certificates (excluding interest, if any,
payable with respect to the Deposits relating to such Trust) and (2) the
difference between:
(A) the Pool Balance of such Certificates as of the immediately
preceding Distribution Date (or, if the Current Distribution Date is the
first Distribution Date, the original aggregate face amount of the
Certificates of such Trust), and
(B) the Pool Balance of such Certificates as of the Current Distribution
Date calculated on the basis that (i) the principal of the Equipment Notes
held in such Trust has been paid when due (whether at stated maturity, upon
redemption, prepayment, purchase, acceleration or otherwise) and such
payments have been distributed to the holders of such Certificates and (ii)
the principal of any Equipment Notes formerly held in such Trust that have
been sold pursuant to the Intercreditor Agreement has been paid in full and
such payments have been distributed to the holders of such Certificates,
but without giving effect to any reduction in the Pool Balance as a result
of any distribution attributable to Deposits occurring after the
immediately preceding Distribution Date (or, if the Current Distribution
Date is the first Distribution Date, occurring after the initial issuance
of the Certificates of such Trust).
For purposes of determining the priority of distributions on account of the
redemption, purchase or prepayment of all of the Equipment Notes issued pursuant
to an Indenture, clause (1) of the definition of Expected Distributions shall be
deemed to read as follows: "(1) accrued, due and unpaid interest on such
Certificates together with (without duplication) accrued and unpaid interest on
a portion of such Certificates equal to the outstanding principal amount of the
Equipment Notes held in such Trust and being redeemed, purchased or prepaid
(immediately prior to such redemption, purchase or prepayment), in each case
excluding interest, if any, payable with respect to the Deposits relating to
such Trust".
AFTER A TRIGGERING EVENT
Subject to the terms of the Intercreditor Agreement, upon the occurrence of
a Triggering Event and at all times thereafter, all funds received by the
Subordination Agent in respect of the Equipment Notes and
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certain other payments will be promptly distributed by the Subordination Agent
in the following order of priority:
- To the Subordination Agent, any Trustee, any Certificateholder and the
Liquidity Provider to the extent required to pay certain out-of-pocket
costs and expenses actually incurred by the Subordination Agent or any
Trustee or to reimburse any Certificateholder or the Liquidity Provider
in respect of payments made to the Subordination Agent or any Trustee in
connection with the protection or realization of the value of the
Equipment Notes, any Trust Indenture Estate under (and as defined in any
Leased Aircraft Indenture) or Collateral under (and as defined in) any
Owned Aircraft Indenture (collectively, the "Administration Expenses").
- To the Liquidity Provider to the extent required to pay the Liquidity
Expenses.
- To the Liquidity Provider to the extent required to pay interest accrued
on the Liquidity Obligations.
- To the Liquidity Provider to the extent required to pay the outstanding
amount of all Liquidity Obligations and/or, if applicable, with respect
to any particular Liquidity Facility, unless (x) less than 65% of the
aggregate outstanding principal amount of all Equipment Notes are
Performing Equipment Notes and a Liquidity Event of Default shall have
occurred and is continuing under such Liquidity Facility or (y) a Final
Drawing shall have occurred under such Liquidity Facility, to replenish
the Cash Collateral Account with respect to such Liquidity Facility up to
the Required Amount for the related Class of Certificates (less the
amount of any repayments of Interest Drawings under such Liquidity
Facility while sub-clause (x) of this clause is applicable).
- To the Subordination Agent, any Trustee or any Certificateholder to the
extent required to pay certain fees, taxes, charges and other amounts
payable.
- To the Class A-1 Trustee and the Class A-2 Trustee to the extent required
to pay Adjusted Expected Distributions on the Class A-1 Certificates and
the Class A-2 Certificates. If available funds are insufficient to pay an
Adjusted Expected Distribution to each such Class in full, available
funds will be distributed to each of the Class A-1 Trustee and Class A-2
Trustee in the same proportion as such Trustee's proportionate share of
the aggregate amount of such Adjusted Expected Distributions.
- To the Class B Trustee to the extent required to pay Adjusted Expected
Distributions on the Class B Certificates.
- To the Class C Trustee to the extent required to pay Adjusted Expected
Distributions on the Class C Certificates.
- If Class D Certificates have been issued, to the Class D Trustee to the
extent required to pay "Adjusted Expected Distributions" (to be defined
in a manner equivalent to the definition below for other Classes of
Certificates) on the Class D Certificates.
"Adjusted Expected Distributions" means, with respect to the Certificates
of any Trust on any Current Distribution Date, the sum of (1) accrued and unpaid
interest on such Certificates (excluding interest, if any, payable with respect
to the Deposits relating to such Trust) and (2) the greater of:
(A) the difference between (x) the Pool Balance of such Certificates as
of the immediately preceding Distribution Date (or, if the Current
Distribution Date is the first Distribution Date, the original aggregate
face amount of the Certificates of such Trust) and (y) the Pool Balance of
such Certificates as of the Current Distribution Date calculated on the
basis that (i) the principal of the Equipment Notes other than Performing
Equipment Notes (the "Non-Performing Equipment Notes") held in such Trust
has been paid in full and such payments have been distributed to the
holders of such Certificates, (ii) the principal of the Performing
Equipment Notes held in such Trust has been paid when due (but without
giving effect to any acceleration of Performing Equipment Notes) and such
payments have been distributed to the holders of such Certificates and
(iii) the principal of any Equipment Notes formerly held in such Trust that
have been sold pursuant to the Intercreditor Agreement has been paid in
full and such payments have been distributed to the holders of such
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Certificates, but without giving effect to any reduction in the Pool
Balance as a result of any distribution attributable to Deposits occurring
after the immediately preceding Distribution Date (or, if the Current
Distribution Date is the first Distribution Date, occurring after the
initial issuance of the Certificates of such Trust), and
(B) the amount of the excess, if any, of (i) the Pool Balance of such
Class of Certificates as of the immediately preceding Distribution Date
(or, if the Current Distribution Date is the first Distribution Date, the
original aggregate face amount of the Certificates of such Trust), less the
amount of the Deposits for such Class of Certificates as of such preceding
Distribution Date (or, if the Current Distribution Date is the first
Distribution Date, the original aggregate amount of the Deposits for such
Class of Certificates) other than any portion of such Deposits thereafter
used to acquire Equipment Notes pursuant to the Note Purchase Agreement
(the amount described in this clause (i), the "Current Pool Balance"), over
(ii) the Aggregate LTV Collateral Amount for such Class of Certificates for
the Current Distribution Date;
provided that, until the date of the initial LTV Appraisals, clause (B) shall
not apply.
For purposes of calculating Expected Distributions or Adjusted Expected
Distributions with respect to the Certificates of any Trust, any premium paid on
the Equipment Notes held in such Trust that has not been distributed to the
Certificateholders of such Trust (other than such premium or a portion thereof
applied to the payment of interest on the Certificates of such Trust or the
reduction of the Pool Balance of such Trust) shall be added to the amount of
Expected Distributions or Adjusted Expected Distributions.
"Aggregate LTV Collateral Amount" for any Class of Certificates for any
Distribution Date means the product of (A) (i) the sum of the applicable LTV
Collateral Amounts for each Aircraft, minus (ii) the Pool Balance for each Class
of Certificates, if any, senior to such Class, after giving effect to any
distribution of principal on such Distribution Date with respect to such senior
Class or Classes, multiplied by (B) (i) in the case of the Class A-1
Certificates or Class A-2 Certificates, a fraction the numerator of which equals
the Current Pool Balance for the Class A-1 Certificates or Class A-2
Certificates, as the case may be, and the denominator of which equals the
aggregate Current Pool Balance for the Class A-1 Certificates and Class A-2
Certificates, and (ii) in the case of the Class B Certificates or the Class C
Certificates, 1.0.
"LTV Collateral Amount" of any Aircraft for any Class of Certificates
means, as of any Distribution Date, the lesser of (i) the LTV Ratio for such
Class of Certificates multiplied by the Appraised Current Market Value of such
Aircraft (or with respect to any such Aircraft which has suffered an Event of
Loss under and as defined in the relevant Lease, in the case of a Leased
Aircraft, or relevant Indenture, in the case of an Owned Aircraft, the amount of
the insurance proceeds paid to the related Loan Trustee in respect thereof to
the extent then held by such Loan Trustee (and/or on deposit in the Special
Payments Account) or payable to such Loan Trustee in respect thereof) and (ii)
the outstanding principal amount of the Equipment Notes secured by such Aircraft
after giving effect to any principal payments of such Equipment Notes on or
before such Distribution Date.
"LTV Ratio" means for each Class of Certificates as of any Distribution
Date, the percentages set forth in the following table for the applicable time
period:
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS B CLASS C
CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
------------ ------------ ------------ ------------
<S> <C> <C> <C>
42.0% 42.0% 54.0% 64.0%
</TABLE>
"Appraised Current Market Value" of any Aircraft means the lower of the
average and the median of the most recent three LTV Appraisals of such Aircraft.
After a Triggering Event occurs and any Equipment Note becomes a Non-Performing
Equipment Note, the Subordination Agent shall obtain LTV Appraisals of the
Aircraft securing such Equipment Note as soon as practicable and additional LTV
Appraisals on or prior to each anniversary of the date of such initial LTV
Appraisals; provided that if the Controlling Party reasonably objects to the
appraised value of the Aircraft shown in such LTV Appraisals, the Controlling
Party shall have the right to obtain or cause to be obtained substitute LTV
Appraisals (including LTV Appraisals based upon physical inspection of such
Aircraft).
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"LTV Appraisal" means a current fair market value appraisal (which may be a
"desk-top" appraisal) performed by any Appraiser or any other nationally
recognized appraiser on the basis of an arm's-length transaction between an
informed and willing purchaser under no compulsion to buy and an informed and
willing seller under no compulsion to sell and both having knowledge of all
relevant facts.
Interest Drawings under the Liquidity Facility and withdrawals from the
Cash Collateral Account, in each case in respect of interest on the Certificates
of any Trust, will be distributed to the Trustee for such Trust, notwithstanding
the priority of distributions set forth in the Intercreditor Agreement and
otherwise described herein. All amounts on deposit in the Cash Collateral
Account for any Trust that are in excess of the Required Amount will be paid to
the applicable Liquidity Provider.
VOTING OF EQUIPMENT NOTES
In the event that the Subordination Agent, as the registered holder of any
Equipment Note, receives a request for its consent to any amendment,
modification, consent or waiver under such Equipment Note or the related
Indenture (or, if applicable, the related Lease, the related Participation
Agreement or other related document), (i) if no Indenture Default shall have
occurred and be continuing with respect to such Indenture, the Subordination
Agent shall request instructions from the Trustee(s) and shall vote or consent
in accordance with the directions of such Trustee(s) and (ii) if any Indenture
Default (which, in the case of any Leased Aircraft Indenture, has not been cured
by the applicable Owner Trustee or Owner Participant) shall have occurred and be
continuing with respect to such Indenture, the Subordination Agent will exercise
its voting rights as directed by the Controlling Party, subject to certain
limitations; provided that no such amendment, modification, consent or waiver
shall, without the consent of the Liquidity Provider, reduce the amount of rent,
supplemental rent or stipulated loss values payable by Continental under any
Lease or reduce the amount of principal or interest payable by Continental under
any Equipment Note issued under any Owned Aircraft Indenture. (Intercreditor
Agreement, Section 9.1(b))
ADDITION OF TRUSTEE FOR CLASS D CERTIFICATES
If the Class D Certificates are issued, the Class D Trustee will become a
party to the Intercreditor Agreement.
THE SUBORDINATION AGENT
Wilmington Trust Company will be the Subordination Agent under the
Intercreditor Agreement. Continental and its affiliates may from time to time
enter into banking and trustee relationships with the Subordination Agent and
its affiliates. The Subordination Agent's address is Wilmington Trust Company,
Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001,
Attention: Corporate Trust Administration.
The Subordination Agent may resign at any time, in which event a successor
Subordination Agent will be appointed as provided in the Intercreditor
Agreement. The Controlling Party may remove the Subordination Agent for cause as
provided in the Intercreditor Agreement. In such circumstances, a successor
Subordination Agent will be appointed as provided in the Intercreditor
Agreement. Any resignation or removal of the Subordination Agent and appointment
of a successor Subordination Agent does not become effective until acceptance of
the appointment by the successor Subordination Agent. (Intercreditor Agreement,
Section 8.1)
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DESCRIPTION OF THE AIRCRAFT AND THE APPRAISALS
THE AIRCRAFT
The Aircraft consist of ten Boeing 737-824 aircraft, seven Boeing 737-924
aircraft, four Boeing 767-224ER aircraft and two Boeing 767-424ER aircraft
(collectively, the "Aircraft"), all of which will be newly delivered by the
manufacturer during the Delivery Period. The Aircraft have been designed to be
in compliance with Stage 3 noise level standards, which are the most restrictive
regulatory standards currently in effect in the United States for aircraft noise
abatement.
BOEING 737-824 AIRCRAFT
The Boeing 737-824 aircraft is a medium-range aircraft with a seating
capacity of approximately 150 passengers. The engine type utilized on
Continental's 737-824 aircraft is the CFM International, Inc. CFM56-7B26.
BOEING 737-924 AIRCRAFT
The Boeing 737-924 aircraft is a medium-range aircraft with a seating
capacity of approximately 167 passengers. The engine type utilized on
Continental's 737-924 aircraft is the CFM International, Inc. CFM56-7B26.
Deliveries of the Boeing 737-924 aircraft to Continental are subject to Boeing
obtaining certain approvals of the FAA with respect to such model. See
"-- Deliveries of Aircraft".
BOEING 767-224ER AIRCRAFT
The Boeing 767-224ER aircraft is a long-range aircraft with a seating
capacity of approximately 174 passengers. The engine type utilized on
Continental's 767-224ER aircraft is the General Electric Company CF6-80C2B4F.
BOEING 767-424ER AIRCRAFT
The Boeing 767-424ER aircraft is a long-range aircraft with a seating
capacity of approximately 235 passengers. The engine type utilized on
Continental's 767-424ER aircraft is the General Electric Company CF6-80C2B8F.
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THE APPRAISALS
The table below sets forth the appraised values of the aircraft that may be
financed with the proceeds of this Offering, as determined by Aircraft
Information Services, Inc. ("AISI"), AVITAS, Inc. ("AVITAS") and Morten Beyer
and Agnew, Inc. ("MBA"), independent aircraft appraisal and consulting firms
(the "Appraisers"). Under the Note Purchase Agreement, Continental will select
to be financed pursuant to this Offering ten of the fourteen Boeing 737-824
aircraft listed below, seven of the ten Boeing 737-924 aircraft listed below and
four of the six Boeing 767-224ER aircraft listed below. Both of the Boeing
767-424ER aircraft listed below will be financed under this Offering, subject to
the terms of the Note Purchase Agreement.
<TABLE>
<CAPTION>
EXPECTED SCHEDULED APPRAISER'S VALUATION
REGISTRATION MANUFACTURER'S DELIVERY ---------------------------------------- APPRAISED
AIRCRAFT TYPE NUMBER SERIAL NUMBER MONTH(1) AISI AVITAS MBA VALUE(2)
------------- ------------ -------------- -------------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Boeing 737-824 N73259 30803 May 2001 $50,230,000 $45,100,000 $43,910,000 $45,100,000
Boeing 737-824 N35260 30855 June 2001 50,350,000 45,100,000 44,000,000 45,100,000
Boeing 737-824 N77261 31582 July 2001 50,460,000 45,500,000 44,090,000 45,500,000
Boeing 737-824 N33262 32402 July 2001 50,460,000 45,500,000 44,090,000 45,500,000
Boeing 737-824 N37263 31583 August 2001 50,580,000 45,500,000 44,170,000 45,500,000
Boeing 737-824 N33264 31584 August 2001 50,580,000 45,500,000 44,170,000 45,500,000
Boeing 737-824 N76265 31585 August 2001 50,580,000 45,500,000 44,170,000 45,500,000
Boeing 737-824 N33266 32403 August 2001 50,580,000 45,500,000 44,170,000 45,500,000
Boeing 737-824 N37267 31586 September 2001 50,700,000 45,500,000 44,260,000 45,500,000
Boeing 737-824 N38268 31587 September 2001 50,700,000 45,500,000 44,260,000 45,500,000
Boeing 737-824 N76269 31588 October 2001 50,810,000 45,800,000 44,350,000 45,800,000
Boeing 737-824 N73270 31632 October 2001 50,810,000 45,800,000 44,350,000 45,800,000
Boeing 737-824 N36272 31589 November 2001 50,930,000 45,800,000 44,440,000 45,800,000
Boeing 737-824 N37273 31590 November 2001 50,930,000 45,800,000 44,440,000 45,800,000
Boeing 737-924 N30401 30118 May 2001 51,580,000 48,200,000 46,210,000 48,200,000
Boeing 737-924 N79402 30119 June 2001 51,700,000 48,200,000 46,310,000 48,200,000
Boeing 737-924 N38403 30120 July 2001 51,820,000 48,600,000 46,400,000 48,600,000
Boeing 737-924 N32404 30121 July 2001 51,820,000 48,600,000 46,400,000 48,600,000
Boeing 737-924 N72405 30122 August 2001 51,940,000 48,600,000 46,500,000 48,600,000
Boeing 737-924 N73406 30124 September 2001 52,060,000 48,600,000 46,590,000 48,600,000
Boeing 737-924 N35407 30125 September 2001 52,060,000 48,600,000 46,590,000 48,600,000
Boeing 737-924 N37408 30126 October 2001 52,180,000 48,900,000 46,690,000 48,900,000
Boeing 737-924 N37409 30127 November 2001 52,300,000 48,900,000 46,780,000 48,900,000
Boeing 737-924 N75410 30128 December 2001 52,420,000 48,900,000 46,880,000 48,900,000
Boeing 767-224ER N68155 30434 February 2001 81,000,000 72,800,000 77,020,000 76,940,000
Boeing 767-224ER N76156 30435 March 2001 81,190,000 72,800,000 77,180,000 77,056,667
Boeing 767-224ER N67157 30436 April 2001 81,380,000 73,300,000 77,340,000 77,340,000
Boeing 767-224ER N67158 30437 May 2001 81,570,000 73,300,000 77,500,000 77,456,667
Boeing 767-224ER N68159 30438 July 2001 81,940,000 73,900,000 77,810,000 77,810,000
Boeing 767-224ER N68160 30439 October 2001 82,510,000 74,400,000 78,290,000 78,290,000
Boeing 767-424ER N76055 29450 March 2001 108,990,000 94,100,000 98,810,000 98,810,000
Boeing 767-424ER N66056 29451 June 2001 109,740,000 95,500,000 99,430,000 99,430,000
</TABLE>
---------------
(1) The actual delivery date for any aircraft may be subject to delay or
acceleration. See "-- Deliveries of Aircraft".
(2) The appraised value of each aircraft for purposes of this Offering is the
lesser of the average and median values of such aircraft as appraised by the
Appraisers.
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For purposes of the foregoing chart, AISI, AVITAS and MBA each was asked to
provide its opinion as to the appraised value of each aircraft projected as of
the scheduled delivery month of each such aircraft. As part of this process, all
three Appraisers performed "desk-top" appraisals without any physical inspection
of the aircraft. The appraisals are based on various assumptions and
methodologies, which vary among the appraisals. The Appraisers have delivered
letters summarizing their respective appraisals, copies of which are annexed to
this Prospectus Supplement as Appendix II. For a discussion of the assumptions
and methodologies used in each of the appraisals, reference is hereby made to
such summaries.
An appraisal is only an estimate of value. It is not indicative of the
price at which an aircraft may be purchased from the manufacturer. Nor should it
be relied upon as a measure of realizable value. The proceeds realized upon a
sale of any Aircraft may be less than its appraised value. The value of the
Aircraft in the event of the exercise of remedies under the applicable Indenture
will depend on market and economic conditions, the availability of buyers, the
condition of the Aircraft and other similar factors. Accordingly, there can be
no assurance that the proceeds realized upon any such exercise with respect to
the Equipment Notes and the Aircraft pursuant to the applicable Indenture would
equal the appraised value of such Aircraft or be sufficient to satisfy in full
payments due on such Equipment Notes or the Certificates.
DELIVERIES OF AIRCRAFT
The aircraft that may be financed with the proceeds of this Offering are
scheduled for delivery under Continental's purchase agreements with The Boeing
Company ("Boeing") from February 2001 through December 2001. See the table under
"-- The Appraisals" for the scheduled month of delivery of each such aircraft.
Under such purchase agreements, delivery of an aircraft may be delayed due to
"Excusable Delay", which is defined to include, among other things, acts of God,
governmental acts or failures to act, strikes or other labor troubles, inability
to procure materials, or any other cause beyond Boeing's control or not
occasioned by Boeing's fault or negligence. In addition, the Boeing 737-924
aircraft model has not yet received the necessary FAA approvals, which Boeing is
required to obtain under its purchase agreement with Continental. Boeing has
advised Continental that it expects to receive such approvals in February 2001,
although no assurance can be given that this will occur. The first of the seven
Boeing 737-924 aircraft included in the Aircraft is scheduled for delivery in
May 2001.
The Note Purchase Agreement provides that the delivery period (the
"Delivery Period") will expire on February 1, 2002, subject to extension if the
Equipment Notes relating to all of the Aircraft (or Substitute Aircraft in lieu
thereof) have not been purchased by the Trustees on or prior to such date due to
any reason beyond the control of Continental and not occasioned by Continental's
fault or negligence, to the earlier of (i) the date on which the Trustees
purchase Equipment Notes relating to the last Aircraft (or a Substitute Aircraft
in lieu thereof) and (ii) May 1, 2002. In addition, if a labor strike occurs at
Boeing prior to the scheduled expiration of the Delivery Period, the expiration
date of the Delivery Period will be extended by the number of days that such
strike continued in effect.
If delivery of any Aircraft is delayed by more than 30 days after the month
scheduled for delivery or beyond February 1, 2002, Continental has the right to
replace such Aircraft with a Substitute Aircraft, subject to certain conditions.
See "-- Substitute Aircraft". If delivery of any Aircraft is delayed beyond the
Delivery Period Termination Date and Continental does not exercise its right to
replace such Aircraft with a Substitute Aircraft, there will be unused Deposits
that will be distributed to Certificateholders together with accrued and unpaid
interest thereon but without a premium. See "Description of the Deposit
Agreements -- Unused Deposits".
SUBSTITUTE AIRCRAFT
If the delivery date for any Aircraft is delayed (i) more than 30 days
after the month scheduled for delivery or (ii) beyond February 1, 2002,
Continental may identify for delivery a substitute aircraft (each,
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together with the substitute aircraft referred to below, a "Substitute
Aircraft") therefor meeting the following conditions:
- A Substitute Aircraft must be a Boeing 737-800, 737-900, 767-200ER or
767-400ER aircraft manufactured after the Issuance Date.
- One or more Substitute Aircraft of the same or different types may be
substituted for one or more Aircraft of the same or different types so
long as after giving effect thereto the maximum principal amount of
Equipment Notes of each Series issued in respect of the Substitute
Aircraft under the Mandatory Economic Terms would not exceed the maximum
principal amount of the Equipment Notes of each Series that could have
been issued under the Mandatory Economic Terms in respect of the replaced
Aircraft.
- Continental will be obligated to obtain written confirmation from each
Rating Agency that substituting such Substitute Aircraft for the replaced
Aircraft will not result in a withdrawal, suspension or downgrading of
the ratings of any Class of Certificates.
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DESCRIPTION OF THE EQUIPMENT NOTES
The following summary describes all material terms of the Equipment Notes
and supplements (and, to the extent inconsistent therewith, replaces) the
description of the general terms and provisions relating to the Equipment Notes,
the Indentures, the Leases, the Participation Agreements, the trust agreements
under which the Owner Trustees act on behalf of the Owner Participants (the
"Trust Agreements") and the Note Purchase Agreement set forth in the Prospectus.
The summaries make use of terms defined in and are qualified in their entirety
by reference to all of the provisions of the Equipment Notes, the Indentures,
the Leases, the Participation Agreements, the Trust Agreements and the Note
Purchase Agreement, each of which will be filed as an exhibit to a Current
Report on Form 8-K to be filed by Continental with the Commission. Except as
otherwise indicated, the following summaries relate to the Equipment Notes, the
Indenture, the Lease, the Participation Agreement and the Trust Agreement that
may be applicable to each Aircraft.
Under the Note Purchase Agreement, Continental will have the option of
entering into a leveraged lease financing or a secured debt financing with
respect to each Aircraft.
- If Continental chooses to enter into a leveraged lease financing with
respect to an Aircraft, the Note Purchase Agreement provides for the
relevant parties to enter into a Participation Agreement, a Lease and a
Leased Aircraft Indenture (among other documents) relating to the
financing of such Leased Aircraft.
- If Continental chooses to enter into a secured debt financing with
respect to an Aircraft, the Note Purchase Agreement provides for the
relevant parties to enter into a Participation Agreement and an Owned
Aircraft Indenture relating to the financing of such Owned Aircraft.
The description of such financing agreements in this Prospectus Supplement
is based on the forms of such agreements annexed to the Note Purchase Agreement.
However, the terms of the financing agreements actually entered into may differ
from the forms of such agreements and, consequently, may differ from the
description of such agreements contained in this Prospectus Supplement. In the
case of a Leased Aircraft, this is because a third party -- the owner
participant that will be the beneficial owner of the Leased Aircraft (the "Owner
Participant") -- will provide a portion of the financing of such Aircraft and
may request changes. Although such changes are permitted, under the Note
Purchase Agreement the terms of such agreements are required (i) to contain the
Mandatory Document Terms and (ii) not to vary the Mandatory Economic Terms. In
addition, Continental will be obligated to certify to the Trustees that any such
modifications do not materially and adversely affect the Certificateholders.
Continental must also obtain written confirmation from each Rating Agency that
the use of financing agreements modified in any material respect from the forms
attached to the Note Purchase Agreement would not result in a withdrawal,
suspension or downgrading of the ratings of any Class of Certificates. See
"Description of the Certificates -- Obligation to Purchase Equipment Notes".
Each Owner Participant will be required to satisfy certain requirements,
including having a minimum combined capital and surplus or net worth.
GENERAL
Equipment notes will be issued in up to four series with respect to each
Aircraft (the "Series A-1 Equipment Notes", the "Series A-2 Equipment Notes",
the "Series B Equipment Notes", the "Series C Equipment Notes", and,
collectively, the "Equipment Notes"). Continental may elect to issue a fifth
series of Equipment Notes with respect to an Aircraft (the "Series D Equipment
Notes"), which will be funded from sources other than this Offering. See
"Description of the Certificates -- Possible Issuance of Class D Certificates".
The Equipment Notes with respect to each Leased Aircraft will be issued under a
separate Leased Aircraft Indenture between First Security Bank, National
Association, as owner trustee of a trust for the benefit of the Owner
Participant who will be the beneficial owner of such Aircraft (each, an "Owner
Trustee"), and Wilmington Trust Company, as indenture trustee thereunder (each,
a "Leased Aircraft Trustee"). The Equipment Notes with respect to each Owned
Aircraft will be issued under a separate Owned Aircraft Indenture between
Continental and Wilmington Trust Company, as indenture trustee thereunder (each,
an "Owned Aircraft Trustee" and, together with the other Owned Aircraft Trustees
and the Leased
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Aircraft Trustees, the "Loan Trustees"). The Indentures will not provide for
defeasance, or discharge upon deposit of cash or certain obligations of the
United States, notwithstanding the description of defeasance in the Prospectus.
The related Owner Trustee will lease each Leased Aircraft to Continental
pursuant to a separate Lease between such Owner Trustee and Continental with
respect to such Leased Aircraft. Under each Lease, Continental will be obligated
to make or cause to be made rental and other payments to the related Leased
Aircraft Trustee on behalf of the related Owner Trustee, which rental and other
payments will be at least sufficient to pay in full when due all payments
required to be made on the Equipment Notes issued with respect to such Leased
Aircraft. The Equipment Notes issued with respect to the Leased Aircraft are
not, however, direct obligations of, or guaranteed by, Continental.
Continental's rental obligations under each Lease and Continental's obligations
under the Equipment Notes issued with respect to each Owned Aircraft will be
general obligations of Continental.
SUBORDINATION
The Indentures provide for the following subordination provisions
applicable to the Equipment Notes:
- Series A-1 and Series A-2 Equipment Notes issued in respect of an
Aircraft will rank equally in right of payment and will rank senior to
other Equipment Notes issued in respect of such Aircraft.
- Series B Equipment Notes issued in respect of an Aircraft will rank
junior in right of payment to the Series A-1 and Series A-2 Equipment
Notes issued in respect of such Aircraft and will rank senior to the
Series C Equipment Notes and, if applicable, Series D Equipment Notes
issued in respect of such Aircraft.
- Series C Equipment Notes issued in respect of an Aircraft will rank
junior to the Series A-1, Series A-2 and Series B Equipment Notes issued
in respect of such Aircraft and, if Series D Equipment Notes are issued
in respect of such Aircraft, senior to such Series D Equipment Notes.
- If Continental elects to issue Series D Equipment Notes with respect to
an Aircraft, they will be subordinated in right of payment to the Series
A-1, A-2, B and C Equipment Notes issued with respect to such Aircraft.
PRINCIPAL AND INTEREST PAYMENTS
Subject to the provisions of the Intercreditor Agreement, interest paid on
the Equipment Notes held in each Trust will be passed through to the
Certificateholders of such Trust on the dates and at the rate per annum set
forth on the cover page of this Prospectus Supplement with respect to
Certificates issued by such Trust until the final expected Regular Distribution
Date for such Trust. Subject to the provisions of the Intercreditor Agreement,
principal paid on the Equipment Notes held in each Trust will be passed through
to the Certificateholders of such Trust in scheduled amounts on the dates set
forth herein until the final expected Regular Distribution Date for such Trust.
Interest will be payable on the unpaid principal amount of each Equipment
Note at the rate applicable to such Equipment Note on April 2 and October 2 of
each year, commencing on the first such date to occur after initial issuance
thereof. Such interest will be computed on the basis of a 360-day year of twelve
30-day months.
Scheduled principal payments on the Series A-1, Series B and Series C
Equipment Notes will be made on April 2 and October 2 in certain years. The
entire principal amount of the Series A-2 Equipment Notes is scheduled to be
paid on October 2, 2010. See "Description of the Certificates -- Pool Factors"
for a discussion of the scheduled payments of principal of the Equipment Notes
and possible revisions thereto.
If any date scheduled for a payment of principal, premium (if any) or
interest with respect to the Equipment Notes is not a Business Day, such payment
will be made on the next succeeding Business Day without any additional
interest.
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REDEMPTION
If an Event of Loss occurs with respect to an Aircraft and such Aircraft is
not replaced by Continental under the related Lease (in the case of a Leased
Aircraft) or under the related Owned Aircraft Indenture (in the case of an Owned
Aircraft), the Equipment Notes issued with respect to such Aircraft will be
redeemed, in whole, in each case at a price equal to the aggregate unpaid
principal amount thereof, together with accrued interest thereon to, but not
including, the date of redemption, but without premium, on a Special
Distribution Date. (Leased Aircraft Indentures, Section 2.10(a); Owned Aircraft
Indentures, Section 2.10)
If Continental exercises its right to terminate a Lease under Section 9 of
such Lease, the Equipment Notes relating to the applicable Leased Aircraft will
be redeemed, in whole, on a Special Distribution Date at a price equal to the
aggregate unpaid principal amount thereof, together with accrued and unpaid
interest thereon to, but not including, the date of redemption, plus a
Make-Whole Premium. (Leased Aircraft Indentures, Section 2.10(b)) See "--The
Leases and Certain Provisions of the Owned Aircraft Indentures -- Lease
Termination".
All of the Equipment Notes issued with respect to a Leased Aircraft may be
redeemed prior to maturity as part of a refunding or refinancing thereof under
Section 11 of the applicable Participation Agreement, and all of the Equipment
Notes issued with respect to the Owned Aircraft may be redeemed prior to
maturity at any time at the option of Continental, in each case at a price equal
to the aggregate unpaid principal thereof, together with accrued and unpaid
interest thereon to, but not including, the date of redemption, plus a
Make-Whole Premium. (Indentures, Section 2.11) If notice of such a redemption
shall have been given in connection with a refinancing of Equipment Notes with
respect to a Leased Aircraft, such notice may be revoked not later than three
days prior to the proposed redemption date. (Leased Aircraft Indentures, Section
2.12)
If, with respect to a Leased Aircraft, (x) one or more Lease Events of
Default shall have occurred and been continuing, (y) in the event of a
bankruptcy proceeding involving Continental, (i) during the Section 1110 Period,
the trustee in such proceeding or Continental does not assume or agree to
perform its obligations under the related Lease or (ii) at any time after
assuming or agreeing to perform such obligations, such trustee or Continental
ceases to perform such obligations such that the stay period applicable under
the U.S. Bankruptcy Code comes to an end or (z) the Equipment Notes with respect
to such Aircraft have been accelerated or the Leased Aircraft Trustee with
respect to such Equipment Notes takes action or notifies the applicable Owner
Trustee that it intends to take action to foreclose the lien of the related
Leased Aircraft Indenture or otherwise commence the exercise of any significant
remedy under such Indenture or the related Lease, then in each case all, but not
less than all, of the Equipment Notes issued with respect to such Leased
Aircraft may be purchased by the related Owner Trustee or Owner Participant on
the applicable purchase date at a price equal to the aggregate unpaid principal
thereof, together with accrued and unpaid interest thereon to, but not
including, the date of purchase, but without any premium (provided that a Make-
Whole Premium shall be payable if such Equipment Notes are to be purchased
pursuant to clause (x) when a Lease Event of Default shall have occurred and
been continuing for less than 120 days). (Leased Aircraft Indentures, Section
2.13) Continental as owner of the Owned Aircraft has no comparable right under
the Owned Aircraft Indentures to purchase the Equipment Notes under such
circumstances.
"Make-Whole Premium" means, with respect to any Equipment Note, an amount
(as determined by an independent investment bank of national standing) equal to
the excess, if any, of (a) the present value of the remaining scheduled payments
of principal and interest to maturity of such Equipment Note computed by
discounting such payments on a semiannual basis on each payment date under the
applicable Indenture (assuming a 360-day year of twelve 30-day months) using a
discount rate equal to the Treasury Yield over (b) the outstanding principal
amount of such Equipment Note plus accrued interest to the date of
determination.
For purposes of determining the Make-Whole Premium, "Treasury Yield" means,
at the date of determination with respect to any Equipment Note, the interest
rate (expressed as a decimal and, in the case of United States Treasury bills,
converted to a bond equivalent yield) determined to be the per annum rate equal
to the semiannual yield to maturity for United States Treasury securities
maturing on the Average Life
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Date of such Equipment Note and trading in the public securities markets either
as determined by interpolation between the most recent weekly average yield to
maturity for two series of United States Treasury securities trading in the
public securities markets, (A) one maturing as close as possible to, but earlier
than, the Average Life Date of such Equipment Note and (B) the other maturing as
close as possible to, but later than, the Average Life Date of such Equipment
Note, in each case as published in the most recent H.15(519) or, if a weekly
average yield to maturity for United States Treasury securities maturing on the
Average Life Date of such Equipment Note is reported in the most recent
H.15(519), such weekly average yield to maturity as published in such H.15(519).
"H.15(519)" means the weekly statistical release designated as such, or any
successor publication, published by the Board of Governors of the Federal
Reserve System. The date of determination of a Make-Whole Premium shall be the
third Business Day prior to the applicable payment or redemption date and the
"most recent H.15(519)" means the H.15(519) published prior to the close of
business on the third Business Day prior to the applicable payment or redemption
date.
"Average Life Date" for any Equipment Note shall be the date which follows
the time of determination by a period equal to the Remaining Weighted Average
Life of such Equipment Note. "Remaining Weighted Average Life" on a given date
with respect to any Equipment Note shall be the number of days equal to the
quotient obtained by dividing (a) the sum of each of the products obtained by
multiplying (i) the amount of each then remaining scheduled payment of principal
of such Equipment Note by (ii) the number of days from and including such
determination date to but excluding the date on which such payment of principal
is scheduled to be made, by (b) the then outstanding principal amount of such
Equipment Note.
SECURITY
LEASED AIRCRAFT
The Equipment Notes issued with respect to each Leased Aircraft will be
secured by:
- An assignment by the related Owner Trustee to the related Leased Aircraft
Trustee of such Owner Trustee's rights, except for certain limited
rights, under the Lease with respect to the related Aircraft, including
the right to receive payments of rent thereunder.
- A mortgage to such Leased Aircraft Trustee of such Aircraft, subject to
the rights of Continental under such Lease.
- An assignment to such Leased Aircraft Trustee of certain of such Owner
Trustee's rights under the purchase agreement between Continental and the
Aircraft manufacturer.
Unless and until an Indenture Default with respect to a Leased Aircraft has
occurred and is continuing, the Leased Aircraft Trustee may not exercise the
rights of the Owner Trustee under the related Lease, except the Owner Trustee's
right to receive payments of rent due thereunder. The assignment by the Owner
Trustee to the Leased Aircraft Trustee of its rights under the related Lease
will exclude certain rights of such Owner Trustee and the related Owner
Participant, including the rights of the Owner Trustee and the Owner Participant
with respect to indemnification by Continental for certain matters, insurance
proceeds payable to such Owner Trustee in its individual capacity or to such
Owner Participant under public liability insurance maintained by Continental
under such Lease or by such Owner Trustee or such Owner Participant, insurance
proceeds payable to such Owner Trustee in its individual capacity or to such
Owner Participant under certain casualty insurance maintained by such Owner
Trustee or such Owner Participant under such Lease and certain reimbursement
payments made by Continental to such Owner Trustee. (Leased Aircraft Indentures,
Granting Clause) The Equipment Notes issued in respect of any one Aircraft will
not be secured by any of the other Aircraft or Leases (except in certain cases,
if any, where the related Owner Participant and Continental shall agree to
cross-collateralization). Accordingly, any excess proceeds from the exercise of
remedies with respect to the Equipment Notes relating to an Aircraft will not be
available to cover any shortfall with respect to any other Aircraft.
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OWNED AIRCRAFT
The Equipment Notes issued with respect to each Owned Aircraft will be
secured by:
- A mortgage to the Owned Aircraft Trustee of such Aircraft.
- An assignment to the Owned Aircraft Trustee of certain of Continental's
rights under its purchase agreement with the Aircraft manufacturer.
CASH
Cash, if any, held from time to time by the Loan Trustee with respect to
any Aircraft, including funds held as the result of an Event of Loss to such
Aircraft or, in the case of a Leased Aircraft, termination of the Lease, if any,
relating thereto, will be invested and reinvested by such Loan Trustee, at the
direction of the related Owner Trustee in the case of the Leased Aircraft or
Continental in the case of the Owned Aircraft, in investments described in the
related Indenture. (Leased Aircraft Indentures, Section 5.09; Owned Aircraft
Indentures, Section 6.06)
LOAN TO VALUE RATIOS OF EQUIPMENT NOTES
The following tables set forth illustrative loan to Aircraft value ratios
for the Equipment Notes issued in respect of Leased Aircraft and Owned Aircraft
as of October 2, 2001 and the April 2 Regular Distribution Dates thereafter,
assuming that the Equipment Notes in the maximum principal amount are issued in
respect of each such Aircraft. These examples were utilized by Continental in
preparing the Assumed Amortization Schedule, although the amortization schedule
for the Series A-1, Series B and Series C Equipment Notes issued with respect to
an Aircraft may vary from such assumed schedule so long as it complies with the
Mandatory Economic Terms. Accordingly, the schedules set forth below may not be
applicable in the case of any particular Aircraft. For example, in the event the
final maturity date of the Series A-1, Series B or Series C Equipment Notes for
a Boeing 737-824 aircraft were significantly earlier than that shown below, the
average life of the related Certificates may be correspondingly reduced, subject
to compliance with the Mandatory Economic Terms. See "Description of the
Certificates -- Pool Factors". Although the following tables do not contain
illustrative loan to Aircraft value ratios for Equipment Notes issued in respect
of an owned Boeing 767-424ER Aircraft, Continental will have the option of
entering into a secured debt financing with respect to each Aircraft. The LTV
was obtained by dividing (i) the outstanding balance (assuming no payment
default) of such Equipment Notes determined immediately after giving effect to
the payments scheduled to be made on each such Regular Distribution Date by (ii)
the assumed value (the "Assumed Aircraft Value") of the Aircraft securing such
Equipment Notes.
The following tables are based on the assumption (the "Depreciation
Assumption") that the value of each Aircraft set forth opposite the initial
Regular Distribution Date included in each table depreciates by approximately 3%
of the initial appraised value per year for the first fifteen years after the
year of delivery of such Aircraft and by approximately 4% of the initial
appraised value per year thereafter. Other rates or methods of depreciation
would result in materially different loan to Aircraft value ratios, and no
assurance can be given (i) that the depreciation rates and method assumed for
the purposes of the tables are the ones most likely to occur or (ii) as to the
actual future value of any Aircraft. Thus the tables should not be considered a
forecast or prediction of expected or likely loan to Aircraft value ratios, but
simply a mathematical calculation based on one set of assumptions.
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<TABLE>
<CAPTION>
BOEING 737-824
------------------------------------------------------------------------------------
LEASED AIRCRAFT OWNED AIRCRAFT
---------------------------------------- ----------------------------------------
EQUIPMENT EQUIPMENT
NOTE ASSUMED NOTE ASSUMED
OUTSTANDING AIRCRAFT OUTSTANDING AIRCRAFT
BALANCE VALUE LOAN TO BALANCE VALUE LOAN TO
DATE (MILLIONS) (MILLIONS) VALUE RATIO (MILLIONS) (MILLIONS) VALUE RATIO
---- ----------- ---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
October 2, 2001.......................... $28.80 $45.50 63.3% $30.70 $45.50 67.5%
April 2, 2002............................ 28.06 45.50 61.7 29.55 45.50 64.9
April 2, 2003............................ 27.70 44.14 62.8 28.63 44.14 64.9
April 2, 2004............................ 27.01 42.77 63.1 27.94 42.77 65.3
April 2, 2005............................ 22.93 41.41 55.4 27.33 41.41 66.0
April 2, 2006............................ 21.88 40.04 54.6 25.37 40.04 63.4
April 2, 2007............................ 21.06 38.68 54.5 24.86 38.68 64.3
April 2, 2008............................ 20.17 37.31 54.1 21.96 37.31 58.9
April 2, 2009............................ 19.30 35.95 53.7 21.50 35.95 59.8
April 2, 2010............................ 19.30 34.58 55.8 16.60 34.58 48.0
April 2, 2011............................ 17.19 33.22 51.8 0.00 0.00 N/A
April 2, 2012............................ 16.00 31.85 50.2 0.00 0.00 N/A
April 2, 2013............................ 14.10 30.49 46.2 0.00 0.00 N/A
April 2, 2014............................ 12.04 29.12 41.4 0.00 0.00 N/A
April 2, 2015............................ 9.82 27.76 35.4 0.00 0.00 N/A
April 2, 2016............................ 7.41 26.39 28.1 0.00 0.00 N/A
April 2, 2017............................ 5.69 25.03 22.7 0.00 0.00 N/A
April 2, 2018............................ 5.69 23.21 24.5 0.00 0.00 N/A
April 2, 2019............................ 5.69 21.39 26.6 0.00 0.00 N/A
April 2, 2020............................ 2.97 19.57 15.2 0.00 0.00 N/A
April 2, 2021............................ 0.00 N/A N/A 0.00 N/A N/A
</TABLE>
<TABLE>
<CAPTION>
BOEING 737-924
------------------------------------------------------------------------------------
LEASED AIRCRAFT OWNED AIRCRAFT
---------------------------------------- ----------------------------------------
EQUIPMENT EQUIPMENT
NOTE ASSUMED NOTE ASSUMED
OUTSTANDING AIRCRAFT OUTSTANDING AIRCRAFT
BALANCE VALUE LOAN TO BALANCE VALUE LOAN TO
DATE (MILLIONS) (MILLIONS) VALUE RATIO (MILLIONS) (MILLIONS) VALUE RATIO
---- ----------- ---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
October 2, 2001.......................... $31.28 $48.20 64.9% $32.05 $48.60 65.9%
April 2, 2002............................ 30.47 46.75 65.2 30.81 48.60 63.4
April 2, 2003............................ 27.95 45.31 61.7 29.83 47.14 63.3
April 2, 2004............................ 27.18 43.86 62.0 29.10 45.68 63.7
April 2, 2005............................ 26.06 42.42 61.4 28.46 44.23 64.4
April 2, 2006............................ 25.19 40.97 61.5 27.06 42.77 63.3
April 2, 2007............................ 24.25 39.52 61.3 26.54 41.31 64.3
April 2, 2008............................ 23.22 38.08 61.0 23.38 39.85 58.7
April 2, 2009............................ 22.10 36.63 60.3 22.90 38.39 59.7
April 2, 2010............................ 21.17 35.19 60.2 17.12 36.94 46.3
April 2, 2011............................ 18.22 33.74 54.0 0.00 0.00 N/A
April 2, 2012............................ 17.44 32.29 54.0 0.00 0.00 N/A
April 2, 2013............................ 16.49 30.85 53.5 0.00 0.00 N/A
April 2, 2014............................ 14.13 29.40 48.1 0.00 0.00 N/A
April 2, 2015............................ 11.58 27.96 41.4 0.00 0.00 N/A
April 2, 2016............................ 10.36 26.51 39.1 0.00 0.00 N/A
April 2, 2017............................ 7.49 24.58 30.5 0.00 0.00 N/A
April 2, 2018............................ 7.49 22.65 33.1 0.00 0.00 N/A
April 2, 2019............................ 7.49 20.73 36.2 0.00 0.00 N/A
April 2, 2020............................ 7.49 18.80 39.9 0.00 0.00 N/A
April 2, 2021............................ 0.00 N/A N/A 0.00 N/A N/A
</TABLE>
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<PAGE> 72
<TABLE>
<CAPTION>
BOEING 767-224ER
------------------------------------------------------------------------------------
LEASED AIRCRAFT OWNED AIRCRAFT
---------------------------------------- ----------------------------------------
EQUIPMENT EQUIPMENT
NOTE ASSUMED NOTE ASSUMED
OUTSTANDING AIRCRAFT OUTSTANDING AIRCRAFT
BALANCE VALUE LOAN TO BALANCE VALUE LOAN TO
DATE (MILLIONS) (MILLIONS) VALUE RATIO (MILLIONS) (MILLIONS) VALUE RATIO
---- ----------- ---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
October 2, 2001.......................... $48.70 $76.94 63.3% $48.28 $77.34 62.4%
April 2, 2002............................ 46.26 74.63 62.0 46.60 75.02 62.1
April 2, 2003............................ 44.67 72.32 61.8 45.31 72.70 62.3
April 2, 2004............................ 43.14 70.02 61.6 43.90 70.38 62.4
April 2, 2005............................ 41.81 67.71 61.8 42.66 68.06 62.7
April 2, 2006............................ 40.77 65.40 62.3 41.12 65.74 62.5
April 2, 2007............................ 38.29 63.09 60.7 40.04 63.42 63.1
April 2, 2008............................ 36.03 60.78 59.3 38.32 61.10 62.7
April 2, 2009............................ 33.57 58.47 57.4 37.45 58.78 63.7
April 2, 2010............................ 30.97 56.17 55.1 34.29 56.46 60.7
April 2, 2011............................ 28.00 53.86 52.0 0.00 0.00 N/A
April 2, 2012............................ 27.39 51.55 53.1 0.00 0.00 N/A
April 2, 2013............................ 26.11 49.24 53.0 0.00 0.00 N/A
April 2, 2014............................ 24.72 46.93 52.7 0.00 0.00 N/A
April 2, 2015............................ 23.25 44.63 52.1 0.00 0.00 N/A
April 2, 2016............................ 21.71 42.32 51.3 0.00 0.00 N/A
April 2, 2017............................ 20.09 39.24 51.2 0.00 0.00 N/A
April 2, 2018............................ 12.39 36.16 34.3 0.00 0.00 N/A
April 2, 2019............................ 7.94 33.08 24.0 0.00 0.00 N/A
April 2, 2020............................ 4.13 30.01 13.8 0.00 0.00 N/A
April 2, 2021............................ 0.00 N/A N/A 0.00 N/A N/A
</TABLE>
<TABLE>
<CAPTION>
BOEING 767-424ER
----------------------------------------
LEASED AIRCRAFT
----------------------------------------
EQUIPMENT
NOTE ASSUMED
OUTSTANDING AIRCRAFT
BALANCE VALUE LOAN TO
DATE (MILLIONS) (MILLIONS) VALUE RATIO
---- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
October 2, 2001.......................... $62.99 $98.81 63.7%
April 2, 2002............................ 59.91 95.85 62.5
April 2, 2003............................ 57.30 92.88 61.7
April 2, 2004............................ 55.11 89.92 61.3
April 2, 2005............................ 53.15 86.95 61.1
April 2, 2006............................ 51.02 83.99 60.7
April 2, 2007............................ 48.71 81.02 60.1
April 2, 2008............................ 46.21 78.06 59.2
April 2, 2009............................ 43.49 75.10 57.9
April 2, 2010............................ 41.14 72.13 57.0
April 2, 2011............................ 37.35 69.17 54.0
April 2, 2012............................ 35.75 66.20 54.0
April 2, 2013............................ 34.15 63.24 54.0
April 2, 2014............................ 31.78 60.27 52.7
April 2, 2015............................ 28.23 57.31 49.3
April 2, 2016............................ 24.39 54.35 44.9
April 2, 2017............................ 19.83 50.39 39.3
April 2, 2018............................ 14.89 46.44 32.1
April 2, 2019............................ 9.55 42.49 22.5
April 2, 2020............................ 4.96 38.54 12.9
April 2, 2021............................ 0.00 N/A N/A
</TABLE>
LIMITATION OF LIABILITY
The Equipment Notes issued with respect to the Leased Aircraft are not
direct obligations of, or guaranteed by, Continental, any Owner Participant or
the Leased Aircraft Trustees or the Owner Trustees in their individual
capacities. None of the Owner Trustees, the Owner Participants or the Leased
Aircraft Trustees, or any affiliates thereof, will be personally liable to any
holder of an Equipment Note or, in the case
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<PAGE> 73
of the Owner Trustees and the Owner Participants, to the Leased Aircraft
Trustees for any amounts payable under the Equipment Notes or, except as
provided in each Leased Aircraft Indenture, for any liability under such Leased
Aircraft Indenture. All payments of principal of, premium, if any, and interest
on the Equipment Notes issued with respect to any Leased Aircraft (other than
payments made in connection with an optional redemption or purchase of Equipment
Notes issued with respect to a Leased Aircraft by the related Owner Trustee or
the related Owner Participant) will be made only from the assets subject to the
lien of the Indenture with respect to such Leased Aircraft or the income and
proceeds received by the related Leased Aircraft Trustee therefrom (including
rent payable by Continental under the Lease with respect to such Leased
Aircraft).
The Equipment Notes issued with respect to the Owned Aircraft will be
direct obligations of Continental.
Except as otherwise provided in the Indentures, each Owner Trustee and each
Loan Trustee, in its individual capacity, will not be answerable or accountable
under the Indentures or under the Equipment Notes under any circumstances
except, among other things, for its own willful misconduct or gross negligence.
None of the Owner Participants will have any duty or responsibility under any of
the Leased Aircraft Indentures or the Equipment Notes to the Leased Aircraft
Trustees or to any holder of any Equipment Note.
INDENTURE DEFAULTS, NOTICE AND WAIVER
Indenture Defaults under each Indenture will include:
- In the case of a Leased Aircraft Indenture, the occurrence of any Lease
Event of Default under the related Lease (other than the failure to make
certain indemnity payments and other payments to the related Owner
Trustee or Owner Participant unless a notice is given by such Owner
Trustee that such failure shall constitute an Indenture Default).
- The failure by the related Owner Trustee (other than as a result of a
Lease Default or Lease Event of Default), in the case of a Leased
Aircraft Indenture, or Continental, in the case of an Owned Aircraft
Indenture, to pay any interest or principal or premium, if any, when due,
under such Indenture or under any Equipment Note issued thereunder that
continues for more than ten Business Days, in the case of principal,
interest or Make-Whole Premium, and, in all other cases, ten Business
Days after the relevant Owner Trustee or Owner Participant, in the case
of a Leased Aircraft Indenture, or Continental, in the case of an Owned
Aircraft Indenture, receives written demand from the related Loan Trustee
or holder of an Equipment Note.
- The failure by the related Owner Participant or the related Owner Trustee
(in its individual capacity), in the case of a Leased Aircraft Indenture,
to discharge certain liens that continue after notice and specified cure
periods.
- Any representation or warranty made by the related Owner Trustee or Owner
Participant, in the case of a Leased Aircraft Indenture, or Continental,
in the case of an Owned Aircraft Indenture, in such Indenture, the
related Participation Agreement or certain related documents furnished to
the Loan Trustee or any holder of an Equipment Note pursuant thereto
being false or incorrect in any material respect when made that continues
to be material and adverse to the interests of the Loan Trustee or Note
Holders and remains unremedied after notice and specified cure periods.
- Failure by Continental or the related Owner Trustee or Owner Participant
to perform or observe any covenant or obligation for the benefit of the
Loan Trustee or holders of Equipment Notes under such Indenture or
certain related documents that continues after notice and specified cure
periods.
- The registration of the related Aircraft ceasing to be effective as a
result of the Owner Participant (in the case of a Leased Aircraft) or
Continental (in the case of an Owned Aircraft) not being a citizen of the
United States, as defined in the Transportation Code (subject to a cure
period).
- With respect to the Owned Aircraft, the lapse or cancellation of
insurance required under the related Owned Aircraft Indenture.
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<PAGE> 74
- The occurrence of certain events of bankruptcy, reorganization or
insolvency of the related Owner Trustee or Owner Participant (in the case
of a Leased Aircraft) or Continental (in the case of the Owned Aircraft).
(Leased Aircraft Indentures, Section 4.02; Owned Aircraft Indentures,
Section 5.01)
There will not be cross-default provisions in the Indentures or in the
Leases (unless otherwise agreed between an Owner Participant and Continental).
Consequently, events resulting in an Indenture Default under any particular
Indenture may or may not result in an Indenture Default occurring under any
other Indenture, and a Lease Event of Default under any particular Lease may or
may not constitute a Lease Event of Default under any other Lease.
If Continental fails to make any semiannual basic rental payment due under
any Lease, within a specified period after such failure the applicable Owner
Trustee may furnish to the Leased Aircraft Trustee the amount due on the
Equipment Notes issued with respect to the related Leased Aircraft, together
with any interest thereon on account of the delayed payment thereof, in which
event the Leased Aircraft Trustee and the holders of outstanding Equipment Notes
issued under such Indenture may not exercise any remedies otherwise available
under such Indenture or such Lease as the result of such failure to make such
rental payment, unless such Owner Trustee has previously cured three or more
immediately preceding semiannual basic rental payment defaults or, in total, six
or more previous semiannual basic rental payment defaults (or, in the case of
certain Owner Participants, six or more immediately preceding semiannual basic
rental payment defaults or, in total, eight or more previous semiannual basic
rental payment defaults). The applicable Owner Trustee also may cure any other
default by Continental in the performance of its obligations under any Lease
that can be cured with the payment of money. (Leased Aircraft Indentures,
Section 4.03)
The holders of a majority in principal amount of the outstanding Equipment
Notes issued with respect to any Aircraft, by notice to the Loan Trustee, may on
behalf of all the holders waive any existing default and its consequences under
the Indenture with respect to such Aircraft, except a default in the payment of
the principal of, or premium or interest on any such Equipment Notes or a
default in respect of any covenant or provision of such Indenture that cannot be
modified or amended without the consent of each holder of Equipment Notes.
(Leased Aircraft Indentures, Section 4.08; Owned Aircraft Indentures, Section
5.06)
REMEDIES
If an Indenture Default occurs and is continuing under an Indenture, the
related Loan Trustee or the holders of a majority in principal amount of the
Equipment Notes outstanding under such Indenture may, subject to the applicable
Owner Participant's or Owner Trustee's right to cure, as discussed above,
declare the principal of all such Equipment Notes issued thereunder immediately
due and payable, together with all accrued but unpaid interest thereon, provided
that in the event of a reorganization proceeding involving Continental
instituted under Chapter 11 of the U.S. Bankruptcy Code, if no other Lease Event
of Default and no other Indenture Default (other than the failure to pay the
outstanding amount of the Equipment Notes which by such declaration shall have
become payable) exists at any time after the consummation of such proceeding,
such declaration will be automatically rescinded without any further action on
the part of any holder of Equipment Notes. The holders of a majority in
principal amount of Equipment Notes outstanding under an Indenture may rescind
any declaration of acceleration of such Equipment Notes at any time before the
judgment or decree for the payment of the money so due shall be entered if (i)
there has been paid to the related Loan Trustee an amount sufficient to pay all
principal, interest, and premium, if any, on any such Equipment Notes, to the
extent such amounts have become due otherwise than by such declaration of
acceleration and (ii) all other Indenture Defaults and incipient Indenture
Defaults with respect to any covenant or provision of such Indenture have been
cured. (Leased Aircraft Indentures, Section 4.04(b); Owned Aircraft Indentures,
Section 5.02(b))
Each Indenture provides that if an Indenture Default under such Indenture
has occurred and is continuing, the related Loan Trustee may exercise certain
rights or remedies available to it under such Indenture or under applicable law,
including (if, in the case of a Leased Aircraft, the corresponding Lease has
been declared in default) one or more of the remedies under such Indenture or,
in the case of a Leased
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<PAGE> 75
Aircraft, such Lease with respect to the Aircraft subject to such Lease. If an
Indenture Default arises solely by reason of one or more events or circumstances
which constitute a Lease Event of Default, the related Leased Aircraft Trustee's
right to exercise remedies under a Leased Aircraft Indenture is subject, with
certain exceptions, to its having proceeded to exercise one or more of the
dispossessory remedies under the Lease with respect to such Leased Aircraft;
provided that the requirement to exercise one or more of such remedies under
such Lease shall not apply in circumstances where such exercise has been
involuntarily stayed or prohibited by applicable law or court order for a
continuous period (a "Continuous Stay Period") in excess of 60 days subsequent
to an entry of an order of relief pursuant to Chapter 11 of the Bankruptcy Code
(the "Sixty-Day Section 1110 Period"); provided, however, that the requirement
to exercise one or more of such remedies under such lease shall nonetheless be
applicable during a Continuous Stay Period subsequent to the expiration of the
Sixty-Day Section 1110 Period to the extent that the continuation of such
Continuous Stay Period subsequent to the expiration of the Sixty-Day Section
1110 Period (A) results from an agreement by the trustee or the
debtor-in-possession in such proceeding during the Sixty-Day Section 1110 Period
with the approval of the relevant court to perform such lease in accordance with
Section 1110(a)(2)(A) of the U.S. Bankruptcy Code and continues to perform as
required by Section 1110(a)(2) of the U.S. Bankruptcy Code and cures any default
(other than a default of the kind specified in Section 365(b)(2) of the U.S.
Bankruptcy Code) within the applicable time period specified in Section
1110(a)(2)(B) of the U.S. Bankruptcy Code or (B) is an extension of the
Sixty-Day Section 1110 Period with the consent of such Loan Trustee pursuant to
Section 1110(b) of the U.S. Bankruptcy Code or (C) is the consequence of such
Loan Trustee's own failure to give any requisite notice or demand to any person.
See "-- The Leases and Certain Provisions of the Owned Aircraft
Indentures -- Events of Default under the Leases". Such remedies may be
exercised by the related Leased Aircraft Trustee to the exclusion of the related
Owner Trustee, subject to certain conditions specified in such Indenture and,
subject to the terms of such Lease. Any Aircraft sold in the exercise of such
remedies will be free and clear of any rights of those parties, including the
rights of Continental under the Lease with respect to such Aircraft; provided
that no exercise of any remedies by the related Leased Aircraft Trustee may
affect the rights of Continental under any Lease unless a Lease Event of Default
has occurred and is continuing. (Leased Aircraft Indentures, Section 4.04;
Leases, Section 15) The Owned Aircraft Indentures will not contain such
limitations on the Owned Aircraft Trustee's ability to exercise remedies upon an
Indenture Default under an Owned Aircraft Indenture.
If a bankruptcy proceeding involving Continental under the U.S. Bankruptcy
Code occurs, all of the rights of the Owner Trustee as lessor under a particular
Lease will be exercised by the Owner Trustee in accordance with the terms
thereof unless (i) during the Section 1110 Period the trustee in such proceeding
or Continental does not agree to perform its obligations under such Lease, (ii)
at any time after agreeing to perform such obligations, such trustee or
Continental ceases to perform such obligations with the result that the
Continuous Stay Period comes to an end or (iii) the related Loan Trustee takes
action, or notifies the Owner Trustee that such Loan Trustee intends to take
action, to foreclose the lien of the related Leased Aircraft Indenture or
otherwise commence the exercise of any significant remedy in accordance with the
Leased Aircraft Indenture. The Owner Trustee's exercise of such rights shall be
subject to certain limitations and, in no event, reduce the amount or change the
time of any payment in respect of the Equipment Notes or adversely affect the
validity or enforceability of the lien under the related Leased Aircraft
Indenture.
If the Equipment Notes issued in respect of one Aircraft are in default,
the Equipment Notes issued in respect of the other Aircraft may not be in
default, and, if not, no remedies will be exercisable under the applicable
Indentures with respect to such other Aircraft.
In the case of Chapter 11 bankruptcy proceedings in which an air carrier is
a debtor, Section 1110 of the U.S. Bankruptcy Code ("Section 1110") provides
special rights to lessors, conditional vendors and holders of security interests
with respect to "equipment" (defined as described below). Under Section 1110,
the right of such financing parties to take possession of such equipment in
compliance with the provisions of a lease, conditional sale contract or security
agreement is not affected by any provision of the U.S. Bankruptcy Code or any
power of the bankruptcy court. Such right to take possession may not be
exercised for 60 days following the date of commencement of the reorganization
proceedings. Thereafter, such right to take possession may be exercised during
such proceedings unless, within the 60-day period or any longer period
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<PAGE> 76
consented to by the relevant parties, the debtor agrees to perform its future
obligations and cures all existing and future defaults on a timely basis.
Defaults resulting solely from the financial condition, bankruptcy, insolvency
or reorganization of the debtor need not be cured.
"Equipment" is defined in Section 1110, in part, as an aircraft, aircraft
engine, propeller, appliance, or spare part (as defined in Section 40102 of
Title 49 of the U.S. Code) that is subject to a security interest granted by,
leased to, or conditionally sold to a debtor that, at the time such transaction
is entered into, holds an air carrier operating certificate issued pursuant to
chapter 447 of Title 49 of the U.S. Code for aircraft capable of carrying ten or
more individuals or 6,000 pounds or more of cargo. Rights under Section 1110 are
subject to certain limitations in the case of equipment first placed in service
on or prior to October 22, 1994.
It is a condition to the Trustee's obligation to purchase Equipment Notes
with respect to each Aircraft that outside counsel to Continental, which is
expected to be Hughes Hubbard & Reed LLP, provide its opinion to the Trustees
that (x) if such Aircraft is a Leased Aircraft, the Owner Trustee, as lessor
under the Lease for such Aircraft, and the Leased Aircraft Trustee, as assignee
of such Owner Trustee's rights under such Lease pursuant to the related Leased
Aircraft Indenture, will be entitled to the benefits of Section 1110 with
respect to the airframe and engines comprising such Aircraft or (y) if such
Aircraft is an Owned Aircraft, the Owned Aircraft Trustee will be entitled to
the benefits of Section 1110 with respect to the airframe and engines comprising
such Owned Aircraft, in each case assuming that, at the time of such
transaction, Continental holds an air carrier operating certificate issued
pursuant to chapter 447 of Title 49 of the U.S. Code for aircraft capable of
carrying ten or more individuals or 6,000 pounds or more of cargo. For a
description of certain limitations on the Loan Trustee's exercise of rights
contained in the Indenture, see "-- Indenture Defaults, Notice and Waiver".
The opinion of Hughes Hubbard & Reed LLP will not address the possible
replacement of an Aircraft after an Event of Loss in the future, the
consummation of which is conditioned upon the contemporaneous delivery of an
opinion of counsel to the effect that the related Loan Trustee will be entitled
to Section 1110 benefits with respect to such replacement unless there is a
change in law or court interpretation that results in Section 1110 not being
available. See "-- The Leases and Certain Provisions of the Owned Aircraft
Indentures -- Events of Loss". The opinion of Hughes Hubbard & Reed LLP will
also not address the availability of Section 1110 with respect to any possible
sublessee of a Leased Aircraft subleased by Continental or to any possible
lessee of an Owned Aircraft if it is leased by Continental.
If an Indenture Default under any Indenture occurs and is continuing, any
sums held or received by the related Loan Trustee may be applied to reimburse
such Loan Trustee for any tax, expense or other loss incurred by it and to pay
any other amounts due to such Loan Trustee prior to any payments to holders of
the Equipment Notes issued under such Indenture. (Indentures, Section 3.03)
In the event of bankruptcy, insolvency, receivership or like proceedings
involving an Owner Participant, it is possible that, notwithstanding that the
applicable Leased Aircraft is owned by the related Owner Trustee in trust, such
Leased Aircraft and the related Lease and Equipment Notes might become part of
such proceeding. In such event, payments under such Lease or on such Equipment
Notes might be interrupted and the ability of the related Leased Aircraft
Trustee to exercise its remedies under the related Leased Aircraft Indenture
might be restricted, although such Leased Aircraft Trustee would retain its
status as a secured creditor in respect of the related Lease and the related
Leased Aircraft.
MODIFICATION OF INDENTURES AND LEASES
Without the consent of holders of a majority in principal amount of the
Equipment Notes outstanding under any Indenture, the provisions of such
Indenture and any related Lease, Participation Agreement or Trust Agreement may
not be amended or modified, except to the extent indicated below.
Subject to certain limitations, certain provisions of any Leased Aircraft
Indenture, and of the Lease, the Participation Agreement, and the Trust
Agreement related thereto, may be amended or modified by the parties thereto
without the consent of any holders of the Equipment Notes outstanding under such
Indenture. In the case of each Lease, such provisions include, among others,
provisions relating to (i) the return to the
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<PAGE> 77
related Owner Trustee of the related Leased Aircraft at the end of the term of
such Lease (except to the extent that such amendment would affect the rights or
exercise of remedies under the Lease) and (ii) the renewal of such Lease and the
option of Continental at the end of the term of such Lease to purchase the
related Leased Aircraft so long as the same would not adversely affect the Note
Holders. (Leased Aircraft Indentures, Section 9.01(a)) In addition, any
Indenture may be amended without the consent of the holders of Equipment Notes
to, among other things, cure any defect or inconsistency in such Indenture or
the Equipment Notes issued thereunder, provided that such change does not
adversely affect the interests of any such holder. (Leased Aircraft Indentures,
Section 9.01(c); Owned Aircraft Indentures, Section 10.01)
Without the consent of the Liquidity Provider and the holder of each
Equipment Note outstanding under any Indenture affected thereby, no amendment or
modification of such Indenture may among other things (a) reduce the principal
amount of, or premium, if any, or interest payable on, any Equipment Notes
issued under such Indenture or change the date on which any principal, premium,
if any, or interest is due and payable, (b) permit the creation of any security
interest with respect to the property subject to the lien of such Indenture,
except as provided in such Indenture, or deprive any holder of an Equipment Note
issued under such Indenture of the benefit of the lien of such Indenture upon
the property subject thereto or (c) modify the percentage of holders of
Equipment Notes issued under such Indenture required to take or approve any
action under such Indenture. (Leased Aircraft Indentures, Section 9.01(b); Owned
Aircraft Indentures, Section 10.01(a))
OWNER PARTICIPANT'S RIGHT TO RESTRUCTURE
Certain Owner Participants will have the right, subject to certain
conditions, to restructure the applicable leveraged lease transaction using a
"cross-border lease", a tax lease or head-lease/sublease structure and any other
type of transaction. In no event, however, shall any such restructuring (i)
change the terms and conditions of the rights and obligations of any holder of
Equipment Notes under the relevant Aircraft Operative Agreements or any holder
of Certificates or (ii) expose any such holder to any additional risks. As a
precondition to any such restructuring, the Owner Participant will be obligated
to deliver to the Leased Aircraft Trustee an appropriate officer's certificate
as to the satisfaction of the foregoing conditions and to obtain a written
confirmation from the Rating Agencies prior to the implementation of such
restructuring to the effect that such restructuring will not adversely affect
the ratings of the Certificates.
INDEMNIFICATION
Continental will be required to indemnify each Loan Trustee, each Owner
Participant, each Owner Trustee, each liquidity provider, the Subordination
Agent, the Escrow Agent and each Trustee, but not the holders of Certificates,
for certain losses, claims and other matters. Continental will be required under
certain circumstances to indemnify each Owner Participant against the loss of
depreciation deductions and certain other benefits allowable for certain income
tax purposes with respect to the related Leased Aircraft.
THE LEASES AND CERTAIN PROVISIONS OF THE OWNED AIRCRAFT INDENTURES
Each Leased Aircraft will be leased to Continental by the relevant Owner
Trustee under the relevant lease agreement (each, a "Lease"). Each Owned
Aircraft will be owned by Continental.
LEASE TERM RENTALS AND PAYMENTS
Each Leased Aircraft will be leased separately by the relevant Owner
Trustee to Continental for a term commencing on the date on which the Aircraft
is acquired by the Owner Trustee and expiring on a date not earlier than the
latest maturity date of the relevant Equipment Notes, unless terminated prior to
the originally scheduled expiration date as permitted by the applicable Lease.
The semiannual basic rent payment under each Lease is payable by Continental on
each related Lease Payment Date (or, if such day is not a Business Day, on the
next Business Day), and will be assigned by the Owner Trustee under the
corresponding Leased Aircraft Indenture to provide the funds necessary to make
scheduled payments of principal and interest due from the Owner Trustee on the
Equipment Notes issued under such Indenture. In
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certain cases, the semiannual basic rent payments under the Leases may be
adjusted, but each Lease provides that under no circumstances will rent payments
by Continental be less than the scheduled payments on the related Equipment
Notes. Any balance of each such semiannual basic rent payment under each Lease,
after payment of amounts due on the Equipment Notes issued under the Indenture
corresponding to such Lease, will be paid over to the Owner Trustee. (Leases,
Section 3; Leased Aircraft Indentures, Section 3.01)
"Lease Payment Date" means, with respect to each Lease, April 2 or October
2 during the term of such Lease.
Semiannual payments of interest on the Equipment Notes issued by
Continental under an Owned Aircraft Indenture are payable on April 2 and October
2 of each year, commencing on the first such date after issuance thereof.
Payments of principal of the Equipment Notes issued by Continental under an
Owned Aircraft Indenture will be payable on April 2 and October 2 in certain
years or in full on final maturity.
NET LEASE; MAINTENANCE
Under the terms of each Lease, Continental's obligations in respect of each
Leased Aircraft will be those of a lessee under a "net lease". Accordingly,
Continental is obligated under each Lease, among other things and at its
expense, to keep each Aircraft duly registered and insured, to pay all costs of
operating the Aircraft and to maintain, service, repair and overhaul the
Aircraft so as to keep it in as good an operating condition as when delivered to
Continental, ordinary wear and tear excepted, and in such condition as required
to maintain the airworthiness certificate for the Aircraft in good standing at
all times. (Leases, Sections 7.1, 8.1 and 11.1 and Annexes C and D) The Owned
Aircraft Indentures impose comparable maintenance, service and repair
obligations on Continental with respect to the Owned Aircraft. (Owned Aircraft
Indentures, Section 4.02)
POSSESSION, SUBLEASE AND TRANSFER
Each Aircraft may be operated by Continental or, subject to certain
restrictions, by certain other persons. Normal interchange and pooling
agreements customary in the commercial airline industry with respect to any
Airframe or Engine are permitted. Subleases, in the case of Leased Aircraft, and
leases, in the case of Owned Aircraft, are also permitted to U.S. air carriers
and foreign air carriers that have their principal executive office in certain
specified countries, subject to a reasonably satisfactory legal opinion that,
among other things, such country would recognize (in the case of the Leased
Aircraft) Owner Trustee's title to, and the Loan Trustee's security interest in
respect of, the applicable Aircraft. In addition, a sublessee or lessee may not
be subject to insolvency or similar proceedings at the commencement of such
sublease or lease. (Leases, Section 7, Owned Aircraft Indentures, Section 4.02)
Permitted foreign air carriers are not limited to those based in a country that
is a party to the Convention on the International Recognition of Rights in
Aircraft (Geneva 1948) (the "Convention"). It is uncertain to what extent the
relevant Loan Trustee's security interest would be recognized if an Aircraft is
registered or located in a jurisdiction not a party to the Convention. Moreover,
in the case of an Indenture Default, the ability of the related Loan Trustee to
realize upon its security interest in an Aircraft could be adversely affected as
a legal or practical matter if such Aircraft were registered or located outside
the United States.
REGISTRATION
Continental is required to keep each Aircraft duly registered under the
Transportation Code with the FAA, except (in the case of a Leased Aircraft) if
the relevant Owner Trustee or the relevant Owner Participant fails to meet the
applicable citizenship requirements, and to record each Lease (in the case of a
Leased Aircraft) and Indenture and certain other documents under the
Transportation Code. (Leases, Section 7; Owned Aircraft Indentures, Section
4.02(e)) Such recordation of the Indenture and certain other documents with
respect to each Aircraft will give the relevant Loan Trustee a first-priority,
perfected security interest in such Aircraft whenever it is located in the
United States or any of its territories and possessions. The Convention provides
that such security interest will also be recognized, with certain limited
exceptions, in those jurisdictions that have ratified or adhere to the
Convention.
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So long as no Lease Event of Default exists, Continental has the right to
register the Leased Aircraft subject to such Lease in a country other than the
United States at its own expense in connection with a permitted sublease of the
Aircraft to a permitted foreign air carrier, subject to certain conditions set
forth in the related Participation Agreement. These conditions include a
requirement that an opinion of counsel be provided that the lien of the
applicable Indenture will continue as a first priority security interest in the
applicable Aircraft. (Leases, Section 7.1.2; Participation Agreements, Section
7.6.11) The Owned Aircraft Indentures contain comparable provisions with respect
to registration of the Owned Aircraft in connection with a permitted lease of
the Owned Aircraft. (Owned Aircraft Indentures, Section 4.02(e))
LIENS
Continental is required to maintain each Aircraft free of any liens, other
than the rights of the relevant Loan Trustee, the holders of the related
Equipment Notes, Continental and, with respect to a Leased Aircraft, the Owner
Participant and Owner Trustee arising under the applicable Indenture, the Lease
(in the case of a Leased Aircraft) or the other operative documents related
thereto, and other than certain limited liens permitted under such documents,
including but not limited to (i) liens for taxes either not yet due or being
contested in good faith by appropriate proceedings; (ii) materialmen's,
mechanics' and other similar liens arising in the ordinary course of business
and securing obligations that either are not yet delinquent for more than 60
days or are being contested in good faith by appropriate proceedings; (iii)
judgment liens so long as such judgment is discharged or vacated within 60 days
or the execution of such judgment is stayed pending appeal or discharged,
vacated or reversed within 60 days after expiration of such stay; and (iv) any
other lien as to which Continental has provided a bond or other security
adequate in the reasonable opinion of the Owner Trustee; provided that in the
case of each of the liens described in the foregoing clauses (i), (ii) and
(iii), such liens and proceedings do not involve any material risk of the sale,
forfeiture or loss of such Aircraft or the interest of any Participant therein
or impair the lien of the relevant Indenture. (Leases, Section 6; Owned Aircraft
Indentures, Section 4.01)
REPLACEMENT OF PARTS; ALTERATIONS
Continental is obligated to replace all parts at its expense that may from
time to time be incorporated or installed in or attached to any Aircraft and
that may become lost, damaged beyond repair, worn out, stolen, seized,
confiscated or rendered permanently unfit for use. Continental or any permitted
sublessee has the right, at its own expense, to make such alterations,
modifications and additions with respect to each Aircraft as it deems desirable
in the proper conduct of its business and to remove parts which it deems to be
obsolete or no longer suitable or appropriate for use, so long as such
alteration, modification, addition or removal does not materially diminish the
fair market value, utility, condition or useful life of the related Aircraft or
Engine or invalidate the Aircraft's airworthiness certificate. (Leases, Section
8.1 and Annex C; Owned Aircraft Indentures, Section 4.04(d))
INSURANCE
Continental is required to maintain, at its expense (or at the expense of a
permitted lessee, in the case of the Owned Aircraft, or a permitted sublessee,
in the case of a Leased Aircraft), all-risk aircraft hull insurance covering
each Aircraft, at all times in an amount not less than, in the case of Leased
Aircraft, the stipulated loss value of such Aircraft (which will exceed the
aggregate outstanding principal amount of the Equipment Notes relating to such
Aircraft, together with accrued interest thereon) or, in the case of Owned
Aircraft, the aggregate outstanding principal amount of the Equipment Notes
relating to such Aircraft together with six months of interest accrued thereon
(the "Debt Balance"). However, after giving effect to self-insurance permitted
as described below, the amount payable under such insurance may be less than
such amounts payable with respect to the Equipment Notes. In the event of a loss
involving insurance proceeds in excess of $3,500,000 per occurrence in the case
of a Boeing 737-824 or 737-924 aircraft and $7,500,000 per occurrence in the
case of a Boeing 767-224ER or 767-424ER aircraft, such proceeds up to the
stipulated loss value or Debt Balance, as the case may be, of the relevant
Aircraft will be payable to the applicable Loan Trustee, for so long as the
relevant Indenture shall be in effect. In the event of a loss involving
insurance proceeds of up to
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$3,500,000 per occurrence in the case of a Boeing 737-824 or 737-924 aircraft
and $7,500,000 per occurrence in the case of a Boeing 767-224ER or 767-424ER
aircraft, such proceeds will be payable directly to Continental so long as an
Indenture Event of Default does not exist with respect to the Owned Aircraft
Indenture or (in the case of a Leased Aircraft) the Owner Trustee or Leased
Aircraft Trustee has not notified the insurance underwriters that a Lease Event
of Default exists. So long as the loss does not constitute an Event of Loss,
insurance proceeds will be applied to repair or replace the property. (Leases,
Sections 11 and Annex D; Owned Aircraft Indentures, Section 4.06 and Annex B)
In addition, Continental is obligated to maintain comprehensive airline
liability insurance at its expense (or at the expense of a permitted lessee, in
the case of an Owned Aircraft, or a permitted sublessee, in the case of a Leased
Aircraft), including, without limitation, passenger liability, baggage
liability, cargo and mail liability, hangarkeeper's liability and contractual
liability insurance with respect to each Aircraft. Such liability insurance must
be underwritten by insurers of nationally or internationally recognized
responsibility. The amount of such liability insurance coverage per occurrence
may not be less than the amount of comprehensive airline liability insurance
from time to time applicable to aircraft owned or leased and operated by
Continental of the same type and operating on similar routes as such Aircraft.
(Leases, Section 11.1 and Annex D, Owned Aircraft Indentures, Section 4.06 and
Annex B)
Continental is also required to maintain war-risk, hijacking or allied
perils insurance if it (or any permitted sublessee or lessee) operates any
Aircraft, Airframe or Engine in any area of recognized hostilities or if
Continental (or any permitted sublessee or lessee) maintains such insurance with
respect to other aircraft operated on the same international routes or areas on
or in which the Aircraft is operated. (Leases, Annex D, Owned Aircraft
Indentures, Section 4.06 and Annex B)
Continental may self-insure under a program applicable to all aircraft in
its fleet, but the amount of such self-insurance in the aggregate may not exceed
50% of the largest replacement value of any single aircraft in Continental's
fleet or 1 1/2% of the average aggregate insurable value (during the preceding
policy year) of all aircraft on which Continental carries insurance, whichever
is less, unless an insurance broker of national standing shall certify that the
standard among all other major U.S. airlines is a higher level of
self-insurance, in which case Continental may self-insure the Aircraft to such
higher level. In addition, Continental may self-insure to the extent of any
applicable deductible per Aircraft that does not exceed industry standards for
major U.S. airlines. (Leases, Section 11.1 and Annex D, Owned Aircraft
Indentures, Section 4.06 and Annex B)
In respect of each Aircraft, Continental is required to name as additional
insured parties the relevant Loan Trustee and holders of the Equipment Notes and
(in the case of the Leased Aircraft) the relevant Owner Participant and Owner
Trustee, in its individual capacity and as owner of such Aircraft, and the
Liquidity Provider under all liability, hull and property and war risk,
hijacking and allied perils insurance policies required with respect to such
Aircraft. In addition, the insurance policies will be required to provide that,
in respect of the interests of such additional insured persons, the insurance
shall not be invalidated or impaired by any act or omission of Continental, any
permitted sublessee or any other person. (Leases, Annex D, Owned Aircraft
Indentures, Section 4.06 and Annex B)
LEASE TERMINATION
Unless a Lease Event of Default shall have occurred and be continuing,
Continental may terminate any Lease on any Lease Payment Date occurring after
the fifth anniversary occurred of the date on which such Lease commenced, if it
makes a good faith determination that the Leased Aircraft subject to such Lease
is economically obsolete or surplus to its requirements. Continental is required
to give notice of its intention to exercise its right of termination described
in this paragraph at least 90 days prior to the proposed date of termination,
which notice may be withdrawn up to ten Business Days prior to such proposed
date; provided that Continental may give only five such termination notices. In
such a situation, unless the Owner Trustee elects to retain title to such
Aircraft, Continental is required to use commercially reasonable efforts to sell
such Aircraft as an agent for such Owner Trustee, and Owner Trustee will sell
such Aircraft on the date of termination to the highest cash bidder. If such
sale occurs, the Equipment Notes related thereto are required
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to be prepaid. If the net proceeds to be received from such sale are less than
the termination value for such Aircraft (which is set forth in a schedule to
each Lease), Continental is required to pay to the applicable Owner Trustee an
amount equal to the excess, if any, of the applicable termination value for such
Aircraft over such net proceeds. Upon payment of termination value for such
Aircraft and an amount equal to the Make-Whole Premium, if any, payable on such
date of payment, together with certain additional amounts, the lien of the
relevant Indenture will be released, the relevant Lease will terminate, and the
obligation of Continental thereafter to make scheduled rent payments under such
Lease will cease. (Leases, Section 9; Leased Aircraft Indentures, Section
2.10(b))
The Owner Trustee has the option to retain title to the Leased Aircraft if
Continental has given a notice of termination under the Lease. In such event,
such Owner Trustee will pay to the applicable Loan Trustee an amount sufficient
to prepay the outstanding Equipment Notes issued with respect to such Aircraft
(including the Make-Whole Premiums), in which case the lien of the relevant
Indenture will be released, the relevant Lease will terminate and the obligation
of Continental thereafter to make scheduled rent payments under such Lease will
cease. (Leases, Section 9; Leased Aircraft Indentures, Sections 2.06 and
2.10(b))
EVENTS OF LOSS
If an Event of Loss occurs with respect to the Airframe or the Airframe and
Engines of an Aircraft, Continental must elect within 45 days after such
occurrence either to make payment with respect to such Event of Loss or to
replace such Airframe and any such Engines. Not later than the first Business
Day following the earlier of (i) the 120th day following the date of occurrence
of such Event of Loss, and (ii) the fourth Business Day following the receipt of
the insurance proceeds in respect of such Event of Loss, Continental must either
(i) pay to the applicable Owner Trustee (in the case of a Leased Aircraft) or to
the Owned Aircraft Trustee (in the case of the Owned Aircraft) the stipulated
loss value of such Aircraft (in the case of a Leased Aircraft) or the
outstanding principal amount of the Equipment Notes (in the case of an Owned
Aircraft), together with certain additional amounts, but, in any case, without
any Make-Whole Premium or (ii) unless any Lease Event of Default or failure to
pay basic rent under the relevant Lease (in the case of a Leased Aircraft), an
Indenture Event of Default or failure to pay principal or interest under the
Owned Aircraft Indenture (in the case of the Owned Aircraft) or certain
bankruptcy defaults shall have occurred and is continuing, substitute an
airframe (or airframe and one or more engines, as the case may be) for the
Airframe, or Airframe and Engine(s), that suffered such Event of Loss. (Leases,
Sections 10.1.1 and 10.1.2; Leased Aircraft Indentures, Section 2.10(a); Owned
Aircraft Indentures, Sections 2.10 and 4.05(a))
If Continental elects to replace an Airframe (or Airframe and one or more
Engines, as the case may be) that suffered such Event of Loss, it shall, in the
case of a Leased Aircraft, convey to the related Owner Trustee title to an
airframe (or airframe and one or more engines, as the case may be) or, in the
case of an Owned Aircraft, subject such an airframe (or airframe and one or more
engines) to the lien of the Owned Aircraft Indenture, and such replacement
airframe or airframe and engines must be the same model as the Airframe or
Airframe and Engines to be replaced or an improved model, with a value, utility
and remaining useful life (without regard to hours or cycles remaining until the
next regular maintenance check) at least equal to the Airframe or Airframe and
Engines to be replaced, assuming that such Airframe and such Engines had been
maintained in accordance with the related Lease or Owned Aircraft Indenture, as
the case may be. Continental is also required to provide to the relevant Loan
Trustee and (in the case of a Leased Aircraft) the relevant Owner Trustee and
Owner Participant reasonably acceptable opinions of counsel to the effect, among
other things, that (i) certain specified documents have been duly filed under
the Transportation Code and (ii) such Owner Trustee and Leased Aircraft Trustee
(as assignee of lessor's rights and interests under the Lease), in the case of a
Leased Aircraft, or the Owned Aircraft Trustee, in the case of an Owned
Aircraft, will be entitled to receive the benefits of Section 1110 of the U.S.
Bankruptcy Code with respect to any such replacement airframe (unless, as a
result of a change in law or court interpretation, such benefits are not then
available). (Leases, Sections 10.1.3 and 10.3; Owned Aircraft Indentures,
Section 4.05(c))
If Continental elects not to replace such Airframe, or Airframe and
Engine(s), then upon payment of the outstanding principal amount of the
Equipment Notes issued with respect to such Aircraft (in the case of an
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Owned Aircraft) or the stipulated loss value for such Aircraft (in the case of a
Leased Aircraft), together with all additional amounts then due and unpaid with
respect to such Aircraft, which must be at least sufficient to pay in full as of
the date of payment thereof the aggregate unpaid principal amount under such
Equipment Notes together with accrued but unpaid interest thereon and all other
amounts due and owing in respect of such Equipment Notes, the lien of the
Indenture and (in the case of a Leased Aircraft) the Lease relating to such
Aircraft shall terminate with respect to such Aircraft, the obligation of
Continental thereafter to make the scheduled rent payments (in the case of a
Leased Aircraft) or interest and principal payments (in the case of an Owned
Aircraft) with respect thereto shall cease and (in the case of a Leased
Aircraft) the related Owner Trustee shall transfer all of its right, title and
interest in and to the related Aircraft to Continental. The stipulated loss
value and other payments made under the Leases or the Owned Aircraft Indenture,
as the case may be, by Continental shall be deposited with the applicable Loan
Trustee. Amounts in excess of the amounts due and owing under the Equipment
Notes issued with respect to such Aircraft will be distributed by such Loan
Trustee to the applicable Owner Trustee or to Continental, as the case may be.
(Leases, Section 10.1.2; Leased Aircraft Indentures, Sections 2.06 and 3.02;
Owned Aircraft Indentures, Sections 2.10, 3.02 and 4.05(a)(ii))
If an Event of Loss occurs with respect to an Engine alone, Continental
will be required to replace such Engine within 60 days after the occurrence of
such Event of Loss with another engine, free and clear of all liens (other than
certain permitted liens). Such replacement engine shall be the same make and
model as the Engine to be replaced, or an improved model, suitable for
installation and use on the Airframe, and having a value, utility and remaining
useful life (without regard to hours or cycles remaining until overhaul) at
least equal to the Engine to be replaced, assuming that such Engine had been
maintained in accordance with the relevant Lease or Owned Aircraft Indenture, as
the case may be. (Leases, Section 10.2; Owned Aircraft Indentures, Section 4.05)
An "Event of Loss" with respect to an Aircraft, Airframe or any Engine
means any of the following events with respect to such property:
- The destruction of such property, damage to such property beyond economic
repair or rendition of such property permanently unfit for normal use.
- The actual or constructive total loss of such property or any damage to
such property or requisition of title or use of such property which
results in an insurance settlement with respect to such property on the
basis of a total loss or a constructive or compromised total loss.
- Any theft, hijacking or disappearance of such property for a period of
180 consecutive days or more.
- Any seizure, condemnation, confiscation, taking or requisition of title
to such property by any governmental entity or purported governmental
entity (other than a U.S. government entity or an entity of the country
of registration of the relevant Aircraft) for a period exceeding 180
consecutive days or, if earlier, at the end of the term of such Lease (in
the case of a Leased Aircraft).
- In the case of any Leased Aircraft, any seizure, condemnation,
confiscation, taking or requisition of use of such property by any U.S.
government entity (or governmental entity of the country of registration
of the relevant Aircraft) that continues until the 30th day after the
last day of the term of the relevant Lease (unless the Owner Trustee
shall have elected not to treat such event as an Event of Loss).
- As a result of any law, rule, regulation, order or other action by the
FAA or any governmental entity, the use of such property in the normal
course of Continental's business of passenger air transportation is
prohibited for 180 consecutive days, unless Continental, prior to the
expiration of such 180-day period, shall have undertaken and shall be
diligently carrying forward steps which are necessary or desirable to
permit the normal use of such property by Continental, but in any event
if such use shall have been prohibited for a period of two consecutive
years, provided that no Event of Loss shall be deemed to have occurred if
such prohibition has been applicable to Continental's entire U.S.
registered fleet of similar property and Continental, prior to the
expiration of such two-year period, shall have conformed at least one
unit of such property in its fleet to the requirements of any such law,
rule, regulation, order or other action and commenced regular commercial
use of the same and shall
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be diligently carrying forward, in a manner which does not discriminate
against applicable property in so conforming such property, steps which
are necessary or desirable to permit the normal use of such property by
Continental, but in any event if such use shall have been prohibited for
a period of three years or, in the case of the Leased Aircraft, such use
shall be prohibited at the expiration of the term of the relevant Lease.
- With respect to any Engine, any divestiture of title to such Engine in
connection with pooling or certain other arrangements shall be treated as
an Event of Loss. (Leases, Section 7.2.6 and Annex A; Owned Aircraft
Indentures, Annex A)
RENEWAL AND PURCHASE OPTIONS
At the end of the term of each Lease after final maturity of the related
Equipment Notes and subject to certain conditions, Continental will have certain
options to renew such Lease for additional limited periods. In addition,
Continental will have the right at the end of the term of each Lease to purchase
the Aircraft subject thereto for an amount to be calculated in accordance with
the terms of such Lease. (Leases, Section 17)
In addition, Continental may have the right to purchase an Aircraft from
the applicable Owner Trustee and assume, as direct obligations of Continental,
the Equipment Notes issued with respect to such Aircraft. In such case, the
Leased Aircraft Indenture relating to such Equipment Notes will be amended and
restated to be substantially the same as an Owned Aircraft Indenture. See
"Certain U.S. Federal Income Tax Consequences -- Taxation of Certificateholders
Generally -- Trusts Classified as Grantor Trusts" for a discussion of certain
tax consequences of such purchase and assumption.
EVENTS OF DEFAULT UNDER THE LEASES
Lease Events of Default under each Lease include, among other things:
- Failure by Continental to make any payment of basic rent, stipulated loss
value or termination value under such Lease within ten Business Days
after the same shall have become due, or failure by Continental to pay
any other amount due under such Lease or under any other related
operative document within ten Business Days from and after the date of
any written notice from the Owner Trustee or Loan Trustee of the failure
to make such payment when due.
- Failure by Continental to make any excluded payment (as defined) within
ten Business Days after written notice that such failure constitutes a
Lease Event of Default is given by the relevant Owner Participant to
Continental and the relevant Loan Trustee.
- Failure by Continental to carry and maintain insurance on and in respect
of the Aircraft, Airframe and Engines, in accordance with the provisions
of such Lease.
- Failure by Continental to perform or observe in any material respect any
other covenant or agreement to be performed or observed by it under such
Lease or the related Participation Agreement or certain other related
operative documents (other than the related tax indemnity agreement
between Continental and the Owner Participant), and such failure shall
continue unremedied for a period of 30 days after written notice of such
failure by the applicable Owner Trustee or Loan Trustee unless such
failure is capable of being corrected and Continental shall be diligently
proceeding to correct such failure, in which case there shall be no Lease
Event of Default unless and until such failure shall continue unremedied
for a period of 270 days after the receipt of such notice.
- Any representation or warranty made by Continental in such Lease or the
related Participation Agreement or in certain other related operative
documents (other than in the related tax indemnity agreement between
Continental and the Owner Participant) shall prove to have been untrue or
inaccurate in any material respect at the time made, such representation
or warranty is material at the time in question and the same shall remain
uncured (to the extent of the adverse impact thereof) for more than 30
days after the date of written notice thereof to Continental.
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- The occurrence of certain voluntary events of bankruptcy, reorganization
or insolvency of Continental or the occurrence of involuntary events of
bankruptcy, reorganization or insolvency which shall continue
undismissed, unvacated or unstayed for a period of 90 days. (Leases,
Section 14)
Indenture Events of Default under the Owned Aircraft Indentures are
discussed above under "-- Indenture Defaults, Notice and Waiver".
REMEDIES EXERCISABLE UPON EVENTS OF DEFAULT UNDER THE LEASE
If a Lease Event of Default has occurred and is continuing, the applicable
Owner Trustee may (or, so long as the Indenture shall be in effect, the
applicable Loan Trustee may, subject to the terms of the Indenture) exercise one
or more of the remedies provided in such Lease with respect to the related
Aircraft. These remedies include the right to repossess and use or operate such
Aircraft, to rescind or terminate such Lease, to sell or re-lease such Aircraft
free and clear of Continental's rights, except as set forth in the Lease, and
retain the proceeds, and to require Continental to pay, as liquidated damages
any due and unpaid basic rent plus an amount equal to, at such Owner Trustee's
(or, subject to the terms of the relevant Leased Aircraft Indenture, the Leased
Aircraft Trustee's) option, either (i) the excess of the present value of all
unpaid rent during the remainder of the term of such Lease over the present
value of the fair market rental value of such Aircraft for the remainder of the
term of such Lease or, (ii) the excess of the stipulated loss value of such
Aircraft over the fair market sales value of such Aircraft or, if such Aircraft
has been sold, the net sales proceeds from the sale of such Aircraft. (Leases,
Section 15; Leased Aircraft Indentures, Section 4.04) If the Loan Trustee has
validly terminated such Lease, the Loan Trustee may not sell or lease or
otherwise afford the use of such Aircraft to Continental or any of its
affiliates. (Leased Aircraft Indentures, Section 4.04(a))
Remedies under the Owned Aircraft Indentures are discussed above under
"-- Remedies".
TRANSFER OF OWNER PARTICIPANT INTERESTS
Subject to certain restrictions, each Owner Participant may transfer all or
any part of its interest in the related Leased Aircraft. (Participation
Agreements, Section 10.1.1)
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CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following summary describes all material generally applicable U.S.
federal income tax consequences to Certificateholders of the purchase, ownership
and disposition of the Certificates offered hereby and in the opinion of Hughes
Hubbard & Reed LLP, special tax counsel to Continental ("Tax Counsel"), is
accurate in all material respects with respect to the matters discussed therein.
This summary supplements (and, to the extent inconsistent therewith, replaces)
the summary of U.S. federal income tax consequences set forth in the Prospectus.
Except as otherwise specified, the summary is addressed to beneficial owners of
Certificates ("U.S. Certificateholders") that are citizens or residents of the
United States, corporations, partnerships or other entities created or organized
in or under the laws of the United States or any state therein, estates the
income of which is subject to U.S. federal income taxation regardless of its
source, or trusts that meet the following two tests: (a) a U.S. court is able to
exercise primary supervision over the administration of the trust and (b) one or
more U.S. fiduciaries have the authority to control all substantial decisions of
the trust ("U.S. Persons") that will hold the Certificates as capital assets.
This summary does not address the tax treatment of U.S. Certificateholders that
may be subject to special tax rules, such as banks, insurance companies, dealers
in securities or commodities, holders subject to the mark-to-market rules,
tax-exempt entities, holders that will hold Certificates as part of a straddle
or holders that have a "functional currency other than the U.S. Dollar, nor,
except as specifically indicated, does it address the tax treatment of U.S.
Certificateholders that do not acquire Certificates at the public offering price
as part of the initial offering. The summary does not purport to be a
comprehensive description of all of the tax considerations that may be relevant
to a decision to purchase Certificates. This summary does not describe any tax
consequences arising under the laws of any state, locality or taxing
jurisdiction other than the United States.
The summary is based upon the tax laws and practice of the United States as
in effect on the date of this Prospectus Supplement, as well as judicial and
administrative interpretations thereof (in final or proposed form) available on
or before such date. All of the foregoing are subject to change, which change
could apply retroactively. We have not sought any ruling from the U.S. Internal
Revenue Service (the "IRS") with respect to the tax consequences described
below, and we cannot assure you that the IRS will not take contrary positions.
The Trusts are not indemnified for any U.S. federal income taxes that may be
imposed upon them, and the imposition of any such taxes on a Trust could result
in a reduction in the amounts available for distribution to the
Certificateholders of such Trust. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN
TAX ADVISORS WITH RESPECT TO THE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
CERTIFICATES.
TAX STATUS OF THE TRUSTS
In the opinion of Tax Counsel, while there is no authority addressing the
characterization of entities that are similar to the Trusts in all material
respects, each of the Original Trusts should be classified as a grantor trust
for U.S. federal income tax purposes. If, as may be the case, the Original
Trusts are not classified as grantor trusts, they will, in the opinion of Tax
Counsel, be classified as partnerships for U.S. federal income tax purposes and
will not be classified as publicly traded partnerships taxable as corporations
provided that at least 90% of each Original Trust's gross income for each
taxable year of its existence is "qualifying income" (which is defined to
include, among other things, interest income, gain from the sale or disposition
of capital assets held for the production of interest income, and income derived
with respect to a business of investing in securities). Tax Counsel believes
that income derived by the Original Trusts from the Equipment Notes will
constitute qualifying income and that the Original Trusts therefore will meet
the 90% test, assuming that the Original Trusts operate in accordance with the
terms of the Pass Through Trust Agreements and other agreements to which they
are parties. In the opinion of Tax Counsel, the Successor Trusts will be
classified as grantor trusts.
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TAXATION OF CERTIFICATEHOLDERS GENERALLY
TRUSTS CLASSIFIED AS GRANTOR TRUSTS
Assuming that a Trust is classified as a grantor trust, a U.S.
Certificateholder will be treated as owning its pro rata undivided interest in
the relevant Deposits and each of the Equipment Notes, the Trust's contractual
rights and obligations under the Note Purchase Agreement, and any other property
held by the Trust. Accordingly, each U.S. Certificateholder's share of interest
paid on Equipment Notes will be taxable as ordinary income, as it is paid or
accrued, in accordance with such U.S. Certificateholder's method of accounting
for U.S. federal income tax purposes, and a U.S. Certificateholder's share of
premium, if any, paid on redemption of an Equipment Note will be treated as
capital gain. The Deposits will likely be subject to the original issue discount
and contingent payment rules, with the result that a U.S. Certificateholder will
be required to include interest income from a Deposit using the accrual method
of accounting regardless of its normal method and with a possible slight
deferral in the timing of income recognition as compared to holding a single
debt instrument with terms comparable to a Certificate. Any amounts received by
a Trust under a Liquidity Facility in order to make interest payments will be
treated for U.S. federal income tax purposes as having the same characteristics
as the payments they replace.
An Owner Participant's conveyance of its interest in an owner trust should
not constitute a taxable event to U.S. Certificateholders. However, if we assume
an owner trust's obligations under the related Equipment Notes upon a purchase
of a Leased Aircraft by Continental, such assumption would be treated for
federal income tax purposes as a taxable exchange by U.S. Certificateholders of
the Equipment Notes for "new" Equipment Notes resulting in the recognition of
taxable gain or loss equal to the difference between the U.S.
Certificateholder's adjusted basis in its interest in the Equipment Note and the
amount realized on such exchange (except to the extent attributable to accrued
interest, which would be taxable as interest income if not previously included
in income). For this purpose the amount realized (and the issue price of the
"new" Equipment Note) would be equal to the fair market value of the U.S.
Certificateholder's pro rata share of the respective Equipment Note at such time
if the Equipment Notes are "publicly traded" within the meaning of applicable
Treasury regulations and otherwise would be equal to their principal amount (or,
under certain circumstances, a lesser imputed principal amount).
In the case of a subsequent purchaser of a Certificate, the purchase price
for the Certificate should be allocated among the relevant Deposits and the
assets held by the relevant Trust (including the Equipment Notes and the rights
and obligations under the Note Purchase Agreement with respect to Equipment
Notes not theretofore issued) in accordance with their relative fair market
values at the time of purchase. Any portion of the purchase price allocable to
the right and obligation under the Note Purchase Agreement to acquire an
Equipment Note should be included in the purchaser's basis in its share of the
Equipment Note when issued. Although the matter is not entirely clear, in the
case of a purchaser after initial issuance of the Certificates but prior to the
Delivery Period Termination Date, if the purchase price reflects a "negative
value" associated with the obligation to acquire an Equipment Note pursuant to
the Note Purchase Agreement being burdensome under conditions existing at the
time of purchase (e.g., as a result of the interest rate on the unissued
Equipment Notes being below market at the time of purchase of a Certificate),
such negative value probably would be added to such purchaser's basis in its
interest in the Deposits and the remaining assets of the Trust and reduce such
purchaser's basis in its share of the Equipment Notes when issued. The preceding
two sentences do not apply to purchases of Certificates following the Delivery
Period Termination Date.
A U.S. Certificateholder who is treated as purchasing an interest in a
Deposit or an Equipment Note at a market discount (generally, at a cost less
than its remaining principal amount) that exceeds a statutorily defined de
minimis amount will be subject to the "market discount" rules of the Code. These
rules provide, in part, that gain on the sale or other disposition of a debt
instrument with a term of more than one year and partial principal payments
(including partial redemptions) on such a debt instrument are treated as
ordinary income to the extent of accrued but unrecognized market discount. The
market discount rules also provide for deferral of interest deductions with
respect to debt incurred to purchase or carry a debt instrument that has market
discount. A U.S. Certificateholder who purchases an interest in a Deposit or an
Equipment Note at a
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premium may elect to amortize the premium as an offset to interest income on the
Deposit or Equipment Note under rules prescribed by the Code and Treasury
regulations promulgated under the Code.
Each U.S. Certificateholder will be entitled to deduct, consistent with its
method of accounting, its pro rata share of fees and expenses paid or incurred
by the corresponding Trust as provided in Section 162 or 212 of the Code.
Certain fees and expenses, including fees paid to the Trustee and the Liquidity
Provider, will be borne by parties other than the Certificateholders. It is
possible that such fees and expenses will be treated as constructively received
by the Trust, in which event a U.S. Certificateholder will be required to
include in income and will be entitled to deduct its pro rata share of such fees
and expenses. If a U.S. Certificateholder is an individual, estate or trust, the
deduction for such holder's share of such fees or expenses will be allowed only
to the extent that all of such holder's miscellaneous itemized deductions,
including such holder's share of such fees and expenses, exceed 2% of such
holder's adjusted gross income. In addition, in the case of U.S.
Certificateholders who are individuals, certain otherwise allowable itemized
deductions will be subject generally to additional limitations on itemized
deductions under applicable provisions of the Code.
ORIGINAL TRUSTS CLASSIFIED AS PARTNERSHIPS
If an Original Trust is classified as a partnership (and not as a publicly
traded partnership taxable as a corporation) for U.S. federal income tax
purposes, income or loss with respect to the assets held by the Trust will be
calculated at the Trust level but the Trust itself will not be subject to U.S.
federal income tax. A U.S. Certificateholder would be required to report its
share of the Trust's items of income and deduction on its tax return for its
taxable year within which the Trust's taxable year (which should be a calendar
year) ends as well as income from its interest in the relevant Deposits. A U.S.
Certificateholder's basis in its interest in the Trust would be equal to its
purchase price therefor (including its share of any funds withdrawn from the
Depositary and used to purchase Equipment Notes), plus its share of the Trust's
net income, minus its share of any net losses of the Trust, and minus the amount
of any distributions from the Trust. In the case of an original purchaser of a
Certificate that is a calendar year taxpayer, income or loss generally should be
the same as it would be if the Trust were classified as a grantor trust, except
that income or loss would be reported on an accrual basis even if the U.S.
Certificateholder otherwise uses the cash method of accounting. A subsequent
purchaser, however, generally would be subject to tax on the same basis as an
original holder with respect to its interest in the Original Trust, and would
not be subject to the market discount rules or the bond premium rules during the
duration of the Original Trust.
EFFECT OF REALLOCATION OF PAYMENTS UNDER THE INTERCREDITOR AGREEMENT
In the event that the Class B Trust or the Class C Trust (such Trusts being
the "Subordinated Trusts" and the related Certificates being the "Subordinated
Certificates") receives less than the full amount of the receipts of interest,
principal or premium paid with respect to the Equipment Notes held by it because
of the subordination of the Subordinated Trust under the Intercreditor
Agreement, the corresponding owners of beneficial interests in the Subordinated
Certificates (the "Subordinated Certificateholders") would probably be treated
for federal income tax purposes as if they had:
- received as distributions their full share of interest, principal or
premium;
- paid over to the preferred class of Certificateholders an amount equal to
their share of the amount of the shortfall; and
- retained the right to reimbursement of the amount of the shortfall to the
extent of future amounts payable to them on account of the shortfall.
Under this analysis:
- Subordinated Certificateholders incurring a shortfall would be required
to include as current income any interest or other income of the
Subordinated Trust that was a component of the shortfall, even though
that amount was in fact paid to a preferred class of certificateholders;
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- a loss would only be allowed to Subordinated Certificateholders when
their right to receive reimbursement of the shortfall becomes worthless;
that is, when it becomes clear that funds will not be available from any
source to reimburse the shortfall; and
- reimbursement of the shortfall before a claim of worthlessness would not
be taxable income to the Subordinated Certificateholders because the
amount reimbursed would have been previously included in income.
These results should not significantly affect the inclusion of income for
Subordinated Certificateholders on the accrual method of accounting, but could
accelerate inclusion of income to Subordinated Certificateholders on the cash
method of accounting by, in effect, placing them on the accrual method.
Similar treatment would apply if the Class A-1 Trust or the Class A-2 Trust
receives less than the full amount of the receipts of interest, principal or
premium paid with respect to the Equipment Notes held by it because of the
provisions in the Intercreditor Agreement requiring that distributions be
allocated on a pro rata basis between Trusts of equal seniority.
DISSOLUTION OF ORIGINAL TRUSTS AND FORMATION OF NEW TRUSTS
Assuming that the Original Trusts are classified as grantor trusts, the
dissolution of an Original Trust and distribution of interests in the related
Successor Trust will not be a taxable event to U.S. Certificateholders, who will
continue to be treated as owning their shares of the property transferred from
the Original Trust to the Successor Trust. If the Original Trusts are classified
as partnerships, a U.S. Certificateholder will be deemed to receive its share of
the Equipment Notes and any other property transferred by the Original Trust to
the Successor Trust in liquidation of its interest in the Original Trust in a
non-taxable transaction. In such case, the U.S. Certificateholder's basis in the
property so received will be equal to its basis in its interest in the Original
Trust, allocated among the various assets received based upon their bases in the
hands of the Original Trust and any unrealized appreciation or depreciation in
value in such assets, and the U.S. Certificateholder's holding period for the
Equipment Notes and other property will include the Original Trust's holding
period.
SALE OR OTHER DISPOSITION OF THE CERTIFICATES
Upon the sale, exchange or other disposition of a Certificate, a U.S.
Certificateholder generally will recognize capital gain or loss (subject to the
possible recognition of ordinary income under the market discount rules) equal
to the difference between the amount realized on the disposition (other than any
amount attributable to accrued interest which will be taxable as ordinary income
and any amount attributable to any Deposits) and the U.S. Certificateholder's
adjusted tax basis in the Note Purchase Agreement, Equipment Notes and any other
property held by the corresponding Trust. Any gain or loss will be long-term
capital gain or loss to the extent attributable to property held by the Trust
for more than one year. In the case of individuals, estates and trusts, the
maximum rate of tax on net long-term capital gains generally is 20%. Any gain
with respect to an interest in a Deposit likely will be treated as ordinary
income. Notwithstanding the foregoing, if the Original Trusts are classified as
partnerships, gain or loss with respect to an interest in an Original Trust will
be calculated and characterized by reference to the U.S. Certificateholder's
adjusted tax basis and holding period for its interest in the Original Trust.
FOREIGN CERTIFICATEHOLDERS
Subject to the discussion of backup withholding below, payments of
principal and interest on the Equipment Notes to, or on behalf of, any
beneficial owner of a Certificate that is not a U.S. Person will not be subject
to U.S. federal withholding tax provided that:
- the non-U.S. Certificateholder does not actually or constructively own
10% or more of the total combined voting power of all classes of stock of
an owner participant or us;
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- the non-U.S. Certificateholder is not a bank receiving interest pursuant
to a loan agreement entered into in the ordinary course of its trade or
business, or a controlled foreign corporation for U.S. tax purposes that
is related to an owner participant or us; and
- certain certification requirements (including identification of the
beneficial owner of the certificate) are complied with.
Any capital gain realized upon the sale, exchange, retirement or other
disposition of a Certificate or upon receipt of premium paid on an Equipment
Note by a non-U.S. certificateholder will not be subject to U.S. federal income
or withholding taxes if (i) such gain is not effectively connected with a U.S.
trade or business of the holder and (ii) in the case of an individual, such
holder is not present in the United States for 183 days or more in the taxable
year of the sale, exchange, retirement or other disposition or receipt.
BACKUP WITHHOLDING
Payments made on the Certificates and proceeds from the sale of
Certificates will not be subject to a backup withholding tax of 31% unless, in
general, the Certificateholder fails to comply with certain reporting procedures
or otherwise fails to establish an exemption from such tax under applicable
provisions of the Code.
CERTAIN DELAWARE TAXES
The Trustee is a Delaware banking corporation with its corporate trust
office in Delaware. In the opinion of Richards, Layton & Finger, Wilmington,
Delaware, counsel to the Trustee, under currently applicable law, assuming that
the Trusts will not be taxable as corporations, but, rather, will be classified
as grantor trusts under subpart E, Part I of Subchapter J of the Code or as
partnerships under Subchapter K of the Code, (i) the Trusts will not be subject
to any tax (including, without limitation, net or gross income, tangible or
intangible property, net worth, capital, franchise or doing business tax), fee
or other governmental charge under the laws of the State of Delaware or any
political subdivision thereof and (ii) Certificateholders that are not residents
of or otherwise subject to tax in Delaware will not be subject to any tax
(including, without limitation, net or gross income, tangible or intangible
property, net worth, capital, franchise or doing business tax), fee or other
governmental charge under the laws of the State of Delaware or any political
subdivision thereof as a result of purchasing, holding (including receiving
payments with respect to) or selling a Certificate.
Neither the Trusts nor the Certificateholders will be indemnified for any
state or local taxes imposed on them, and the imposition of any such taxes on a
Trust could result in a reduction in the amounts available for distribution to
the Certificateholders of such Trust. In general, should a Certificateholder or
any Trust be subject to any state or local tax which would not be imposed if the
Trustee were located in a different jurisdiction in the United States, the
Trustee will resign and a new Trustee in such other jurisdiction will be
appointed.
CERTAIN ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain requirements on employee benefit plans subject to Title I of
ERISA ("ERISA Plans"), and on those persons who are fiduciaries with respect to
ERISA Plans. Investments by ERISA Plans are subject to ERISA's general fiduciary
requirements, including, but not limited to, the requirement of investment
prudence and diversification and the requirement that an ERISA Plan's
investments be made in accordance with the documents governing the Plan.
Section 406 of ERISA and Section 4975 of the Code prohibit certain
transactions involving the assets of an ERISA Plan (as well as those plans that
are not subject to ERISA but which are subject to Section 4975 of the Code, such
as individual retirement accounts (together with ERISA Plans, "Plans")) and
certain persons (referred to as "parties in interest" or "disqualified persons")
having certain relationships to such Plans, unless a statutory or administrative
exemption is applicable to the transaction. A party in interest or
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disqualified person who engages in a prohibited transaction may be subject to
excise taxes and other penalties and liabilities under ERISA and the Code.
The Department of Labor has promulgated a regulation, 29 CFR Section
2510.3-101 (the "Plan Asset Regulation"), describing what constitutes the assets
of a Plan with respect to the Plan's investment in an entity for purposes of
ERISA and Section 4975 of the Code. Under the Plan Asset Regulation, if a Plan
invests (directly or indirectly) in a Certificate, the Plan's assets will
include both the Certificate and an undivided interest in each of the underlying
assets of the corresponding Trust, including the Equipment Notes held by such
Trust, unless it is established that equity participation in the Trust by
benefit plan investors (including but not limited to Plans and entities whose
underlying assets include Plan assets by reason of an employee benefit plan's
investment in the entity) is not "significant" within the meaning of the Plan
Asset Regulation. In this regard, the extent to which there is equity
participation in a particular Trust by, or on behalf of, employee benefit plans
will not be monitored. If the assets of a Trust are deemed to constitute the
assets of a Plan, transactions involving the assets of such Trust could be
subject to the prohibited transaction provisions of ERISA and Section 4975 of
the Code unless a statutory or administrative exemption is applicable to the
transaction.
The fiduciary of a Plan that proposes to purchase and hold any Certificates
should consider, among other things, whether such purchase and holding may
involve (i) the direct or indirect extension of credit to a party in interest or
a disqualified person, (ii) the sale or exchange of any property between a Plan
and a party in interest or a disqualified person, and (iii) the transfer to, or
use by or for the benefit of, a party in interest or a disqualified person, of
any Plan assets. Such parties in interest or disqualified persons could include,
without limitation, Continental and its affiliates, the Owner Participants, the
Underwriters, the Trustees, the Escrow Agent, the Depositary, the Owner Trustees
and the Liquidity Provider. In addition, whether or not the assets of a Trust
are deemed to be Plan assets under the Plan Asset Regulation, if Certificates
are purchased by a Plan and Certificates of a subordinate Class are held by a
party in interest or a disqualified person with respect to such Plan, the
exercise by the holder of the subordinate Class of Certificates of its right to
purchase the senior Classes of Certificates upon the occurrence and during the
continuation of a Triggering Event could be considered to constitute a
prohibited transaction unless a statutory or administrative exemption were
applicable. Depending on the identity of the Plan fiduciary making the decision
to acquire or hold Certificates on behalf of a Plan, Prohibited Transaction
Class Exemption ("PTCE") 91-38 (relating to investments by bank collective
investment funds), PTCE 84-14 (relating to transactions effected by a "qualified
professional asset manager"), PTCE 95-60 (relating to investments by an
insurance company general account), PTCE 96-23 (relating to transactions
directed by an in-house professional asset manager) or PTCE 90-1 (relating to
investments by insurance company pooled separate accounts) (collectively, the
"Class Exemptions") could provide an exemption from the prohibited transaction
provisions of ERISA and Section 4975 of the Code. However, there can be no
assurance that any of these Class Exemptions or any other exemption will be
available with respect to any particular transaction involving the Certificates.
Governmental plans and certain church plans, while not subject to the
fiduciary responsibility provisions of ERISA or the prohibited transaction
provisions of ERISA and Section 4975 of the Code, may nevertheless be subject to
state or other federal laws that are substantially similar to the foregoing
provisions of ERISA and the Code. Fiduciaries of any such plans should consult
with their counsel before purchasing any Certificates.
Any Plan fiduciary which proposes to cause a Plan to purchase any
Certificates should consult with its counsel regarding the applicability of the
fiduciary responsibility and prohibited transaction provisions of ERISA and
Section 4975 of the Code to such an investment, and to confirm that such
purchase and holding will not constitute or result in a non-exempt prohibited
transaction or any other violation of an applicable requirement of ERISA.
In addition to the Class Exemptions referred to above, an individual
exemption may apply to the purchase, holding and secondary market sale of Class
A-1 Certificates and Class A-2 Certificates by Plans, provided that certain
specified conditions are met. In particular, the Department of Labor has issued
individual administrative exemptions to the Underwriters which are substantially
the same as the
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administrative exemptions issued to The First Boston Corporation, Prohibited
Transaction Exemption 89-90 (54 Fed. Reg. 42,597 (1989)), as amended, (the
"Underwriter Exemption"). The Underwriter Exemption generally exempts from the
application of certain, but not all, of the prohibited transaction provisions of
Section 406 of ERISA and Section 4975 of the Code certain transactions relating
to the initial purchase, holding and subsequent secondary market sale of pass
through certificates which represent an interest in a trust that holds secured
credit instruments that bear interest or are purchased at a discount in
transactions by or between business entities (including equipment notes secured
by leases) and certain other assets, provided that certain conditions set forth
in the Underwriter Exemption are satisfied.
The Underwriter Exemption sets forth a number of general and specific
conditions which must be satisfied for a transaction involving the initial
purchase, holding or secondary market sale of certificates representing a
beneficial ownership interest in a trust to be eligible for exemptive relief
thereunder. In particular, the Underwriter Exemption requires that the
acquisition of certificates by a Plan be on terms that are at least as favorable
to the Plan as they would be in an arm's-length transaction with an unrelated
party; the rights and interests evidenced by the certificates not be
subordinated to the rights and interests evidenced by other certificates of the
same trust estate; the certificates at the time of acquisition by the Plan be
rated in one of the three highest generic rating categories by Moody's, Standard
& Poor's, Duff & Phelps Inc. or Fitch Investors Service, Inc.; and the investing
Plan be an accredited investor as defined in Rule 501(a) (1) of Regulation D of
the Commission under the Securities Act of 1933, as amended.
In addition, the trust corpus generally must be invested in qualifying
receivables, such as the Equipment Notes, but may not in general include a
pre-funding account (except for a limited amount of pre-funding which is
invested in qualifying receivables within a limited period of time following the
closing not to exceed three months).
With respect to the investment restrictions set forth in the Underwriter
Exemption, an investment in a Certificate will evidence both an interest in the
respective Original Trust as well as an interest in the Deposits held in escrow
by an Escrow Agent for the benefit of the Certificateholder. Under the terms of
the Escrow Agreements, the proceeds from the Offering of the Certificates of
each Class, to the extent not used to purchase Equipment Notes on the Issuance
Date, will be paid over by the Underwriters to the Depositary on behalf of the
Escrow Agent (for the benefit of such Certificateholders as the holders of the
Escrow Receipts) and will not constitute property of the Original Trusts. Under
the terms of each Escrow Agreement, the Escrow Agent will be irrevocably
instructed to enter into the Deposit Agreements with the Depositary and to
effect withdrawals upon the receipt of appropriate notice from the relevant
Trustee so as to enable such Trustee to purchase the identified Equipment Notes
on the terms and conditions set forth in the Note Purchase Agreement. Interest
on the Deposits relating to each Trust will be paid to the Certificateholders of
such Trust as Receiptholders through a Paying Agent appointed by the Escrow
Agent. Pending satisfaction of such conditions and withdrawal of such Deposits,
the Escrow Agent's rights with respect to the Deposits will remain plan assets
subject to the fiduciary responsibility and prohibited transaction provisions of
ERISA and Section 4975 of the Code.
There can be no assurance that the Department of Labor would determine that
the Underwriter Exemption would be applicable to Class A-1 Certificates and
Class A-2 Certificates in these circumstances. In particular, the Department of
Labor might assert that the escrow arrangement is tantamount to an impermissible
pre-funding rendering the Underwriter Exemption inapplicable. In addition, even
if all of the conditions of the Underwriter Exemption are satisfied with respect
to the Class A-1 Certificates and Class A-2 Certificates, no assurance can be
given that the Underwriter Exemption would apply with respect to all
transactions involving the Class A-1 Certificates or the Class A-2 Certificates
or the assets of the Class A-1 Trust or the Class A-2 Trust. In particular, it
appears that the Underwriter Exemption would not apply to the purchase by Class
B Certificateholders or Class C Certificateholders of Class A-1 Certificates or
Class A-2 Certificates in connection with the exercise of their rights upon the
occurrence and during the continuance of a Triggering Event. Therefore, the
fiduciary of a Plan considering the purchase of a Class A-1 Certificate or Class
A-2 Certificate should consider the availability of the exemptive relief
provided by the Underwriter Exemption, as well as the availability of any other
exemptions that may be applicable, such as the Class Exemptions.
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The Underwriter Exemption does not apply to the Class B or Class C
Certificates. Therefore, the fiduciary of a Plan considering the purchase of a
Class B or Class C Certificate should consider the availability of other
exemptions, such as the Class Exemptions.
Each person who acquires or accepts a Certificate or an interest therein,
will be deemed by such acquisition or acceptance to have represented and
warranted that either: (i) no Plan assets have been used to purchase such
Certificate or an interest therein or (ii) the purchase and holding of such
Certificate or an interest therein are exempt from the prohibited transaction
restrictions of ERISA and the Code pursuant to one or more prohibited
transaction statutory or administrative exemptions.
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UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated November , 2000, the Underwriters named below (collectively,
the "Underwriters") have agreed with Continental to purchase from the Trustee
the following respective principal amounts of the Class A-1, Class A-2, Class B
and Class C Certificates.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT PRINCIPAL AMOUNT PRINCIPAL AMOUNT PRINCIPAL AMOUNT
OF CLASS A-1 OF CLASS A-2 OF CLASS B OF CLASS C
UNDERWRITER CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
----------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Credit Suisse First Boston
Corporation.......................... $ $ $ $
Morgan Stanley & Co. Incorporated......
Chase Securities Inc. .................
Goldman, Sachs & Co. ..................
Salomon Smith Barney Inc. .............
------------ ------------ ------------ ------------
Total......................... $386,530,000 $162,076,000 $153,588,000 $138,962,000
============ ============ ============ ============
</TABLE>
The underwriting agreement provides that the Underwriters will be obligated
to purchase all of the Certificates if any are purchased. If an Underwriter
defaults on its purchase commitment, the purchase commitments of non-defaulting
Underwriters may be increased or the offering of Certificates may be terminated.
The aggregate proceeds from the sale of the Certificates will be
$ . Continental will pay the Underwriters a commission of
$ . Continental estimates that its expenses associated with the
offer and sale of the Certificates will be approximately $ .
The Underwriters propose to offer the Certificates initially at the public
offering prices on the cover page of this Prospectus Supplement and to selling
group members at those prices less the concessions set forth below. The
Underwriters and selling group members may allow a discount to other
broker/dealers set forth below. After the initial public offering, the public
offering prices and concessions and discounts may be changed by the
Underwriters.
<TABLE>
<CAPTION>
PASS THROUGH TO SELLING GROUP DISCOUNT TO
CERTIFICATES DESIGNATION MEMBERS BROKER/DEALERS
------------------------ ---------------- --------------
<S> <C> <C>
2000-2A-1................................................... % %
2000-2A-2...................................................
2000-2B.....................................................
2000-2C.....................................................
</TABLE>
The Certificates are a new issue of securities with no established trading
market. One or more of the Underwriters intend to make a secondary market for
the Certificates. However, they are not obligated to do so and may discontinue
any market making at any time without notice. No assurance can be given as to
the liquidity of the trading market for the Certificates.
Continental has agreed to indemnify the Underwriters against liabilities
under the Securities Act, or contribute to payments which the Underwriters may
be required to make in that respect.
Credit Suisse First Boston, New York branch, an affiliate of Credit Suisse
First Boston Corporation, will act as the Depositary. From time to time, several
of the Underwriters or their affiliates perform investment banking and advisory
services for, and provide general financing and banking services to, Continental
and its affiliates. In particular, Credit Suisse First Boston, New York branch,
and affiliates of Chase Securities Inc. and Salomon Smith Barney Inc., are
lenders to Continental.
Continental expects that delivery of the Certificates will be made against
payment therefor on or about the closing date specified on the cover page of
this Prospectus Supplement, which will be the business day following the
date of pricing of the Certificates (this settlement cycle being referred to as
T+ ). Under Rule 15c6-1 of the Commission under the Exchange Act,
trades in the secondary market generally are required to settle in three
business days, unless the parties to the trade expressly agree otherwise.
Accordingly, purchasers who wish to trade Certificates on the date of pricing or
the next
S-93
<PAGE> 94
succeeding business days will be required, by virtue of the fact that the
Certificates initially will settle in T+ , to specify an alternate
settlement cycle at the time of any trade to prevent a failed settlement and
should consult their own advisor.
The Underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Exchange Act.
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Syndicate covering transactions involve purchases of the Certificates in
the open market after the distribution has been completed in order to
cover syndicate short positions.
- Penalty bids permit the Underwriters to reclaim a selling concession from
a syndicate member when the Certificates originally sold by such
syndicate member are purchased in a syndicate covering transaction to
cover syndicate short positions.
Such stabilizing transactions, syndicate covering transactions and penalty
bids may cause the prices of the Certificates to be higher than they would
otherwise be in the absence of such transactions. These transactions, if
commenced, may be discontinued at any time.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Certificates in Canada is being made only on a
private placement basis exempt from the requirement that Continental prepare and
file a prospectus with the securities regulatory authorities in each province
where trades of the Certificates are made. Any resale of the Certificates in
Canada must be made under applicable securities laws which will vary depending
on the relevant jurisdiction, and which may require resales to be made under
available statutory exemptions or under a discretionary exemption granted by the
applicable Canadian securities regulatory authority. Purchasers are advised to
seek legal advice prior to any resale of the Certificates.
REPRESENTATIONS OF PURCHASERS
By purchasing Certificates in Canada and accepting a purchase confirmation,
a purchaser is representing to Continental and the dealer from whom the purchase
confirmation is received that
- the purchaser is entitled under applicable provincial securities laws to
purchase the Certificates without the benefit of a prospectus qualified
under those securities laws,
- where required by law, that the purchaser is purchasing as principal and
not as agent, and
- the purchaser has reviewed the text above under "Resale Restrictions".
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within
S-94
<PAGE> 95
Canada upon the issuer or such persons. All or a substantial portion of the
assets of the issuer and such persons may be located outside of Canada and, as a
result, it may not be possible to satisfy a judgment against the issuer or such
persons in Canada or to enforce a judgment obtained in Canadian courts against
such issuer or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Certificates to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
Certificates acquired by such purchaser pursuant to this offering. The report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from Continental. Only one
such report must be filed for Certificates acquired on the same date and under
the same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of Certificates should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the
Certificates in their particular circumstances and about the eligibility of the
Certificates for investment by the purchaser under relevant Canadian
legislation.
LEGAL MATTERS
The validity of the Certificates is being passed upon for Continental by
Hughes Hubbard & Reed LLP, New York, New York, and for the Underwriters by
Milbank, Tweed, Hadley & McCloy LLP, New York, New York. Milbank, Tweed, Hadley
& McCloy LLP will rely on the opinion of Richards, Layton & Finger, Wilmington,
Delaware, counsel for Wilmington Trust Company, as Trustee, as to matters of
Delaware law relating to the Pass Through Trust Agreements.
EXPERTS
The consolidated financial statements (including the financial statement
schedule) of Continental Airlines, Inc. appearing in Continental Airlines,
Inc.'s Annual Report (Form 10-K) for the year ended December 31, 1999 have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon included therein and incorporated herein by reference. Such
consolidated financial statements (including the financial statement schedule)
are incorporated herein by reference in reliance upon such reports given upon
the authority of such firm as experts in accounting and auditing.
The references to AISI, AVITAS and MBA, and to their respective appraisal
reports, each dated as of October 31, 2000, are included herein in reliance upon
the authority of each such firm as an expert with respect to the matters
contained in its appraisal report.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Reference is made to the information under "Incorporation of Certain
Documents by Reference" in the accompanying Prospectus. In addition to the
documents listed there as incorporated by reference in the Prospectus,
Continental's Quarterly Report on Form 10-Q for the quarter ended September 30,
2000, filed with the Commission on October 17, 2000, and Continental's two
Current Reports on Form 8-K, each filed with the Commission on November 6, 2000,
are incorporated by reference in this Prospectus Supplement.
S-95
<PAGE> 96
APPENDIX I -- INDEX OF TERMS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Adjusted Expected Distributions..... S-59
Administration Expenses............. S-59
Aggregate LTV Collateral Amount..... S-60
Air France.......................... S-28
Aircraft............................ S-62
Aircraft Operative Agreements....... S-45
AISI................................ S-63
Alaska Air.......................... S-27
Alitalia............................ S-28
America West........................ S-27
Appraised Current Market Value...... S-60
Appraisers.......................... S-63
Assumed Aircraft Value.............. S-70
Assumed Amortization Schedule....... S-35
Assumed Appraised Value............. S-44
Average Life Date................... S-69
AVITAS.............................. S-63
Base Rate........................... S-54
Basic Agreement..................... S-30
Boeing.............................. S-64
Bush Intercontinental............... S-26
Business Day........................ S-35
Cash Collateral Account............. S-52
Cede................................ S-47
Certificate Account................. S-34
Certificate Owner................... S-47
Certificateholders.................. S-31
Certificates........................ S-30
Class A-1 Certificates.............. S-30
Class A-1 Trust..................... S-30
Class A-1 Trustee................... S-31
Class A-2 Certificates.............. S-30
Class A-2 Trust..................... S-30
Class A-2 Trustee................... S-31
Class B Certificates................ S-30
Class B Trust....................... S-30
Class B Trustee..................... S-31
Class C Certificates................ S-30
Class C Trust....................... S-30
Class C Trustee..................... S-31
Class D Certificates................ S-46
Class D Trust....................... S-46
Class D Trustee..................... S-31
Class Exemptions.................... S-90
CMI................................. S-26
Code................................ S-42
Commission.......................... S-30
Company............................. S-26
Continental......................... S-26
Continuous Stay Period.............. S-75
Controlling Party................... S-22
Convention.......................... S-78
Current Distribution Date........... S-58
</TABLE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Current Pool Balance................ S-60
Debt Balance........................ S-79
default............................. S-39
Delivery Period..................... S-64
Delivery Period Termination Date.... S-48
Deposit............................. S-48
Deposit Agreement................... S-48
Depositary.......................... S-49
Depreciation Assumption............. S-70
disqualified persons................ S-89
Distribution Date................... S-31
DOJ................................. S-20
Downgrade Drawing................... S-52
DTC................................. S-47
DTC Participants.................... S-47
Equipment........................... S-76
Equipment Notes..................... S-66
ERISA............................... S-89
ERISA Plans......................... S-89
Escrow Agent........................ S-50
Escrow Agreements................... S-50
Escrow Receipts..................... S-50
Event of Loss....................... S-82
Expected Distributions.............. S-58
Express............................. S-26
FAA................................. S-21
Final Distributions................. S-57
Final Drawing....................... S-53
Final Maturity Date................. S-33
Gulfstream.......................... S-27
H.15(519)........................... S-69
Hawaiian............................ S-27
Hopkins International............... S-26
Horizon............................. S-27
Indenture Default................... S-37
Indentures.......................... S-43
Intercreditor Agreement............. S-56
Interest Drawings................... S-51
IRS................................. S-85
Issuance Date....................... S-53
Kennedy............................. S-21
KLM................................. S-28
LaGuardia........................... S-21
Lease............................... S-77
Lease Event of Default.............. S-37
Lease Payment Date.................. S-78
Leased Aircraft..................... S-43
Leased Aircraft Indenture........... S-43
Leased Aircraft Trustee............. S-66
LIBOR............................... S-54
Liquidity Event of Default.......... S-55
Liquidity Expenses.................. S-58
Liquidity Facility.................. S-51
</TABLE>
I-1
<PAGE> 97
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Liquidity Obligations............... S-58
Liquidity Provider.................. S-51
Loan Trustees....................... S-67
LTV Appraisal....................... S-61
LTV Collateral Amount............... S-60
LTV Ratio........................... S-60
LTVs................................ S-7
Make-Whole Premium.................. S-68
Mandatory Document Terms............ S-45
Mandatory Economic Terms............ S-44
Maximum Available Commitment........ S-51
MBA................................. S-63
Mesaba.............................. S-27
Minimum Sale Price.................. S-57
Moody's............................. S-49
most recent H.15(519)............... S-69
New Trustee......................... S-47
Newark.............................. S-26
Non-Extension Drawing............... S-53
Non-Performing Equipment Notes...... S-59
Northwest........................... S-19
Northwest Agreement................. S-23
Northwest Alliance.................. S-19
Northwest Transaction............... S-23
Note Holders........................ S-45
Note Purchase Agreement............. S-43
O'Hare.............................. S-21
Offering............................ S-46
Original Trustee.................... S-46
Original Trusts..................... S-46
Owned Aircraft...................... S-43
Owned Aircraft Indenture............ S-43
Owned Aircraft Trustee.............. S-66
Owner Participant................... S-66
Owner Trustee....................... S-66
Participation Agreement............. S-43
parties in interest................. S-89
Pass Through Trust Agreements....... S-30
Paying Agent........................ S-50
Paying Agent Account................ S-34
Performing Equipment Note........... S-52
Plan Asset Regulation............... S-90
Plans............................... S-89
Pool Balance........................ S-35
Pool Factor......................... S-35
Preferred Stock..................... S-24
Prospectus.......................... S-30
PTC Event of Default................ S-40
PTCE................................ S-90
</TABLE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Rating Agencies..................... S-49
Reagan National..................... S-21
Recapitalization.................... S-24
Receiptholder....................... S-50
Regular Distribution Dates.......... S-33
Remaining Weighted Average Life..... S-69
Replacement Facility................ S-52
Repurchase.......................... S-24
Required Amount..................... S-51
Scheduled Payments.................. S-33
Section 1110........................ S-75
Series A-1 Equipment Notes.......... S-66
Series A-2 Equipment Notes.......... S-66
Series B Equipment Notes............ S-66
Series C Equipment Notes............ S-66
Series D Equipment Notes............ S-66
Sixty-Day Section 1110 Period....... S-75
Special Distribution Date........... S-34
Special Payment..................... S-34
Special Payments Account............ S-34
Standard & Poor's................... S-49
Stated Interest Rates............... S-51
Subordinated Certificateholders..... S-87
Subordinated Certificates........... S-87
Subordinated Trusts................. S-87
Subordination Agent................. S-56
Substitute Aircraft................. S-65
Successor Trust..................... S-46
Tax Counsel......................... S-85
Termination Notice.................. S-55
Threshold Rating.................... S-53
Transfer Date....................... S-46
Transportation Code................. S-40
Treasury Yield...................... S-68
Triggering Event.................... S-31
Trust Agreements.................... S-66
Trust Indenture Act................. S-41
Trust Property...................... S-30
Trust Supplement.................... S-30
Trustee............................. S-30
Trusts.............................. S-30
U.S. Certificateholders............. S-85
U.S. Persons........................ S-85
Underwriter Exemption............... S-91
Underwriters........................ S-93
United.............................. S-25
US Airways.......................... S-25
Virgin.............................. S-28
</TABLE>
I-2
<PAGE> 98
Appendix II - Appraisal Letters
AIRCRAFT
[AISI LOGO] INFORMATION
SERVICES, INC.
31 October 2000
Continental Airlines
1600 Smith Street HQSFN
Houston, TX 77002
Subject: AISI Report No.: A0S051BVO
AISI Sight Unseen New Aircraft Base Value Appraisal, Fourteen
B737-800, Ten B737-900, Six B767-200ER and Two B767-400ER Aircraft.
Reference: (a) Credit Suisse First Boston Email message 25 August 2000
Dear Gentlemen:
Aircraft Information Services, Inc. (AISI) is pleased to offer Continental
Airlines our opinion of the sight unseen base market value of various new
aircraft scheduled to be delivered from the manufacturer to Continental Airlines
between February 2001 and December 2001 as listed and defined in Table I and
referenced (a) data above.
1. METHODOLOGY AND DEFINITIONS
The method used by AISI in its valuation of the Aircraft was based both on a
review of information and Aircraft specifications supplied by the client and
also on a review of present and past market conditions, various expert opinions
(such as aircraft brokers and financiers) and information contained in AISI's
databases that help determine aircraft availability and price data and thus
arrive at the appraised base values for the new aircraft to be delivered to
Continental Airlines.
The standard terms of reference for commercial aircraft value are 'half-life
base market value, and 'half-life current market value' of an 'average'
aircraft. Base value is a theoretical value that assumes a balanced market while
current market value is the value in the real market; both assume a hypothetical
average aircraft condition. AISI value definitions are consistent with the
current definitions of the International Society of Transport Aircraft Trading
(ISTAT), those of 01 January 1994. AISI is a member of that organization and
employs an ISTAT Certified and Senior Certified Aircraft Appraiser.
Headquarters: 26072 Merit Circle, Suite 123, Laguna Hills, CA 92653
Tel: 949-582-8888 FAX: 949-582-8887 E-MAIL: [email protected]
<PAGE> 99
31 October 2000 [AISI LOGO]
AISI File No. A0S051BVO
Page - 2 -
AISI defines a 'base value' as that of a transaction between equally willing and
informed buyer and seller, neither under compulsion to buy or sell, for a single
unit cash transaction with no hidden value or liability, and with supply and
demand of the sale item roughly in balance. Base values are typically given for
aircraft in 'new' condition, 'average half-life' condition, or in a specifically
described condition unique to a single aircraft at a specific time. An 'average'
aircraft is an operable airworthy aircraft in average physical condition and
with average accumulated flight hours and cycles, with clear title and standard
unrestricted certificate of airworthiness, and registered in an authority which
does not represent a penalty to aircraft value or liquidity, with no damage
history and with inventory configuration and level of modification which is
normal for its intended use and age. AISI assumes average condition unless
otherwise specified in this report. 'Half-life' condition assumes that every
component or maintenance service which has a prescribed interval that determines
its service life, overhaul interval or interval between maintenance services, is
at a condition which is one-half of the total interval. It should be noted that
AISI and ISTAT value definitions apply to a transaction involving a single
aircraft, and that transactions involving more than one aircraft are often
executed at considerable and highly variable discounts to a single aircraft
price, for a variety of reasons relating to an individual buyer or seller.
AISI defines a 'current market value', which is synonymous with the older term
'fair market value' as that value which reflects the real market conditions,
whether at, above or below the base value conditions. Assumption of a single
unit sale and definitions of aircraft condition, buyer/seller qualifications and
type of transaction remain unchanged from that of base value. Current market
value takes into consideration the status of the economy in which the aircraft
is used, the status of supply and demand for the particular aircraft type, the
value of recent transactions and the opinions of informed buyers and sellers.
Current market value assumes that there is no short term time constraint to buy
or sell.
AISI encourages the use of base values to consider historical trends, to
establish a consistent baseline for long term value comparisons and future value
considerations, or to consider how actual market values vary from theoretical
base values. Base values are less volatile than current market values and tend
to diminish regularly with time. Base values are normally inappropriate to
determine near term values. AISI encourages the use of current market values to
consider the probable near term value of an aircraft.
<PAGE> 100
31 October 2000 [AISI LOGO]
AISI File No. A0S051BVO
Page - 3 -
2. VALUATION
The aircraft are valued predicated upon the reference (a) data which describes
the aircraft MTOW and any engine upgrades. The aircraft are also assumed to have
similar configurations and capabilities as previous aircraft delivered to
Continental Airlines.
Following is AISI's opinion of the base market value for the subject aircraft on
their respective scheduled delivery dates in current US Dollars. Valuations are
presented in Table I subject to the assumptions, definitions and disclaimers
herein.
<PAGE> 101
31 October 2000 [AISI LOGO]
AISI File No. A0S051BVO
Page - 4 -
Table I
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
Scheduled Expected
Manufacturer's Aircraft Serial Registration New Delivery Base Value
Delivery Date Number Number Current USDollars
-------------------------------------------------------------------------------------------------------
B737-800, CFM56-7B26 ENGINES, 174,200LB MTOW
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
May-01 30803 N73259 $ 50,230,000
--------------------------------------------------------------------------------------------------------
Jun-01 30855 N35260 $ 50,350,000
--------------------------------------------------------------------------------------------------------
Jul-01 31582 N77261 $ 50,460,000
--------------------------------------------------------------------------------------------------------
Jul-01 32402 N33262 $ 50,460,000
--------------------------------------------------------------------------------------------------------
Aug-01 31583 N37263 $ 50,580,000
--------------------------------------------------------------------------------------------------------
Aug-01 31584 N33264 $ 50,580,000
--------------------------------------------------------------------------------------------------------
Aug-01 31585 N76265 $ 50,580,000
--------------------------------------------------------------------------------------------------------
Aug-01 32403 N33266 $ 50,580,000
--------------------------------------------------------------------------------------------------------
Sep-01 31586 N37267 $ 50,700,000
--------------------------------------------------------------------------------------------------------
Sep-01 31587 N38268 $ 50,700,000
--------------------------------------------------------------------------------------------------------
Oct-01 31588 N76269 $ 50,810,000
--------------------------------------------------------------------------------------------------------
Oct-01 31632 N73270 $ 50,810,000
--------------------------------------------------------------------------------------------------------
Nov-01 31589 N36272 $ 50,930,000
--------------------------------------------------------------------------------------------------------
Nov-01 31590 N37273 $ 50,930,000
--------------------------------------------------------------------------------------------------------
<CAPTION>
B737-900, CFM56-7B26 ENGINES, 174,200LB MTOW
-------------------------------------------------------------------------------------------------------
May-01 30118 N30401 $ 51,580,000
-------------------------------------------------------------------------------------------------------
Jun-01 30119 N79402 $ 51,700,000
-------------------------------------------------------------------------------------------------------
Jul-01 30120 N38403 $ 51,820,000
-------------------------------------------------------------------------------------------------------
Jul-01 30121 N32404 $ 51,820,000
-------------------------------------------------------------------------------------------------------
Aug-01 30122 N72405 $ 51,940,000
-------------------------------------------------------------------------------------------------------
Sep-01 TBD N73406 $ 52,060,000
-------------------------------------------------------------------------------------------------------
Sep-01 TBD N35407 $ 52,060,000
-------------------------------------------------------------------------------------------------------
Oct-01 TBD N37408 $ 52,180,000
-------------------------------------------------------------------------------------------------------
Nov-01 TBD N37409 $ 52,300,000
-------------------------------------------------------------------------------------------------------
Dec-01 TBD N75410 $ 52,420,000
-------------------------------------------------------------------------------------------------------
<CAPTION>
B767-200ER, CF6-80C2B4F ENGINES, 395,000LB MTOW
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Feb-01 30434 N68155 $ 81,000,000
-------------------------------------------------------------------------------------------------------
Mar-01 30435 N76156 $ 81,190,000
-------------------------------------------------------------------------------------------------------
Apr-01 30436 N67157 $ 81,380,000
-------------------------------------------------------------------------------------------------------
May-01 30437 N67158 $ 81,570,000
-------------------------------------------------------------------------------------------------------
Jul-01 30438 N68159 $ 81,940,000
-------------------------------------------------------------------------------------------------------
Oct-01 30439 N68160 $ 82,510,000
-------------------------------------------------------------------------------------------------------
<CAPTION>
B767-400ER, CF6-80C2B8F ENGINES, 450,000LB MTOW
-------------------------------------------------------------------------------------------------------
Mar-01 29450 N76055 $108,990,000
-------------------------------------------------------------------------------------------------------
Jun-01 29451 N66056 $109,740,000
-------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 102
31 October 2000 [AISI LOGO]
AISI File No. A0S051BVO
Page - 5 -
Unless otherwise agreed by Aircraft Information Services, Inc. (AISI) in
writing, this report shall be for the sole use of the client/addressee. This
report is offered as a fair and unbiased assessment of the subject aircraft.
AISI has no past, present, or anticipated future interest in the subject
aircraft. The conclusions and opinions expressed in this report are based on
published information, information provided by others, reasonable
interpretations and calculations thereof and are given in good faith. Such
conclusions and opinions are judgments that reflect conditions and values which
are current at the time of this report. The values and conditions reported upon
are subject to any subsequent change. AISI shall not be liable to any party for
damages arising out of reliance or alleged reliance on this report, or for any
parties action or failure to act as a result of reliance or alleged reliance on
this report.
Sincerely,
AIRCRAFT INFORMATION SERVICES, INC.
/s/ John D. McNicol
John D. McNicol
Vice President
Appraisals & Forecasts
<PAGE> 103
[AVITAS LOGO]
CONTINENTAL AIRLINES OCTOBER 31, 2000
--------------------------------------------------------------------------------
INTRODUCTION
AVITAS, Inc. has been retained by Continental Airlines (the "Client") to provide
its opinion as to the Base Value for fourteen (14) Boeing 737-800, ten (10)
Boeing 737-900, six (6) Boeing 767-200ER and two (2) Boeing 767-400ER aircraft.
The subject aircraft are identified and their values are set forth in Figure 1
in this report.
The values presented in this report assume that this aircraft will be in new,
"flyaway" condition and fully certificated for commercial operations. We have
further assumed that the subject aircraft will be operated under the air
transport regulations of a major nation.
The values presented in this report do not take into consideration fleet sales,
attached leases, tax considerations or other factors that might be considered in
structuring the terms and conditions of a specific transaction. These factors
do not directly affect the value of the aircraft itself but can affect the
economics of the transaction. Therefore, the negotiated striking price in an
aircraft transaction may take into consideration factors such as the present
value of the future lease stream, the terms and conditions of the specific lease
agreement and the impact of tax considerations.
DEFINITIONS
AVITAS's value definitions conform to those of the International Society of
Transport Aircraft Trading ("ISTAT") adopted in January 1994, and are summarized
as follows:
- BASE VALUE is the appraiser's opinion of the underlying economic value of
an aircraft in an open, unrestricted, stable market environment with a
reasonable balance of supply and demand, and assumes full consideration of
its "highest and best use." An aircraft's Base Value is founded in the
historical trend of values and in the projection of value trends and
presumes an arm's-length, cash transaction between willing and
knowledgeable parties, acting prudently, with an absence of duress and
with a reasonable period of time for marketing. Base Value typically
assumes that an aircraft's physical condition is average for an aircraft
of its type and age, and its maintenance time status is at mid-life,
mid-time (or benefiting from an above-average maintenance status if it is
new or nearly new).
[GLOBE GRAPHIC]
------------------------------------------------
WORLD HEADQUARTERS: 14520 Avion Pkwy, Chantilly,
VA 20151 USA - Telephone: (703) 476-2300 Fax:
(703) 860-5855 Email: [email protected]
AVITAS EUROPE: Palace House, 3 Cathedral St.
London SEI 9DE,- Telephone: 0171-716-6621
Fax: 0717-357-6873 Email: [email protected]
AVITAS ENGINEERING: 5040 N.W. 7th Street, #900
Miami, FL 33126 - Telephone: (305) 476-9650
Fax: (305) 476-9915 Email: [email protected]
A DET NORSKE VERITAS COMPANY
-------------------------------------------------
<PAGE> 104
[AVITAS LOGO]
CONTINENTAL AIRLINES OCTOBER 31, 2000
--------------------------------------------------------------------------------
- MARKET VALUE (or CURRENT MARKET VALUE if the value pertains to the time of
the analysis) is the appraiser's opinion of the most likely trading price
that may be generated for an aircraft under the market conditions that are
perceived to exist at the time in question given an adequate amount of
time to properly market it. It assumes that an aircraft's physical
condition is average for an aircraft of its type and age, and its
maintenance time status is at mid-life, mid-time (or benefiting from an
above-average maintenance status if it is new or nearly new). Market Value
is synonymous with Fair Market Value.
AIRCRAFT VALUE
AVITAS's opinion as to the value of the subject aircraft is presented below in
millions of U.S. dollars. Base Values are as of the delivery dates for each
aircraft.
With regard to new aircraft, AVITAS considers the Base Value and the Market
Value to be the same. The Base Value of a new aircraft is the typical price paid
by an average operator in a single unit or small lot sale. Actual transaction
prices may be either above or below that level due to a number of factors. For
example, a launch order or a large fleet order may result in discounts, whereas
a single unit sale to a small operator who needs a substantial amount of support
may be approaching the list price.
Furthermore, implicit in these values is AVITAS's assumption that the new
aircraft will remain with the original operator for at least two years. If a
newly delivered aircraft comes onto the market, the seller is at an immediate
disadvantage as he is likely to be in competition with the manufacturer who can
offer training and support.
<PAGE> 105
[AVITAS LOGO]
CONTINENTAL AIRLINES OCTOBER 31, 2000
--------------------------------------------------------------------------------
Figure 1
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
Continental Airlines
Aircraft Description & Summary of Aircraft Values in US$ Million
---------------------------------------------------------------------------------------------------------------
No. Type Engines Serial Reg. Yr. Qtr. MTOW Base
Number Number Del. Del. (lbs) Value
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 737-800 CFM56-7B26 30803 N73259 2001 2 174,200 $ 45.1
---------------------------------------------------------------------------------------------------------------
2 737-800 CFM56-7B26 30855 N35260 2001 2 174,200 45.1
---------------------------------------------------------------------------------------------------------------
3 737-800 CFM56-7B26 31582 N77261 2001 3 174,200 45.5
---------------------------------------------------------------------------------------------------------------
4 737-800 CFM56-7B26 32402 N33262 2001 3 174,200 45.5
---------------------------------------------------------------------------------------------------------------
5 737-800 CFM56-7B26 31583 N37263 2001 3 174,200 45.5
---------------------------------------------------------------------------------------------------------------
6 737-800 CFM56-7B26 31584 N33264 2001 3 174,200 45.5
---------------------------------------------------------------------------------------------------------------
7 737-800 CFM56-7B26 31585 N76265 2001 3 174,200 45.5
---------------------------------------------------------------------------------------------------------------
8 737-800 CFM56-7B26 32403 N33266 2001 3 174,200 45.5
---------------------------------------------------------------------------------------------------------------
9 737-800 CFM56-7B26 31586 N37267 2001 3 174,200 45.5
---------------------------------------------------------------------------------------------------------------
10 737-800 CFM56-7B26 31587 N38268 2001 3 174,200 45.5
---------------------------------------------------------------------------------------------------------------
11 737-800 CFM56-7B26 31588 N76269 2001 4 174,200 45.8
---------------------------------------------------------------------------------------------------------------
12 737-800 CFM56-7B26 31632 N73270 2001 4 174,200 45.8
---------------------------------------------------------------------------------------------------------------
13 737-800 CFM56-7B26 31589 N36272 2001 4 174,200 45.8
---------------------------------------------------------------------------------------------------------------
14 737-800 CFM56-7B26 31590 N37273 2001 4 174,200 45.8
---------------------------------------------------------------------------------------------------------------
15 737-900 CFM56-7B26 30118 N30401 2001 2 174,200 48.2
---------------------------------------------------------------------------------------------------------------
16 737-900 CFM56-7B26 30119 N79402 2001 2 174,200 48.2
---------------------------------------------------------------------------------------------------------------
17 737-900 CFM56-7B26 30120 N38403 2001 3 174,200 48.6
---------------------------------------------------------------------------------------------------------------
18 737-900 CFM56-7B26 30121 N32404 2001 3 174,200 48.6
---------------------------------------------------------------------------------------------------------------
19 737-900 CFM56-7B26 30122 N72405 2001 3 174,200 48.6
---------------------------------------------------------------------------------------------------------------
20 737-900 CFM56-7B26 TBD N73406 2001 3 174,200 48.6
---------------------------------------------------------------------------------------------------------------
21 737-900 CFM56-7B26 TBD N35407 2001 3 174,200 48.6
---------------------------------------------------------------------------------------------------------------
22 737-900 CFM56-7B26 TBD N37408 2001 4 174,200 48.9
---------------------------------------------------------------------------------------------------------------
23 737-900 CFM56-7B26 TBD N37409 2001 4 174,200 48.9
---------------------------------------------------------------------------------------------------------------
24 737-900 CFM56-7B26 TBD N75410 2001 4 174,200 48.9
---------------------------------------------------------------------------------------------------------------
25 767-200ER CF6-80C2B4F 30434 N68155 2001 1 395,000 72.8
---------------------------------------------------------------------------------------------------------------
26 767-200ER CF6-80C2B4F 30435 N76156 2001 1 395,000 72.8
---------------------------------------------------------------------------------------------------------------
27 767-200ER CF6-80C2B4F 30436 N67157 2001 2 395,000 73.3
---------------------------------------------------------------------------------------------------------------
28 767-200ER CF6-80C2B4F 30437 N67158 2001 2 395,000 73.3
---------------------------------------------------------------------------------------------------------------
29 767-200ER CF6-80C2B4F 30438 N68159 2001 3 395,000 73.9
---------------------------------------------------------------------------------------------------------------
30 767-200ER CF6-80C2B4F 30439 N68160 2001 4 395,000 74.4
---------------------------------------------------------------------------------------------------------------
31 767-400ER CF6-80C2B8F 29450 N76055 2001 1 450,000 94.1
---------------------------------------------------------------------------------------------------------------
32 767-400ER CF6-80C2B8F 29451 N66056 2001 2 450,000 95.5
---------------------------------------------------------------------------------------------------------------
GRAND TOTAL $ 1,753.4
---------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 106
[AVITAS LOGO]
CONTINENTAL AIRLINES OCTOBER 31, 2000
--------------------------------------------------------------------------------
GENERAL MARKET OVERVIEW
INTRODUCTION
AVITAS believes that the expected downturn in the commercial aircraft market is
now upon us. The most recent indications are that values and lease rates for
several key types have softened while the number of aircraft being offered for
sale or lease has risen significantly, especially over the last two years. The
increase in availability has been particularly marked for older narrowbodies and
some older widebody types have begun to reach the end of their useful economic
lives somewhat earlier than anticipated. Orders for new jet aircraft peaked in
1998 while deliveries reached a record high the following year.
Recent trends in the global economy have had a negative impact on aircraft
values. Although the Asian recession has passed and recovery in the region now
appears to be sustained, values of widebody types remain somewhat soft. However,
there are signs that carriers based there, who represent a sizeable portion of
the world market for widebodied aircraft, are once again giving their attention
to fleet renewal and expansion. European and U.S. carriers operating routes to
Asian destinations have also been rebuilding their schedules after the cutbacks
introduced in the wake of the economic crisis of 1997 and 1998.
In the U.S., the generally robust financial health of the airline industry
continues as growth in traffic volumes remains strong. However, the earnings
peak was reached in 1998 and rising fuel costs have affected profitability. The
passing of the Stage 2 noise gate at the end of 1999 resulted in increasing
weakness in the values of many older narrowbodies. In Latin America, which has
traditionally been a market for these aircraft, manufacturers have succeeded in
placing more new equipment while negative financial developments in some
countries have also been felt.
New aircraft prices have been kept in check due to intense sales competition
between Airbus and Boeing. Airbus, which has steadily built up market share at
Boeing's expense, is finalizing plans to make the transition to a more
conventional corporate structure which should also help to foster a more
competitive environment.
BACKGROUND - BOEING 737-800 AND 737-900
The Boeing 737-800 is a stretched version of the 737-400 capable of transporting
up to 162 passengers in two-class configuration or 189 in a single class. The
extra seating gives the -800 a reduction in seat-mile charges over the -400 for
the same trip cost. The differences between the 737-800 and the A320 are far
less pronounced than the other variants, thus tightening the competition. The
seating of the 737-800 is greater than that of the A320 (189 vs 164 in a single
class); however, it has a little less range.
In late 1997, Alaska Airlines launched the Boeing 737-900, which is a 737-800
stretched by nearly nine feet, with ten firm orders. The aircraft will have 18%
more cargo volume and 9% more passenger cabin area than the 737-800. Deliveries
are scheduled to begin in April 2001.
4
<PAGE> 107
[AVITAS LOGO]
CONTINENTAL AIRLINES OCTOBER 31, 2000
--------------------------------------------------------------------------------
FIGURE 2
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
BOEING 737 FAMILY STATISTICS
AS OF JULY 2000
------------------------------------------------------------------------------
MODEL AIRCRAFT IN SERVICE OPERATORS FIRM ORDERS
------------------------------------------------------------------------------
<S> <C> <C> <C>
737-600 38 4 35
------------------------------------------------------------------------------
737-700 242 36 474
------------------------------------------------------------------------------
737-800 306 39 373
------------------------------------------------------------------------------
737-900 1 45
------------------------------------------------------------------------------
GRAND TOTAL 587 79 927
------------------------------------------------------------------------------
</TABLE>
Source: BACK Information Services
The Figure below summarizes the performance capabilities of the 737NG
series excluding the -600.
FIGURE 3
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
AIRCRAFT SEATING CAPACITY MTOW (LBS) RANGE
MODEL BASIC MAX BASIC MAX BASIC MAX
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
737-700 128 149 133,000 153,000 1,620 3,245
-------------------------------------------------------------------------------
737-800 162 189 155,500 174,200 1,905 2,925
-------------------------------------------------------------------------------
737-900 177 189 166,000 174,200 1,925 2,728
-------------------------------------------------------------------------------
</TABLE>
CURRENT MARKET - BOEING 737-800
CURRENT MARKET
AVITAS is of the opinion that the current market for the Boeing 737-800 aircraft
is firm. There are presently 306 aircraft in service worldwide among 39 airline
operators and a backlog of 373 firm orders and 127 options.
CURRENT OPERATOR BASE AND BACKLOG
As of July 2000, there were 306 737-800 aircraft in service among 39 operators
and another 373 on firm order and 127 options for the type.
OUTLOOK AND FUTURE ASSET RISK ANALYSIS
With regard to the 737-800's competition, the A320-200, which has been in
service since 1988, has 832 aircraft in service and 517 firm orders. The A320
offers a maximum takeoff weight of 162,000 to 169,000 pounds versus the
737-800's 155,500 to 174,200 pounds and similar range capability; but the
737-800 can have as many as 12 more seats than the A320, depending on interior
configuration. Although Airbus has had a great degree of recent success with the
A320-200 and the aircraft remains a tough competitor to the 737-800, to meet
specific operating needs, the 737-800 can be ordered with higher
5
<PAGE> 108
[AVITAS LOGO]
CONTINENTAL AIRLINES OCTOBER 31, 2000
--------------------------------------------------------------------------------
specifications than the A320. AVITAS believes the values for the 737-800 should
remain firm despite intense competition in the foreseeable future.
CURRENT MARKET - BOEING 737-900
CURRENT MARKET
AVITAS is of the opinion that the current market for the Boeing 737-900, the
newest B737NG jet aircraft, is stable. There is presently a backlog of 45 firm
orders and 13 options. Alaska Airlines launched the aircraft in November 1997,
with an order for 10 aircraft. Continental Airlines, KLM and Korean Airlines
followed with orders for the type. The first aircraft is scheduled for delivery
to Alaska Airlines in April of 2001.
CURRENT OPERATOR BASE AND BACKLOG
As shown in the Figure below, as of July 2000, there were 58 737-900 aircraft on
backlog among four operators.
FIGURE 4
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
BOEING 737-900 BACKLOG
AS OF JULY 2000
-------------------------------------------------------------------------------
OPERATOR FIRM ORDERS OPTIONS TOTAL
-------------------------------------------------------------------------------
<S> <C> <C> <C>
ALASKA AIRLINES 10 10 20
-------------------------------------------------------------------------------
KOREAN AIR 16 3 19
-------------------------------------------------------------------------------
CONTINENTAL AIRLINES 15 15
-------------------------------------------------------------------------------
KLM ROYAL DUTCH AIRLINES 4 4
-------------------------------------------------------------------------------
GRAND TOTAL 45 13 58
-------------------------------------------------------------------------------
</TABLE>
Source: BACK Information Services
OUTLOOK AND FUTURE ASSET RISK ANALYSIS
The competing aircraft types are the nine feet smaller 737-800, which was
introduced into service in 1997, and the A321-100/-200 aircraft, which was
introduced into service in 1993. Both these aircraft have significant backlogs
with 373 firm orders for the 737-800 and 170 for the A321s. It seems is unlikely
that the -900 will capture as many orders as the successful -700 and -800, which
both have significant fleets in service and large backlogs among a broad range
of operators and airlines.
Another indirect competitor is the larger 757-200 which seats 194 passenger in a
2-class configuration and has been in airline service since 1982. The type is
still in production holds a backlog of 86 firm orders and 49 options.
6
<PAGE> 109
[AVITAS LOGO]
CONTINENTAL AIRLINES OCTOBER 31, 2000
--------------------------------------------------------------------------------
Unless the backlog for the 737-900 increases considerably, the aircraft may
become a niche aircraft like the 737-600.
CURRENT MARKET - BOEING 767-200/-200ER
CURRENT MARKET
AVITAS is of the opinion that the current market for the Boeing 767-200 is
somewhat soft with values for the oldest models at levels low enough to justify
freighter conversions. Airborne Express has contracted to acquire 23 units and
Emery Worldwide Airlines is evaluating the type together with the A300 and the
DC-10 to gradually replace its DC-8 fleet. The carrier has been in discussions
with Boeing about becoming the launch customer of the 767-200 freighter
conversion program and is expected to make a decision soon.
Though the preference for 767-200 aircraft is focused on the -ER variant with
6,500 nautical mile range, the most significant level of demand is for the
767-300ER aircraft, which has a seating capacity of 45 more passengers than the
-200 but 500 nautical miles less range.
RECENT FLEET DEVELOPMENTS
In November 1998, Continental Airlines announced a firm order for ten 767-200ERs
which will replace some of the carrier's 747s and DC-10s. The new aircraft,
which will be delivered from 2000 through 2005, are intended to be flown on
international markets in South America and Europe.
CURRENT OPERATOR BASE AND BACKLOG
As of July 2000, there were 217 767-200/-200ER aircraft in service. Continental
Airlines holds ten firm orders for the 767-200ER which are scheduled for
delivery over the next four years. Presented below is the current fleet
distribution for the 767 (all variants).
FIGURE 5
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
BOEING 767 CURRENT FLEET AND BACKLOG
AS OF JULY 2000
--------------------------------------------------------------------------------
MODEL IN SERVICE FIRM ORDERS OPTIONS TOTAL
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
767-200 122 122
--------------------------------------------------------------------------------
767-200ER 95 10 105
--------------------------------------------------------------------------------
767-300 136 1 3 140
--------------------------------------------------------------------------------
767-300ER 421 40 14 475
--------------------------------------------------------------------------------
767-400ER 9 42 24 75
--------------------------------------------------------------------------------
GRAND TOTAL 783 93 41 917
--------------------------------------------------------------------------------
</TABLE>
Source: BACK Information Services
7
<PAGE> 110
[AVITAS LOGO]
CONTINENTAL AIRLINES OCTOBER 31, 2000
--------------------------------------------------------------------------------
The 767-200 and -200ER compete with the A310-200 and -300, of which there are
currently 228 in service (including ten in storage). No orders have been placed
for the type, with the exception of the order placed by Continental Airlines, in
the last couple of years and an order for five aircraft for Iraqi Airways still
listed as outstanding is now believed to have lapsed.
OUTLOOK AND FUTURE ASSET RISK ANALYSIS
With the launch of the 757-300 and the 767-400ER and despite the recent
Continental Airlines order for ten aircraft, we do not expect any further sales
of the 767-200ER to commercial operators. Prior to the Continental Airlines
order, the last commercial 767-200ER was delivered in July 1993.
As the All Nippon Airways - Airborne Express transaction shows, values of older
vintage 767-200s have decreased to a level where freighter conversions have
become economically and operationally feasible. We expect residual values for
older aircraft to remain stable as they are being converted to freighters.
CURRENT MARKET - BOEING 767-400ER
CURRENT MARKET
AVITAS believes that the Boeing 767-400ER market is stable. The aircraft was
launched by Delta Airlines in 1997 and the first entered service in August 2000.
The carrier is replacing its 48 L1011s with the type over the next couple of
years. The 767-400ER is a 21-foot stretch of the 767-300ER of which there are
421 aircraft in service and 40 firm orders and 14 options.
CURRENT OPERATOR BASE AND BACKLOG
As of July 2000, there was a backlog of 75 767-400ERs among three airlines and
one leasing company. The GE CF6-80C2B7 engines will power all aircraft currently
on order. Pratt & Whitney engines are also available however, no orders have
been placed.
Figure 6
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
BOEING 767-400ER
AS OF JULY 2000
------------------------------------------------------------------------------------------------
OPERATOR/ORDERHOLDER IN SERVICE FIRM ORDERS OPTIONS TOTAL
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DELTA AIR LINES 14 24 38
------------------------------------------------------------------------------------------------
CONTINENTAL AIRLINES 24 24
------------------------------------------------------------------------------------------------
BOEING 9 9
------------------------------------------------------------------------------------------------
KENYA AIRWAYS 3 3
------------------------------------------------------------------------------------------------
GE CAPITAL AVIATION SERVICES INC. 1 1
------------------------------------------------------------------------------------------------
GRAND TOTAL 9 42 24 75
------------------------------------------------------------------------------------------------
</TABLE>
Source: Back Information Services
8
<PAGE> 111
[AVITAS LOGO]
CONTINENTAL AIRLINES OCTOBER 31, 2000
--------------------------------------------------------------------------------
OUTLOOK AND FUTURE ASSET RISK ANALYSIS
The Boeing 767-400ER competes with the A330-200, which has greater range and is
also heavier than the 767-400ER. However, the 767-400ER has a lower fuel burn
than the A330-200. In a search for a 200-seater, Airbus is considering a further
shrink of the A330, tentatively designated the A330-100. The aircraft would have
the same range capability but a lower MTOW than the A330-200.
The -400ER is an incremental product to the 767-300ER, which has been a
successful product with airlines and leasing companies. It was designed to
replace older L1011s, DC-10-30s and A300s. The future values should be stable
despite the intense competition with the Airbus products.
COVENANTS
Unless otherwise noted, the values presented in this report assume an
arm's-length, free market transaction for cash between informed, willing and
able parties free of any duress to complete the transaction. If a distress sale
becomes necessary, a substantial discount may be required to quickly dispose of
the equipment.
AVITAS does not have, and does not intend to have, any financial or other
interest in the subject aircraft. Further, this report is prepared for the
exclusive use of the Client and shall not be provided to other parties without
the express consent of the Client.
This report represents the opinion of AVITAS and is intended to be advisory only
in nature. Therefore, AVITAS assumes no responsibility or legal liability for
any action taken, or not taken, by the Client or any other party, with regard to
this equipment. By accepting this report, all parties agree that AVITAS shall
bear no such responsibility or legal liability including liability for special
or consequential damage.
STATEMENT OF INDEPENDENCE
AVITAS hereby states that this valuation report has been independently prepared
and fairly represents AVITAS's opinion of the subject aircraft's value.
/s/ Susanna Blackman
------------------------------
Susanna Blackman
Manager - Appraisal Operations
9
<PAGE> 112
MORTEN BEYER & AGNEW
--------------------
AVIATION CONSULTING FIRM
APPRAISAL OF 32 AIRCRAFT
(2000-2 EETC)
PREPARED FOR:
Continental Airlines, Inc.
OCTOBER 31, 2000
Washington, D. C. London Pacific Rim
2107 Wilson Blvd. Lahiuch 62, Lashmere 3-16-16 Higashiool
Suite 750 Copthorne Shinagawa- ku
Arlington, Virginia 22201 West Sussex Tokyo 140-0011
United States United Kingdom Japan
Phone +703 276 3200 Phone +44 1342 716248 Phone +81 3 3763 6845
Fax +703 276 3201 Fax +44 1342 718967
[MBA Logo]
<PAGE> 113
I. INTRODUCTION AND EXECUTIVE SUMMARY
MORTEN BEYER AND AGNEW (MBA) has been retained by Continental Airlines, Inc. to
determine the Current Base Value (CBV) of 32 Boeing aircraft to be delivered new
over the next fourteen months. The aircraft are further identified in Section II
of this report.
MBA uses the definition of certain terms, such as CMV and Base Value (BV), as
promulgated by the International Society of Transport Aircraft Trading (ISTAT),
a non-profit association of management personnel from banks, leasing companies,
airlines, manufacturers, appraisers, brokers, and others who have a vested
interest in the commercial aviation industry.
ISTAT defines Market Value (MV) as the appraiser's opinion of the most likely
trading price that may be generated for an aircraft under market conditions that
are perceived to exist at the time in question. MV assumes that the aircraft is
valued for its highest, best use; that the parties to the hypothetical sale
transaction are willing, able, prudent and knowledgeable and under no unusual
pressure for a prompt sale; and that the transaction would be negotiated in an
open and unrestricted market on an arm's-length basis, for cash or equivalent
consideration, and given an adequate amount of time for effective exposure to
prospective buyers.
The ISTAT definition of Base Value (BV) has, essentially, the same elements of
MV except that the market circumstances are assumed to be in a reasonable state
of equilibrium. Thus, BV pertains to an idealized aircraft and market
combination, but will not necessarily reflect the actual MV of the aircraft in
question. BV is founded in the historical trend of values and is generally used
to analyze historical values or to project future values. The Current Base Value
is the BV at the time of this opinion, effective upon the defined delivery dates
of the subject aircraft assets.
[MBA Logo]
<PAGE> 114
II. CURRENT MARKET CONDITIONS
[GRAPHIC OF AIRPLANE] BOEING 737-800/900 SERIES
<TABLE>
<CAPTION>
737-800 737-900
----------------------------------------------------------------
<S> <C> <C>
NUMBER OF OPERATORS: 41 5
AIRCRAFT ORDERED: 744 46
AIRCRAFT DELIVERED 316 0
</TABLE>
Boeing began replacing the trio of B-737-300/-400/-500s with upgraded new
generation versions beginning with the B-737-700 in 1997. Southwest Airlines'
order for 63 of the series officially launched the program in late 1993, and
with their most recent order of 94 with options for another 196 have secured the
future of the program.
The fuselage of the new aircraft mirror that of the old (which were out-growths
of the original -100s and -200s). Upgraded avionics, a new wing design, and
other improvements combine to increase range, efficiency, and performance in
general. The CFM56-7 is the exclusive engine for the 3rd generation.
Prospects for the 3rd generation 737 jets were thought to be considerably
enhanced by the discontinuation of the MD-80/-90 series. The MD-95 has been
adopted by Boeing as its 100 seat competitor under the aegis of B-717, competing
with its own Boeing 737-600. On the other hand, Airbus is becoming more
aggressive with its A319/320/321 high tech series and winning an increasing
share of orders.
The new generation aircraft are actually starting to compete with their older
and larger sibling the Boeing 757. Airlines such as Aloha and Southwest are
finding the flexibility and the range offered by the 737-700 to fit very well
with their respective trans-pacific and trans-continental routes. Delta has
replaced their 757's with 737-800 aircraft on their routes to Central America.
While these aircraft are providing improved economics, their success will only
be told by passenger preferences and tolerances for smaller cabins over longer
journeys.
As the industry passed the peak of the current cycle, in 1998, the prospects for
a downturn increase, together with deferrals and cancellations of orders for
both manufacturers. Although
[MBA Logo] 2
<PAGE> 115
Boeing has recently stated that the future market will consist of more
narrow-bodied aircraft like the 737 and 757 series.
[GRAPHIC OF AIRPLANE] BOEING 767-200ER
<TABLE>
<S> <C>
NUMBER OF OPERATORS: 27
AIRCRAFT ORDERED: 107
AIRCRAFT DELIVERED 97
</TABLE>
The twin-aisle semi-widebody B-767 was launched in 1978 and entered service in
1982. The aircraft has undergone significant development in terms of gross
weight and capacity, affecting payload and range. The initial model, the
B-767-200, offered a MTOGW of 280,000 pounds, while the current 767-300ER is
certified at 412,000 pounds. Early development extended the range of the -200 as
the ER model, enabling it to fly the Atlantic nonstop. Initial routings were
circuitous, since the aircraft had to stay within 90 minutes of a landing place.
But as experience was gained, the FAA and international authorities approved
ETOPS (extended range twin-engine over water operations), and more direct routes
became possible. The first production models of the larger 767-300 were
delivered in 1986 in domestic configuration, soon to be followed by successively
higher gross weight Extended Range (ER) models.
Orders for the -200 slowed to a trickle following the introduction of the -300,
and it is probable that production of this model will be discontinued in the
near future, despite Continental's recent order. Much of the success of the
B-767 series of aircraft is attributable to ETOPS operations, where these
aircraft (and the A310) have replaced B-747s, DC-10s and L-1011s on many long
flights. So far there have been no untoward incidents under the ETOPS programs.
The 767 family has an exemplary overall safety record, with only three flight
accidents-one attributed to inadvertent thrust reverser deployment on a Lauda
Air 767-300 over Bangkok, one Ethiopian -200 lost in a hijacking incident in the
Comoro Islands in 1996, and the third was the recent Egypt Air accident off the
coast of Nantucket.
As of recent the 767-200ER is slated for a small interior facelift. Revamped for
orders by Continental, the new 767-200ER has a brand new cockpit, upgraded
avionics and an interior that reflects the newer design of the 400ER. The 200ER
also has upgraded engines and an increased MGTOW to 395,000 pounds. Continental
argues that the 200ER fits the growth to secondary European markets, which might
be too thin for a 767-400ER or 777.
[MBA Logo] 3
<PAGE> 116
ECONOMICS
The MBA Model indicates that it is hard to make money with the B-767-200.
Satisfactory margins are achieved only by classifying the B-767-200 as a
narrowbody in terms of seating capacity. By definition, MBA has assumed that
only 67.5 percent of maximum certified seating is installed in a widebody,
compared to 85 percent in a narrowbody. This is in accord with industry
experience.
In the long term, the relatively high seat mile costs of the B-767-200 will make
them less desirable in the used market, and the demand for and price of these
aircraft will decline further than that of more desirable types. Their residual
values will also be impaired and they will move into the cargo market.
[MBA Logo] 4
<PAGE> 117
[GRAPHIC OF AIRPLANE] BOEING 767-400ER
<TABLE>
<S> <C>
Number of Operators: 2
Aircraft Ordered: 59
Aircraft Delivered 2
Backlog 47
</TABLE>
Boeing tried to interest Delta in buying more B-777s, but the aircraft was just
too much for the Atlanta airline who was already suffering indigestion on its
MD-11s. Delta is a big B-767 series operator with 94 in service and 24 on
order. Boeing obligingly agreed to stretch the B-767-300ER to the -400ER
configuration, increasing gross weight from 412,000 pounds to 450,000 and
seating up to 375, only 65 below the B-777 and about the same as its 40-odd
remaining L-1011s which it is retiring. Delta and Continental are the only
airlines with B-767-400ER so far, totaling 47. Kenya Airways also has a current
order for three aircraft.
[MBA Logo] 5
<PAGE> 118
III. VALUATION (2000-2 EETC)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
SCHEDULED AIRCRAFT SERIAL CONTINENTAL ADJ. BASE VALUE
MANUFACTURER'S NUMBER TAIL NUMBER ($000,000)
DELIVERY DATE
--------------------------------------------------------------------------------
B737-800, CFM56-7B26, 174,200(lb) MTOW
--------------------------------------------------------------------------------
<S> <C> <C> <C>
MAY-01 30803 N73259 43.91
--------------------------------------------------------------------------------
JUN-01 30855 N35260 44.00
--------------------------------------------------------------------------------
JUL-01 31582 N77261 44.09
--------------------------------------------------------
32402 N33262 44.09
--------------------------------------------------------------------------------
AUG-01 31583 N37263 44.17
--------------------------------------------------------
31584 N33264 44.17
--------------------------------------------------------
31585 N76265 44.17
--------------------------------------------------------
32403 N33266 44.17
--------------------------------------------------------------------------------
SEP-01 31586 N37267 44.26
--------------------------------------------------------
31587 N38268 44.26
--------------------------------------------------------------------------------
OCT-01 31588 N76269 44.35
--------------------------------------------------------
31632 N73270 44.35
--------------------------------------------------------------------------------
NOV-01 31589 N36272 44.44
--------------------------------------------------------
31590 N37273 44.44
--------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
SCHEDULED AIRCRAFT SERIAL CONTINENTAL ADJ. BASE VALUE
MANUFACTURER'S NUMBER TAIL NUMBER ($000,000)
DELIVERY DATE
--------------------------------------------------------------------------------
B737-900, CFM56-7B26, 174,200(lb) MTOW
--------------------------------------------------------------------------------
<S> <C> <C> <C>
MAY-01 30118 N30401 46.21
--------------------------------------------------------------------------------
JUN-01 30119 N79402 46.31
--------------------------------------------------------------------------------
JUL-01 30120 N38403 46.40
--------------------------------------------------------
30121 N32404 46.40
--------------------------------------------------------------------------------
AUG-01 30122 N72405 46.50
--------------------------------------------------------------------------------
SEP-01 TBD N73406 46.59
--------------------------------------------------------
TBD N35407 46.59
--------------------------------------------------------------------------------
OCT-01 TBD N37408 46.69
--------------------------------------------------------------------------------
NOV-01 TBD N37409 46.78
--------------------------------------------------------------------------------
DEC-01 TBD N75410 46.88
--------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
SCHEDULED AIRCRAFT SERIAL CONTINENTAL ADJ. BASE VALUE
MANUFACTURER'S NUMBER TAIL NUMBER ($000,000)
DELIVERY DATE
--------------------------------------------------------------------------------
B767-200ER, CF6-8OC2B4F Engines, 395,000(lb) MTOW
--------------------------------------------------------------------------------
<S> <C> <C> <C>
FEB-01 30434 N68155 77.02
--------------------------------------------------------------------------------
MAR-01 30435 N76156 77.18
--------------------------------------------------------------------------------
APR-01 30436 N67157 77.34
--------------------------------------------------------------------------------
MAY-01 30437 N67158 77.50
--------------------------------------------------------------------------------
JUL-01 30438 N68159 77.81
--------------------------------------------------------------------------------
OCT-01 30439 N68160 78.29
--------------------------------------------------------------------------------
</TABLE>
[MBA Logo] 6
<PAGE> 119
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
SCHEDULED AIRCRAFT SERIAL CONTINENTAL ADJ. BASE VALUE
MANUFACTURER'S NUMBER TAIL NUMBER ($000,000)
DELIVERY DATE
--------------------------------------------------------------------------------
B767-400ER, CF6-8OC2B8F Engines, 450,000(lb) MTOW
--------------------------------------------------------------------------------
<S> <C> <C> <C>
MAR-01 29450 N76055 98.81
--------------------------------------------------------------------------------
JUN -01 29451 N66056 99.43
--------------------------------------------------------------------------------
</TABLE>
In developing the CBV of these aircraft, MBA used certain assumptions that are
generally accepted industry practice to calculate the value of an aircraft when
more detailed information is not available and when aircraft are anticipated for
future delivery. The principal assumptions are as follows (for each aircraft):
1. The aircraft is to be delivered new.
2. The overhaul status of the airframe, engines, landing gear and other
major components are the equivalent of new delivery otherwise
specified.
3. The specifications of the aircraft are those most common for an
aircraft of this type new delivery.
4. The aircraft is in a standard airline configuration.
5. No accounting is made for lease obligations or terms of ownership.
[MBA Logo] 7
<PAGE> 120
IV. COVENANTS
This report has been prepared for the exclusive use of Continental Airlines/
Credit Suisse First Boston and shall not be provided to other parties by MBA
without the express consent of Continental Airlines/Credit Suisse First Boston.
MBA certifies that this report has been independently prepared and that it fully
and accurately reflects MBA's opinion as to the Current Base Value. MBA further
certifies that it does not have, and does not expect to have, any financial or
other interest in the subject or similar aircraft.
This report represents the opinion of MBA as to the Current Base Value of the
subject aircraft and is intended to be advisory only, in nature. Therefore, MBA
assumes no responsibility or legal liability for any actions taken, or not
taken, by Continental Airlines/Credit Suisse First Boston or any other party
with regard to the subject aircraft. By accepting this report, all parties agree
that MBA shall bear no such responsibility or legal liability.
PREPARED BY:
/s/ Bryson P. Monteleone
BRYSON P. MONTELEONE
DIRECTOR OF OPERATIONS
REVIEWED BY:
October 31, 2000
Ref #00280 /s/ Morten S. Beyer
MORTEN S. BEYER, APPRAISER FELLOW
CHAIRMAN & CEO
ISTAT CERTIFIED SENIOR APPRAISER
[MBA Logo] 8
<PAGE> 121
APPENDIX III -- MANDATORY ECONOMIC TERMS --
MAXIMUM LTV FOR EQUIPMENT NOTES
The following tables set forth the maximum LTV for each Aircraft
(identified in the applicable table by its expected U.S. registration number) as
required under the second bullet point listed under "Mandatory Economic Terms"
under "Description of Certificates -- Obligation to Purchase Equipment Notes" in
the attached Prospectus Supplement:
<TABLE>
<CAPTION>
B737-824 B737-824
----------------------------------------------- -----------------------------------------------
N73259 N77261 N37263 N76265 N37267
N35260 N33262 N33264 N33266 N38268
---------- ---------- ---------- --------- ---------
SERIES A-1 SERIES A-2 SERIES B SERIES C SERIES A-1 SERIES A-2 SERIES B SERIES C
EQUIPMENT EQUIPMENT EQUIPMENT EQUIPMENT EQUIPMENT EQUIPMENT EQUIPMENT EQUIPMENT
DATE NOTES NOTES NOTES NOTES NOTES NOTES NOTES NOTES
---- ---------- ---------- --------- --------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
At Issuance.......... 46.0% 46.0% 56.0% 67.5% 46.0% 46.0% 56.0% 67.5%
October 2, 2001...... 45.5 45.5 56.0 67.5 45.5 45.5 56.0 67.5
April 2, 2002........ 45.5 45.5 56.0 67.5 44.2 44.2 56.0 67.5
October 2, 2002...... 44.5 44.5 56.0 67.5 44.3 44.3 56.0 67.5
April 2, 2003........ 45.0 45.0 56.0 67.5 43.5 43.5 56.0 66.6
October 2, 2003...... 44.1 44.1 56.0 67.5 44.0 44.0 56.0 67.4
April 2, 2004........ 44.8 44.8 56.0 67.5 43.2 43.2 56.0 66.2
October 2, 2004...... 44.0 44.0 56.0 67.4 43.8 43.8 56.0 67.2
April 2, 2005........ 44.7 44.7 56.0 67.5 43.1 43.1 56.0 66.1
October 2, 2005...... 44.0 44.0 56.0 67.5 43.9 43.9 56.0 67.2
April 2, 2006........ 44.9 44.9 56.0 66.0 43.2 43.2 56.0 66.0
October 2, 2006...... 44.2 44.2 56.0 66.0 44.1 44.1 56.0 66.0
April 2, 2007........ 45.1 45.1 56.0 66.0 43.4 43.4 56.0 66.0
October 2, 2007...... 44.5 44.5 56.0 66.0 44.3 44.3 56.0 66.0
April 2, 2008........ 45.5 45.5 56.0 66.0 43.7 43.7 56.0 66.0
October 2, 2008...... 44.9 44.9 56.0 66.0 44.7 44.7 56.0 66.0
April 2, 2009........ 45.9 45.9 56.0 66.0 44.0 44.0 56.0 66.0
October 2, 2009...... 45.2 45.2 56.0 66.0 45.0 45.0 56.0 66.0
April 2, 2010........ 46.0 46.0 56.0 66.0 44.2 44.2 56.0 66.0
October 2, 2010...... 45.3 N/A 56.0 66.0 45.2 N/A 56.0 66.0
April 2, 2011........ 46.0 N/A 56.0 N/A 44.3 N/A 56.0 N/A
October 2, 2011
and thereafter..... 45.0 N/A 56.0 N/A 45.0 N/A 56.0 N/A
<CAPTION>
B737-824
-----------------------------------------------
N76269 N36272
N73270 N37273
---------- ----------
SERIES A-1 SERIES A-2 SERIES B SERIES C
EQUIPMENT EQUIPMENT EQUIPMENT EQUIPMENT
DATE NOTES NOTES NOTES NOTES
---- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
At Issuance.......... 45.7% 45.7% 56.0% 67.5%
October 2, 2001...... 45.7 45.7 56.0 67.5
April 2, 2002........ 44.6 44.6 56.0 67.5
October 2, 2002...... 44.6 44.6 56.0 67.5
April 2, 2003........ 43.6 43.6 56.0 68.8
October 2, 2003...... 44.1 44.1 56.0 67.5
April 2, 2004........ 43.3 43.3 56.0 66.4
October 2, 2004...... 43.9 43.9 56.0 67.3
April 2, 2005........ 43.2 43.2 56.0 66.2
October 2, 2005...... 43.9 43.9 56.0 67.3
April 2, 2006........ 43.3 43.3 56.0 66.0
October 2, 2006...... 44.1 44.1 56.0 66.0
April 2, 2007........ 43.5 43.5 56.0 66.0
October 2, 2007...... 44.3 44.3 56.0 66.0
April 2, 2008........ 43.7 43.7 56.0 66.0
October 2, 2008...... 44.7 44.7 56.0 66.0
April 2, 2009........ 44.1 44.1 56.0 66.0
October 2, 2009...... 45.1 45.1 56.0 66.0
April 2, 2010........ 44.3 44.3 56.0 66.0
October 2, 2010...... 45.3 N/A 56.0 66.0
April 2, 2011........ 44.5 N/A 56.0 N/A
October 2, 2011
and thereafter..... 45.0 N/A 56.0 N/A
</TABLE>
<TABLE>
<CAPTION>
B737-924 B737-924
----------------------------------------------- -----------------------------------------------
N30401 N38403 N72405
N79402 N32404 N73406 N35407
---------- ---------- ---------- ---------
SERIES A-1 SERIES A-2 SERIES B SERIES C SERIES A-1 SERIES A-2 SERIES B SERIES C
EQUIPMENT EQUIPMENT EQUIPMENT EQUIPMENT EQUIPMENT EQUIPMENT EQUIPMENT EQUIPMENT
DATE NOTES NOTES NOTES NOTES NOTES NOTES NOTES NOTES
---- ---------- ---------- --------- --------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
At Issuance.......... 45.0% 45.0% 56.0% 66.0% 44.7% 44.7% 56.0% 66.0%
October 2, 2001...... 44.2 44.2 56.0 66.0 44.2 44.2 56.0 66.0
April 2, 2002........ 44.2 44.2 56.0 66.0 43.0 43.0 55.7 65.8
October 2, 2002...... 43.2 43.2 56.0 66.0 43.1 43.1 55.9 66.0
April 2, 2003........ 43.7 43.7 56.0 66.0 42.3 42.3 54.9 64.7
October 2, 2003...... 42.9 42.9 55.6 65.7 42.8 42.8 55.5 65.5
April 2, 2004........ 43.5 43.5 56.0 66.0 42.0 42.0 54.5 64.3
October 2, 2004...... 42.7 42.7 55.5 65.5 42.6 42.6 55.3 65.3
April 2, 2005........ 43.5 43.5 56.0 66.0 41.9 41.9 54.4 64.2
October 2, 2005...... 42.8 42.8 55.5 65.5 42.6 42.6 55.3 65.3
April 2, 2006........ 43.6 43.6 56.0 66.0 42.0 42.0 54.5 64.4
October 2, 2006...... 43.0 43.0 55.8 65.8 42.8 42.8 55.6 65.6
April 2, 2007........ 43.9 43.9 56.0 66.0 42.2 42.2 54.7 64.6
October 2, 2007...... 43.2 43.2 56.0 66.0 43.1 43.1 55.9 66.0
April 2, 2008........ 44.2 44.2 56.0 66.0 42.5 42.5 55.1 65.1
October 2, 2008...... 43.6 43.6 56.0 66.0 43.4 43.4 56.0 66.0
April 2, 2009........ 44.6 44.6 56.0 66.0 42.8 42.8 55.5 65.5
October 2, 2009...... 43.9 43.9 56.0 66.0 43.8 43.8 56.0 66.0
April 2, 2010........ 44.9 44.9 56.0 66.0 43.0 43.0 55.8 65.9
October 2, 2010...... 44.0 N/A 56.0 66.0 43.9 N/A 56.0 66.0
April 2, 2011........ 45.0 N/A 56.0 N/A 43.1 N/A 55.9 N/A
October 2, 2011
and thereafter..... 45.0 N/A 56.0 N/A 44.0 N/A 56.0 N/A
<CAPTION>
B737-924
-----------------------------------------------
N37408
N37409 N75410
---------- ----------
SERIES A-1 SERIES A-2 SERIES B SERIES C
EQUIPMENT EQUIPMENT EQUIPMENT EQUIPMENT
DATE NOTES NOTES NOTES NOTES
---- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
At Issuance.......... 44.4% 44.4% 56.0% 66.0%
October 2, 2001...... 44.4 44.4 56.0 66.0
April 2, 2002........ 43.3 43.3 56.0 66.0
October 2, 2002...... 43.3 43.3 56.0 66.0
April 2, 2003........ 42.4 42.4 55.1 65.0
October 2, 2003...... 42.9 42.9 55.7 65.7
April 2, 2004........ 42.1 42.1 54.7 64.5
October 2, 2004...... 42.7 42.7 55.4 65.4
April 2, 2005........ 42.0 42.0 54.5 64.3
October 2, 2005...... 42.7 42.7 55.4 65.4
April 2, 2006........ 42.1 42.1 54.6 64.4
October 2, 2006...... 42.9 42.9 55.7 65.7
April 2, 2007........ 42.3 42.3 54.8 64.7
October 2, 2007...... 43.1 43.1 56.0 66.0
April 2, 2008........ 42.5 42.5 55.2 65.1
October 2, 2008...... 43.5 43.5 56.0 66.0
April 2, 2009........ 42.8 42.8 55.6 65.6
October 2, 2009...... 43.9 43.9 56.0 66.0
April 2, 2010........ 43.1 43.1 56.0 66.0
October 2, 2010...... 44.1 N/A 56.0 66.0
April 2, 2011........ 43.3 N/A 56.0 N/A
October 2, 2011
and thereafter..... 44.0 N/A 56.0 N/A
</TABLE>
III-1
<PAGE> 122
<TABLE>
<CAPTION>
B767-224ER B767-224ER
----------------------------------------------- -----------------------------------------------
N68155 N76156
---------- ----------
SERIES A-1 SERIES A-2 SERIES B SERIES C SERIES A-1 SERIES A-2 SERIES B SERIES C
EQUIPMENT EQUIPMENT EQUIPMENT EQUIPMENT EQUIPMENT EQUIPMENT EQUIPMENT EQUIPMENT
DATE NOTES NOTES NOTES NOTES NOTES NOTES NOTES NOTES
---- ---------- ---------- --------- --------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
At Issuance.............. 42.8% 42.8% 55.5% 65.5% 42.7% 42.7% 55.4% 65.4%
October 2, 2001.......... 41.3 41.3 53.6 63.3 41.5 41.5 53.8 63.5
April 2, 2002............ 41.4 41.4 53.7 63.4 41.5 41.5 53.8 63.5
October 2, 2002.......... 40.6 40.6 52.7 62.2 40.7 40.7 52.8 62.3
April 2, 2003............ 41.1 41.1 53.3 62.9 41.1 41.1 53.4 63.0
October 2, 2003.......... 40.3 40.3 52.3 61.8 40.4 40.4 52.4 61.9
April 2, 2004............ 40.9 40.9 53.1 62.6 40.9 40.9 53.1 62.7
October 2, 2004.......... 40.2 40.2 52.2 61.6 40.3 40.3 52.3 61.7
April 2, 2005............ 40.9 40.9 53.1 62.7 40.9 40.9 53.1 62.7
October 2, 2005.......... 40.3 40.3 52.3 61.8 40.4 40.4 52.4 61.8
April 2, 2006............ 41.1 41.1 53.4 63.0 41.2 41.2 53.4 63.0
October 2, 2006.......... 40.5 40.5 52.5 62.0 40.5 40.5 52.6 62.1
April 2, 2007............ 41.3 41.3 53.6 63.3 41.3 41.3 53.7 63.3
October 2, 2007.......... 40.7 40.7 52.9 62.4 40.8 40.8 52.9 62.5
April 2, 2008............ 41.7 41.7 54.1 63.9 41.7 41.7 54.2 63.9
October 2, 2008.......... 41.1 41.1 53.3 62.9 41.1 41.1 53.3 63.0
April 2, 2009............ 42.0 42.0 54.5 64.3 42.1 42.1 54.6 64.4
October 2, 2009.......... 41.3 41.3 53.6 63.2 41.3 41.3 53.6 63.3
April 2, 2010............ 42.2 42.2 54.8 64.6 42.3 42.3 54.9 64.7
October 2, 2010.......... 41.4 N/A 53.7 63.4 41.5 N/A 53.8 63.5
April 2, 2011............ 42.3 N/A 54.9 N/A 42.4 N/A 55.0 N/A
October 2, 2011
and thereafter.......... 41.4 N/A 53.8 N/A 41.5 N/A 53.9 N/A
<CAPTION>
B767-224ER
-----------------------------------------------
N67157
----------
SERIES A-1 SERIES A-2 SERIES B SERIES C
EQUIPMENT EQUIPMENT EQUIPMENT EQUIPMENT
DATE NOTES NOTES NOTES NOTES
---- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
At Issuance.............. 42.5% 42.5% 55.2% 65.2%
October 2, 2001.......... 41.5 41.5 53.9 63.6
April 2, 2002............ 41.5 41.5 53.9 63.6
October 2, 2002.......... 40.6 40.6 52.7 62.3
April 2, 2003............ 41.1 41.1 53.4 63.0
October 2, 2003.......... 40.4 40.4 52.4 61.8
April 2, 2004............ 40.9 40.9 53.1 62.7
October 2, 2004.......... 40.2 40.2 52.2 61.6
April 2, 2005............ 40.9 40.9 53.1 62.7
October 2, 2005.......... 40.3 40.3 52.3 61.7
April 2, 2006............ 41.1 41.1 53.3 63.0
October 2, 2006.......... 40.5 40.5 52.5 62.0
April 2, 2007............ 41.3 41.3 53.6 63.3
October 2, 2007.......... 40.7 40.7 52.8 62.4
April 2, 2008............ 41.7 41.7 54.1 63.8
October 2, 2008.......... 41.0 41.0 53.3 62.9
April 2, 2009............ 42.0 42.0 54.5 64.4
October 2, 2009.......... 41.3 41.3 53.6 63.3
April 2, 2010............ 42.2 42.2 54.8 64.7
October 2, 2010.......... 41.4 N/A 53.8 63.5
April 2, 2011............ 42.4 N/A 55.0 N/A
October 2, 2011
and thereafter.......... 41.5 N/A 53.9 N/A
</TABLE>
<TABLE>
<CAPTION>
B767-224ER B767-224ER
----------------------------------------------- -----------------------------------------------
N67158 N68159
---------- ----------
SERIES A-1 SERIES A-2 SERIES B SERIES C SERIES A-1 SERIES A-2 SERIES B SERIES C
EQUIPMENT EQUIPMENT EQUIPMENT EQUIPMENT EQUIPMENT EQUIPMENT EQUIPMENT EQUIPMENT
DATE NOTES NOTES NOTES NOTES NOTES NOTES NOTES NOTES
---- ---------- ---------- --------- --------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
At Issuance.............. 42.5% 42.5% 55.1% 65.1% 42.3% 42.3% 54.9% 64.8%
October 2, 2001.......... 41.7 41.7 54.1 63.8 41.9 41.9 54.3 64.2
April 2, 2002............ 41.7 41.7 54.1 63.8 40.6 40.6 52.8 62.3
October 2, 2002.......... 40.7 40.7 52.8 62.4 40.8 40.8 52.9 62.5
April 2, 2003............ 41.2 41.2 53.5 63.1 40.0 40.0 51.9 61.3
October 2, 2003.......... 40.4 40.4 52.5 61.9 40.5 40.5 52.5 62.0
April 2, 2004............ 41.0 41.0 53.2 62.8 39.7 39.7 51.6 60.9
October 2, 2004.......... 40.3 40.3 52.3 61.7 40.3 40.3 52.3 61.8
April 2, 2005............ 41.0 41.0 53.2 62.8 39.7 39.7 51.5 60.8
October 2, 2005.......... 40.3 40.3 52.4 61.8 40.4 40.4 52.4 61.8
April 2, 2006............ 41.1 41.1 53.4 63.0 39.8 39.8 51.6 60.9
October 2, 2006.......... 40.5 40.5 52.6 62.1 40.5 40.5 52.6 62.1
April 2, 2007............ 41.3 41.3 53.7 63.3 39.9 39.9 51.8 61.2
October 2, 2007.......... 40.8 40.8 52.9 62.4 40.8 40.8 52.9 62.4
April 2, 2008............ 41.7 41.7 54.1 63.9 40.2 40.2 52.2 61.6
October 2, 2008.......... 41.1 41.1 53.3 63.0 41.1 41.1 53.4 63.0
April 2, 2009............ 42.1 42.1 54.6 64.4 40.5 40.5 52.5 62.0
October 2, 2009.......... 41.4 41.4 53.7 63.4 41.4 41.4 53.7 63.4
April 2, 2010............ 42.3 42.3 54.9 64.8 40.7 40.7 52.8 62.3
October 2, 2010.......... 41.5 N/A 53.9 63.6 41.6 N/A 54.0 63.7
April 2, 2011............ 42.5 N/A 55.1 N/A 40.8 N/A 52.9 N/A
October 2, 2011
and thereafter.......... 41.6 N/A 54.0 N/A 41.7 N/A 54.1 N/A
<CAPTION>
B767-224ER
-----------------------------------------------
N68160
----------
SERIES A-1 SERIES A-2 SERIES B SERIES C
EQUIPMENT EQUIPMENT EQUIPMENT EQUIPMENT
DATE NOTES NOTES NOTES NOTES
---- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
At Issuance.............. 42.0% 42.0% 54.5% 64.4%
October 2, 2001.......... 42.0 42.0 54.5 64.4
April 2, 2002............ 41.0 41.0 53.2 62.8
October 2, 2002.......... 41.0 41.0 53.2 62.8
April 2, 2003............ 40.1 40.1 52.1 61.5
October 2, 2003.......... 40.6 40.6 52.7 62.2
April 2, 2004............ 39.9 39.9 51.7 61.1
October 2, 2004.......... 40.4 40.4 52.5 61.9
April 2, 2005............ 39.7 39.7 51.6 60.9
October 2, 2005.......... 40.4 40.4 52.5 61.9
April 2, 2006............ 39.8 39.8 51.7 61.0
October 2, 2006.......... 40.6 40.6 52.7 62.2
April 2, 2007............ 40.0 40.0 51.9 61.3
October 2, 2007.......... 40.8 40.8 53.0 62.5
April 2, 2008............ 40.2 40.2 52.2 61.6
October 2, 2008.......... 41.2 41.2 53.4 63.1
April 2, 2009............ 40.6 40.6 52.6 62.1
October 2, 2009.......... 41.5 41.5 53.9 63.6
April 2, 2010............ 40.8 40.8 52.9 62.5
October 2, 2010.......... 41.7 N/A 54.2 63.9
April 2, 2011............ 40.9 N/A 53.1 N/A
October 2, 2011
and thereafter.......... 41.9 N/A 54.3 N/A
</TABLE>
III-2
<PAGE> 123
<TABLE>
<CAPTION>
B767-424ER B767-424ER
----------------------------------------------- -----------------------------------------------
N76055 N66056
---------- ----------
SERIES A-1 SERIES A-2 SERIES B SERIES C SERIES A-1 SERIES A-2 SERIES B SERIES C
EQUIPMENT EQUIPMENT EQUIPMENT EQUIPMENT EQUIPMENT EQUIPMENT EQUIPMENT EQUIPMENT
DATE NOTES NOTES NOTES NOTES NOTES NOTES NOTES NOTES
---- ---------- ---------- --------- --------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
At Issuance................... 45.1% 45.1% 56.0% 66.0% 44.8% 44.8% 56.0% 66.0%
October 2, 2001............... 43.8 43.8 56.0 66.0 44.2 44.2 56.0 66.0
April 2, 2002................. 43.8 43.8 56.0 66.0 44.2 44.2 56.0 66.0
October 2, 2002............... 42.9 42.9 55.7 65.8 43.1 43.1 55.9 66.0
April 2, 2003................. 43.4 43.4 56.0 66.0 43.6 43.6 56.0 66.0
October 2, 2003............... 42.7 42.7 55.4 65.3 42.8 42.8 55.5 65.5
April 2, 2004................. 43.2 43.2 56.0 66.0 43.4 43.4 56.0 66.0
October 2, 2004............... 42.5 42.5 55.2 65.2 42.6 42.6 55.3 65.3
April 2, 2005................. 43.2 43.2 56.0 66.0 43.3 43.3 56.0 66.0
October 2, 2005............... 42.6 42.6 55.3 65.3 42.7 42.7 55.4 65.4
April 2, 2006................. 43.5 43.5 56.0 66.0 43.5 43.5 56.0 66.0
October 2, 2006............... 42.8 42.8 55.5 65.6 42.9 42.9 55.6 65.7
April 2, 2007................. 43.7 43.7 56.0 66.0 43.7 43.7 56.0 66.0
October 2, 2007............... 43.1 43.1 55.9 66.0 43.1 43.1 55.9 66.0
April 2, 2008................. 44.1 44.1 56.0 66.0 44.1 44.1 56.0 66.0
October 2, 2008............... 43.4 43.4 56.0 66.0 43.5 43.5 56.0 66.0
April 2, 2009................. 44.4 44.4 56.0 66.0 44.5 44.5 56.0 66.0
October 2, 2009............... 43.6 43.6 56.0 66.0 43.8 43.8 56.0 66.0
April 2, 2010................. 44.6 44.6 56.0 66.0 44.8 44.8 56.0 66.0
October 2, 2010............... 43.8 N/A 56.0 66.0 43.9 N/A 56.0 66.0
April 2, 2011................. 44.8 N/A 56.0 N/A 44.9 N/A 56.0 N/A
October 2, 2011
and thereafter.............. 43.8 N/A 56.0 N/A 44.0 N/A 56.0 N/A
</TABLE>
III-3
<PAGE> 124
PROSPECTUS
$1,700,000,000
CONTINENTAL AIRLINES, INC.
PASS THROUGH CERTIFICATES
------------------------
This prospectus relates to pass through certificates to be issued by one or
more trusts that we will form, as creator of each pass through trust, with a
national or state bank or trust company, as trustee. The trustee will hold all
property owned by a trust for the benefit of holders of pass through
certificates issued by that trust. Each pass through certificate issued by a
trust will represent a beneficial interest in all property held by that trust.
We will describe the specific terms of any offering of pass through
certificates in a prospectus supplement to this prospectus. You should read this
prospectus and the applicable prospectus supplement carefully before you invest.
This prospectus may not be used to consummate sales of pass through
certificates unless accompanied by a prospectus supplement.
------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
------------------------
The date of this prospectus is September 25, 2000.
<PAGE> 125
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
WHERE YOU CAN FIND MORE INFORMATION... 1
FORWARD-LOOKING STATEMENTS............ 1
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE........................... 2
SUMMARY............................... 3
The Offering........................ 3
Certificates........................ 3
Pass Through Trusts................. 3
Equipment Notes..................... 4
THE COMPANY........................... 6
USE OF PROCEEDS....................... 6
RATIO OF EARNINGS TO FIXED CHARGES.... 7
DESCRIPTION OF THE CERTIFICATES....... 7
General............................. 7
Book-Entry Registration............. 10
Payments and Distributions.......... 13
Pool Factors........................ 14
Reports to Certificateholders....... 14
Voting of Equipment Notes........... 15
Events of Default and Certain Rights
Upon an Event of Default......... 15
Merger, Consolidation and Transfer
of Assets........................ 17
Modifications of the Basic
Agreement........................ 18
Modification of Indenture and
Related Agreements............... 19
Cross-Subordination Issues.......... 19
Termination of the Pass Through
Trusts........................... 19
Delayed Purchase of Equipment
Notes............................ 19
Liquidity Facility.................. 20
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Pass Through Trustee............ 20
DESCRIPTION OF THE EQUIPMENT NOTES.... 20
General............................. 21
Principal and Interest Payments..... 21
Redemption.......................... 21
Security............................ 21
Ranking of Equipment Notes.......... 23
Payments and Limitation of
Liability........................ 23
Defeasance of the Indentures and the
Equipment Notes in Certain
Circumstances.................... 24
Assumption of Obligations by
Continental...................... 24
Liquidity Facility.................. 24
Intercreditor Issues................ 25
U.S. INCOME TAX MATTERS............... 26
General............................. 26
Tax Status of the Pass Through
Trusts........................... 26
Taxation of Certificateholders
Generally........................ 26
Effect of Subordination of
Certificateholders of
Subordinated Trusts.............. 27
Original Issue Discount............. 27
Sale or Other Disposition of the
Certificates..................... 27
Foreign Certificateholders.......... 28
Backup Withholding.................. 28
ERISA CONSIDERATIONS.................. 28
PLAN OF DISTRIBUTION.................. 28
LEGAL OPINIONS........................ 30
EXPERTS............................... 30
</TABLE>
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC under the Securities Exchange Act of 1934. You may read
and copy this information at the following locations of the SEC:
<TABLE>
<S> <C> <C>
Judiciary Plaza Seven World Trade Center Citicorp Center
450 Fifth Street, N.W. 13th Floor 500 West Madison Street, Suite 1400
Washington, D.C. 20549 New York, New York 10048 Chicago, Illinois 60661
</TABLE>
You may also obtain copies of this information by mail from the Public
Reference Room of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. You may obtain information on the operation of the Public
Reference Room by calling the SEC at (800) SEC-0330.
The SEC also maintains an internet world wide web site that contains
reports, proxy statements and other information about issuers, like us, who file
reports electronically with the SEC. The address of that site is
http://www.sec.gov.
You may also inspect reports, proxy statements and other information about
us at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New
York, New York 10005.
We have filed with the SEC a registration statement on Form S-3, which
registers the securities that we may offer under this prospectus. The
registration statement, including the attached exhibits and schedules, contains
additional relevant information about us and the securities offered. The rules
and regulations of the SEC allow us to omit certain information included in the
registration statement from this prospectus.
FORWARD-LOOKING STATEMENTS
This prospectus, any prospectus supplement delivered with this prospectus
and the documents we incorporate by reference may contain statements that
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements include any statements that predict, forecast,
indicate or imply future results, performance or achievements, and may contain
the words "believe," "anticipate," "expect," "estimate," "project," "will be,"
"will continue," "will result," or words or phrases of similar meaning.
Any such forward-looking statements are not assurances of future
performance and involve risks and uncertainties. Actual results may vary
materially from anticipated results for a number of reasons, including those
stated in our SEC reports incorporated in this prospectus by reference or as
stated in a prospectus supplement to this prospectus under the caption "Risk
Factors".
All forward-looking statements attributable to us are expressly qualified
in their entirety by the cautionary statements above.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to incorporate by reference information into this
prospectus. This means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is considered to be part of this prospectus, except
for any information that is superseded by subsequent incorporated documents or
by information that is included directly in this prospectus or any prospectus
supplement.
This prospectus includes by reference the documents listed below that we
previously have filed with the SEC and that are not delivered with this
document. They contain important information about our company and its financial
condition.
<TABLE>
<CAPTION>
FILING DATE FILED
------ ----------
<S> <C>
Annual Report on Form 10-K for the year ended December 31,
1999...................................................... February 11, 2000
Quarterly Report on Form 10-Q for the quarter ended March
31, 2000.................................................. April 20, 2000
Quarterly Report on Form 10-Q for the quarter ended June 30,
2000...................................................... July 18, 2000
Amendment to Quarterly Report on Form 10-Q for the quarter
ended June 30, 2000....................................... July 25, 2000
Current Report on Form 8-K.................................. January 18, 2000
Current Report on Form 8-K.................................. February 8, 2000
Current Report on Form 8-K.................................. March 30, 2000
Current Report on Form 8-K.................................. March 31, 2000
Current Report on Form 8-K.................................. June 13, 2000
Current Report on Form 8-K.................................. September 21, 2000
</TABLE>
Our SEC file number is 0-9781.
We incorporate by reference additional documents that we may file with the
SEC between the date of this prospectus and the termination of the offering of
securities under this prospectus. These documents include our periodic reports,
such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current
Reports on Form 8-K, as well as our proxy statements.
You may obtain any of these incorporated documents from us without charge,
excluding any exhibits to those documents unless the exhibit is specifically
incorporated by reference in such document. You may obtain documents
incorporated by reference in this prospectus by requesting them from us in
writing or by telephone at the following address:
Continental Airlines, Inc.
1600 Smith Street, Dept. HQSEO
Houston, Texas 77002
Attention: Secretary
(713) 324-2950.
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SUMMARY
THE OFFERING
This prospectus describes the pass through certificates that we may offer
from time to time after the date of this prospectus. The proceeds of these
offerings will be used to provide funds for the financing or refinancing of our
aircraft. For convenience, throughout this prospectus, the words we, us, ours or
similar words refer to Continental Airlines, Inc.
This prospectus describes the general terms of the pass through
certificates. The actual terms of any offering of pass through certificates will
be described in a supplement to this prospectus. To the extent that any
provision in any prospectus supplement is inconsistent with any provision in
this prospectus, the provision of the prospectus supplement will control.
CERTIFICATES
Pass through certificates are securities that evidence an ownership
interest in a pass through trust. The holders of the certificates issued by a
pass through trust will be the beneficiaries of that trust. For convenience, we
may refer to pass through certificates as "certificates" and refer to the holder
of a pass through certificate as a "certificateholder."
The beneficial interest in a pass through trust represented by a
certificate will be a percentage interest in the property of that trust equal to
the original face amount of such certificate divided by the original face amount
of all of the certificates issued by that trust. Each certificate will represent
a beneficial interest only in the property of the pass through trust that issued
the certificate. Multiple series of certificates may be issued. If more than one
series of certificates is issued, each series of certificates will be issued by
a separate pass through trust.
The property that will be held by each pass through trust will include
equipment notes secured by aircraft that we own or lease. Payments of principal
and interest on the equipment notes owned by a pass through trust will be passed
through to holders of certificates issued by that trust in accordance with the
terms of the pass through trust agreement pursuant to which the trust was
formed.
If certificates of any series are entitled to the benefits of a liquidity
facility or other form of credit enhancement, the prospectus supplement relating
to that series will describe the terms of the liquidity facility or other form
of credit enhancement. A liquidity facility is a revolving credit agreement,
letter of credit, bank guarantee, insurance policy or other instrument or
agreement under which another person agrees to make certain payments in respect
of the certificates if there is a shortfall in amounts otherwise available for
distribution. While a liquidity facility is designed to increase the likelihood
of the timely payment of certain amounts due under certificates, it is not a
guarantee of timely or ultimate payment.
The rights of a pass through trustee to receive monies payable under
equipment notes held for that pass through trustee may be subject to the effect
of subordination provisions contained in an intercreditor agreement described in
the prospectus supplement for a series of certificates. An intercreditor
agreement will set forth the terms and conditions upon which payments made under
the equipment notes and payments made under any liquidity facility will be
received, shared and distributed among the several pass through trustees and the
liquidity provider.
We may offer and sell up to $1,700,000,000 of aggregate initial offering
price of certificates pursuant to this prospectus and related prospectus
supplements in one or more offerings of certificates. The initial offering price
may be denominated in U.S. dollars or foreign currencies based on the applicable
exchange rate at the time of sale.
PASS THROUGH TRUSTS
We will form a separate pass through trust to issue each series of
certificates. Each pass through trust will be formed by us, as creator of each
pass through trust, and a national or state bank or trust company, as
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trustee. Unless otherwise stated in a prospectus supplement, Wilmington Trust
Company will be the trustee of each pass through trust. For convenience, we may
refer to the pass through trustee as the trustee.
Each pass through trust will be governed by a trust instrument that creates
the trust and sets forth the powers of the trustee and the rights of the
beneficiaries. The beneficiaries of a pass through trust will be the holders of
certificates issued by that trust. The trust instrument for each pass through
trust will consist of a basic pass through trust agreement between us and the
pass through trustee, which we refer to as the "Basic Agreement", and a
supplement to that basic agreement, which we refer to as a "pass through trust
supplement."
When a pass through trust supplement is signed and delivered, the pass
through trustee, on behalf of the related pass through trust, will enter into
one or more purchase or refunding agreements, referred to as "note purchase
agreements," under which it will agree to purchase one or more promissory notes
secured by aircraft described in the applicable prospectus supplement. These
secured promissory notes are referred to as "equipment notes."
Under the applicable note purchase agreement, the pass through trustee, on
behalf of the related pass through trust, will purchase one or more equipment
notes. The equipment notes that are the property of a pass through trust will
have:
- identical interest rates, in each case equal to the rate applicable to
the certificates issued by such pass through trust; and
- identical priority of payment relative to each of the other equipment
notes held for such pass through trust.
If any portion of the proceeds of an offering of a series of certificates
is not used to purchase equipment notes on the date the certificates are
originally issued, those proceeds will be held for the benefit of the
certificateholders. If any of the proceeds are not later used to purchase
equipment notes by the date specified in the applicable prospectus supplement,
the proceeds will be returned to the certificateholders.
EQUIPMENT NOTES
The equipment notes owned by a pass through trust may consist of any
combination of:
- Equipment notes issued by an owner trustee and secured by an aircraft
owned by that trustee and leased to us. We refer to these equipment notes
as "leased aircraft notes."
- Equipment notes issued by us and secured by an aircraft owned by us. We
refer to these equipment notes as "owned aircraft notes."
Leased Aircraft Notes. Except as specified in a prospectus supplement,
leased aircraft notes will be issued by a bank, trust company, financial
institution or other entity solely in its capacity as owner trustee in a
leveraged lease transaction. In a leveraged lease transaction, one or more
persons will form an owner trust to acquire an aircraft and then that owner
trust will lease the aircraft to us. The investors that are the beneficiaries of
the owner trusts are typically referred to as owner participants. Each owner
participant will contribute a portion of the purchase price of the aircraft to
the owner trust, and the remainder of the purchase price of the aircraft will be
financed, or "leveraged", through the issuance of leased aircraft notes. Leased
aircraft notes may also be issued to refinance an aircraft previously financed
in a leveraged lease transaction or otherwise.
The leased aircraft notes will be issued pursuant to a separate indenture
between the owner trustee and a bank, trust company, financial institution or
other entity, as loan trustee. The indenture entered into in connection with the
issuance of leased aircraft notes will be referred to as a "leased aircraft
indenture." The loan trustee under a leased aircraft indenture will act as a
trustee for the holders of the leased aircraft notes issued under that leased
aircraft indenture.
In a leveraged lease transaction, we will pay or advance rent and other
amounts to the owner trustee in its capacity as lessor under the lease. The
owner trustee will use the rent payments and certain other amounts
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<PAGE> 130
received by it to make payments of principal and interest on the leased aircraft
notes. The owner trustee also will assign its rights to receive basic rent and
certain other payments to a loan trustee as security for the owner trustee's
obligations to pay principal of, premium, if any, and interest on the leased
aircraft notes.
Payments or advances required to be made under a lease and related
agreements will at all times be sufficient to make scheduled payments of
principal of, and interest on, the leased aircraft notes issued to finance the
aircraft subject to that lease. However, we will not have any direct obligation
to pay principal of, or interest on, the leased aircraft notes. No owner
participant or owner trustee will be personally liable for any amount payable
under a leased aircraft indenture or the leased aircraft notes issued under that
indenture.
Owned Aircraft Notes. We may finance or refinance aircraft that we own
through the issuance of owned aircraft notes. Owned aircraft notes relating to
an owned aircraft will be issued under a separate indenture relating to that
owned aircraft. Each separate indenture relating to owned aircraft notes will be
between us and a bank, trust company, financial institution or other entity, as
loan trustee. The indenture entered into in connection with the issuance of
owned aircraft notes will be referred to as an "owned aircraft indenture."
Because we often refer to owned aircraft indentures and leased aircraft
indentures together, we sometimes refer to them collectively as the
"indentures". The loan trustee under an owned aircraft indenture will act as a
trustee for the holders of the owned aircraft notes issued under that owned
aircraft indenture.
Unlike the leased aircraft notes, we will have a direct obligation to pay
the principal of, and interest on, the owned aircraft notes.
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THE COMPANY
We are a major United States air carrier engaged in the business of
transporting passengers, cargo and mail. We are the fifth largest U.S. airline,
as measured by revenue passenger miles in the first six months of 2000, and,
together with our wholly owned subsidiaries, Continental Express, Inc. and
Continental Micronesia, Inc., serve 230 airports worldwide. As of June 30, 2000,
we flew to 136 domestic and 94 international destinations and offered additional
connecting service through alliances with domestic and foreign air carriers. We
directly serve 16 European cities and Tel Aviv and are one of the leading
airlines providing service to Mexico and Central America, serving more
destinations there than any other U.S. airline. Continental Micronesia provides
extensive service in the western Pacific, including service to more Japanese
cities than any other U.S. carrier.
We operate our route system primarily through domestic hubs at Newark
International Airport, George Bush Intercontinental Airport in Houston, Hopkins
International Airport in Cleveland, and a Pacific hub on the island of Guam. We
are the primary carrier at each of these hubs, accounting for 55%, 77%, 49% and
71% of average daily jet departures, respectively, as of June 30, 2000 (in each
case excluding regional jets). Each of our domestic hubs is located in a large
business and population center, contributing to a high volume of "origin and
destination" traffic. The Guam hub is strategically located to provide service
from Japanese and other Asian cities to popular resort destinations in the
western Pacific.
We are a Delaware corporation, with executive offices located at 1600 Smith
Street, Houston, Texas 77002. Our telephone number is (713) 324-2950.
USE OF PROCEEDS
Except as set forth in a prospectus supplement for a specific offering of
certificates, the certificates will be issued in order to provide funds for:
- the financing or refinancing of the debt portion and, in certain cases,
the refinancing of some of the equity portion of one or more separate
leveraged lease transactions entered into by us, as lessee, with respect
to the leased aircraft as described in the applicable prospectus
supplement; and
- the financing or refinancing of debt to be issued, or the purchase of
debt previously issued, by us in respect of the owned aircraft as
described in the applicable prospectus supplement.
Except as set forth in a prospectus supplement for a specific offering of
certificates, the proceeds from the sale of the certificates will be used by the
pass through trustee on behalf of the applicable pass through trust or pass
through trusts to purchase either:
- leased aircraft notes issued by one or more owner trustees to finance or
refinance, as specified in the applicable prospectus supplement, the
related leased aircraft; or
- owned aircraft notes issued by us to finance or refinance, as specified
in the applicable prospectus supplement, the related owned aircraft.
If any portion of the proceeds of an offering of a series of certificates is not
used to purchase equipment notes on the date the certificates are issued, those
proceeds will be held for the benefit of the certificateholders. If any of the
proceeds are not later used to purchase equipment notes by the date specified in
the applicable prospectus supplement, the proceeds will be returned to the
certificateholders. See "Description of Certificates -- Delayed Purchase of
Equipment Notes".
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RATIO OF EARNINGS TO FIXED CHARGES
The ratios of our "earnings" to our "fixed charges" for each of the years
1995 through 1999 and for the six months ended June 30, 2000 were:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------- ----------------
1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----------------
<S> <C> <C> <C> <C> <C>
1.53 1.81 2.07 1.94 1.80 1.50
</TABLE>
The ratios of earnings to fixed charges are based on continuing operations.
For purposes of the ratios, "earnings" means the sum of:
- our pre-tax income; and
- our fixed charges, net of interest capitalized.
"Fixed charges" represent:
- the interest we pay on borrowed funds;
- the amount we amortize for debt discount, premium and issuance expense
and interest previously capitalized; and
- that portion of rentals considered to be representative of the interest
factor.
DESCRIPTION OF THE CERTIFICATES
The following description is a summary of the terms of the certificates
that we expect will be common to all series of certificates. We will describe
the financial terms and other specific terms of any series of certificates in a
prospectus supplement. To the extent that any provision in any prospectus
supplement is inconsistent with any provision in this prospectus, the provision
of the prospectus supplement will control.
Because the following description is a summary, it does not describe every
aspect of the certificates, and it is subject to and qualified in its entirety
by reference to all the provisions of the pass through trust agreement and the
applicable supplements to the pass through trust agreement. For convenience, we
will refer to the pass through trust agreement between the pass through trustee
and us as the "Basic Agreement," and to the Basic Agreement as supplemented by a
supplement as a "pass through trust agreement." The form of Basic Agreement has
been filed as an exhibit to the registration statement of which this prospectus
is a part. The supplement to the Basic Agreement relating to each series of
certificates and the forms of the other agreements described in this prospectus
and the applicable prospectus supplement will be filed as exhibits to a
post-effective amendment to the registration statement of which this prospectus
is a part, a Current Report on Form 8-K, a Quarterly Report on Form 10-Q or an
Annual Report on Form 10-K, as applicable, filed by us with the SEC.
GENERAL
Except as amended by a supplement to the Basic Agreement, the terms of the
Basic Agreement generally will apply to all of the pass through trusts that we
form to issue certificates. We will create a separate pass through trust for
each series of certificates by entering into a separate supplement to the Basic
Agreement. Each supplement to the Basic Agreement will contain the additional
terms governing the specific pass through trust to which it relates and, to the
extent inconsistent with the Basic Agreement, will supersede the Basic
Agreement.
Certificates for a pass through trust will be issued pursuant to the pass
through trust agreement applicable to such pass through trust. Unless otherwise
stated in the applicable prospectus supplement, each pass through certificate
will be issued in a minimum denomination of $1,000 or a multiple of $1,000,
except that one certificate of each series may be issued in a different
denomination.
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Each certificate will represent a fractional undivided interest in the
property of the pass through trust that issued the certificate. All payments and
distributions made with respect to a certificate will be made only from the
property owned by the pass through trust that issued the certificate. The
certificates do not represent an interest in or obligation of Continental, the
pass through trustee, any of the owner trustees or loan trustees, in their
individual capacities, or any owner participant. Each certificateholder by its
acceptance of a certificate agrees to look solely to the income and proceeds
from the property of the applicable pass through trust as provided in the pass
through trust agreement.
The property of each pass through trust for which a series of certificates
will be issued will include:
- the equipment notes held for the pass through trust;
- all monies at any time paid under the equipment notes held for the pass
through trust;
- the rights of such pass through trust to acquire equipment notes;
- funds from time to time deposited with the pass through trustee in
accounts relating to that pass through trust; and
- if so specified in the relevant prospectus supplement, rights under
intercreditor agreements relating to cross-subordination arrangements and
monies receivable under a liquidity facility.
The rights of a pass through trustee to receive monies payable under
equipment notes held for that pass through trustee may be subject to the effect
of subordination provisions contained in an intercreditor agreement described in
the prospectus supplement for a series of certificates. An intercreditor
agreement refers to an agreement among the pass through trustees and, if
applicable, a liquidity provider under a liquidity facility, as creditors of the
issuers of the equipment notes owned by the pass through trustees. An
intercreditor agreement will set forth the terms and conditions upon which
payments made under the equipment notes and payments made under any liquidity
facility will be received, shared and distributed among the several pass through
trustees and the liquidity provider. In addition, the intercreditor agreement
will set forth agreements among the pass through trustees and the liquidity
provider relating to the exercise of remedies under the equipment notes and the
indentures.
Cross-subordination refers to an agreement under which payments on a junior
class of equipment notes issued under an indenture are distributed to a pass
through trustee that holds a senior class of equipment notes issued under a
different indenture on which all required payments were not made. The effect of
this distribution mechanism is that holders of certificates of a pass through
trust that owns a junior class of equipment notes will not receive payments made
on that junior class of equipment notes until certain distributions are made on
the certificates of the pass through trust that owns a senior class of equipment
notes.
Equipment notes owned by a pass through trust may be leased aircraft notes,
owned aircraft notes or a combination of leased aircraft notes and owned
aircraft notes.
Leased aircraft notes will be issued in connection with the leveraged lease
of an aircraft to us. Except as set forth in the applicable prospectus
supplement, each leased aircraft will be leased to us under a lease between us,
as lessee, and an owner trustee, as lessor. Each owner trustee will issue leased
aircraft notes on a non-recourse basis under a separate leased aircraft
indenture between it and the applicable loan trustee. The owner trustee will use
the proceeds of the sale of the leased aircraft notes to finance or refinance a
portion of the purchase price paid or to be paid by the owner trustee for the
applicable leased aircraft. The owner trustee will obtain the remainder of the
funding for the leased aircraft from an equity contribution from the owner
participant that is the beneficiary of the owner trust and, to the extent set
forth in the applicable prospectus supplement, additional debt secured by the
applicable leased aircraft or other sources. A leased aircraft also may be
subject to other financing arrangements.
Generally, neither the owner trustee nor the owner participant will be
personally liable for any principal or interest payable under any leased
aircraft indenture or any leased aircraft notes. In some cases, an owner
participant may be required to make payments to an owner trustee that are to be
used by the owner trustee to pay principal of, and interest on, the equipment
notes. If an owner participant is required to make payments
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<PAGE> 134
to be used by an owner trustee to pay principal of, and interest on, the
equipment notes and the owner participant fails to make the payment, we will be
required to provide the owner trustee with funds sufficient to make the payment.
We will be obligated to make payments or advances under a lease and the related
documents sufficient to pay when due all scheduled principal and interest
payments on the leased aircraft notes issued to finance the aircraft subject to
that lease.
We will issue owned aircraft notes under separate owned aircraft
indentures. Owned aircraft notes will be issued in connection with the financing
or refinancing of an aircraft that we own. Owned aircraft notes will be
obligations that have recourse to us and the related aircraft. Any owned
aircraft may secure additional debt or be subject to other financing
arrangements.
An indenture may provide for the issuance of multiple classes of equipment
notes. If an indenture provides for multiple classes of equipment notes, it may
also provide for differing priority of payments among the different classes.
Equipment notes issued under an indenture may be held in more than one pass
through trust, and one pass through trust may hold equipment notes issued under
more than one indenture. Unless otherwise provided in a prospectus supplement,
only equipment notes having the same priority of payment may be held for the
same pass through trust.
Except as set forth in the prospectus supplement for any series of
certificates, interest payments on the equipment notes held for a pass through
trust will be passed through to the registered holders of certificates of that
pass through trust at the annual rate shown on the cover page of the prospectus
supplement for the certificates issued by that pass through trust. The
certificateholders' right to receive payments made in respect of the equipment
notes is subject to the effect of any cross-subordination provisions described
in the prospectus supplement for a series of certificates.
We refer you to the prospectus supplement that accompanies this prospectus
for a description of the specific series of certificates being offered by this
prospectus and the applicable prospectus supplement, including:
- the specific designation, title and amount of the certificates;
- amounts payable on and distribution dates for the certificates;
- the currency or currencies, including currency units, in which the
certificates may be denominated;
- the specific form of the certificates, including whether or not the
certificates are to be issued in accordance with a book-entry system;
- a description of the equipment notes to be purchased by the pass through
trust issuing that series of certificates, including:
- the period or periods within which, the price or prices at which, and
the terms and conditions upon which the equipment notes may or must be
redeemed or defeased in whole or in part, by us or an owner trustee;
- the payment priority of the equipment notes in relation to any other
equipment notes issued with respect to the related aircraft; and
- any intercreditor or other rights or limitations between or among the
holders of equipment notes of different priorities issued with respect
to the same aircraft;
- a description of the aircraft to be financed with the proceeds of the
issuance of the equipment notes;
- a description of the note purchase agreement setting forth the terms and
conditions upon which that pass through trust will purchase equipment
notes;
- a description of the indentures under which the equipment notes to be
purchased for that pass through trust will be issued;
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<PAGE> 135
- a description of the events of default, the remedies exercisable upon the
occurrence of events of default and any limitations on the exercise of
those remedies under the indentures pursuant to which the equipment notes
to be purchased for that pass through trust will be issued;
- if the certificates relate to leased aircraft, a description of the
leases to be entered into by the owner trustees and us;
- if the certificates relate to leased aircraft, a description of the
provisions of the leased aircraft indentures governing:
- the rights of the related owner trustee and/or owner participant to
cure our failure to pay rent under the leases; and
- any limitations on the exercise of remedies with respect to the leased
aircraft notes;
- if the certificates relate to leased aircraft, a description of the
participation agreements that will set forth the terms and conditions
upon which the owner participant, the owner trustee, the pass through
trustees, the loan trustee and we agree to enter into a leveraged lease
transaction;
- if the certificates relate to an owned aircraft, a description of the
participation agreements that will set forth the terms and conditions
upon which the applicable pass through trustees, the loan trustee and we
agree to enter into a financing transaction for the owned aircraft;
- a description of the limitations, if any, on amendments to leases,
indentures, pass through trust agreements, participation agreements and
other material agreements entered into in connection with the issuance of
equipment notes;
- a description of any cross-default provisions in the indentures;
- a description of any cross-collateralization provisions in the
indentures;
- a description of any agreement among the holders of equipment notes and
any liquidity provider governing the receipt and distribution of monies
with respect to the equipment notes and the enforcement of remedies under
the indentures, including a description of any applicable intercreditor
and cross-subordination arrangements;
- a description of any liquidity facility or other credit enhancement
relating to the certificates;
- if the certificates relate to aircraft that have not yet been delivered
or financed, a description of any deposit or escrow agreement or other
arrangement providing for the deposit and investment of funds pending the
purchase of equipment notes and the financing of an owned aircraft or
leased aircraft; and
- any other special terms pertaining to the certificates.
The concept of cross-default mentioned above refers to a situation where a
default under one indenture or lease results in a default under other indentures
or leases. We currently do not expect any indentures or leases to contain
cross-default provisions. The concept of cross-collateralization mentioned above
refers to the situation where collateral that secures obligations incurred under
one indenture also serves as collateral for obligations under one or more other
indentures. We currently do not expect any indentures to be cross-
collateralized.
BOOK-ENTRY REGISTRATION
GENERAL
If specified in the applicable prospectus supplement, the certificates will
be subject to the procedures and provisions described below.
Upon issuance, each series of certificates will be represented by one or
more fully registered global certificates. Each global certificate will be
deposited with, or on behalf of, The Depository Trust Company, referred to as
DTC, and registered in the name of Cede & Co., the nominee of DTC. No purchaser
of a
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certificate will be entitled to receive a physical certificate representing an
interest in the global certificates, except as set forth below under
"-- Physical Certificates". For convenience, we refer to such purchasers as
"certificate owners". Unless and until physical certificates are issued under
the limited circumstances described below, all references in this prospectus and
any prospectus supplement to actions by certificateholders will refer to actions
taken by DTC upon instructions from DTC participants, and all references to
distributions, notices, reports and statements to certificateholders will refer,
as the case may be, to distributions, notices, reports and statements to DTC or
Cede, as the registered holder of the certificates, or to DTC participants for
distribution to certificateholders in accordance with DTC procedures.
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code and
"clearing agency" registered pursuant to Section 17A of the Securities Exchange
Act of 1934.
Under the New York Uniform Commercial Code, a "clearing corporation" is
defined as:
- a person that is registered as a "clearing agency" under the federal
securities laws;
- a federal reserve bank; or
- any other person that provides clearance or settlement services with
respect to financial assets that would require it to register as a
clearing agency under the federal securities laws but for an exclusion or
exemption from the registration requirement, if its activities as a
clearing corporation, including promulgation of rules, are subject to
regulation by a federal or state governmental authority.
A "clearing agency" is an organization established for the execution of
trades by transferring funds, assigning deliveries and guaranteeing the
performance of the obligations of parties to trades.
DTC was created to hold securities for its participants and to facilitate
the clearance and settlement of securities transactions between DTC participants
through electronic book-entry changes in the accounts of DTC participants. The
ability to execute transactions through book-entry changes in accounts
eliminates the need for transfer of physical certificates. DTC is owned by a
number of DTC participants and by the New York Stock Exchange, the American
Stock Exchange, and the National Association of Securities Dealers. DTC
participants include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations. Banks, brokers, dealers,
trust companies and other entities that clear through or maintain a custodial
relationship with a DTC participant, either directly or indirectly, are indirect
participants in the DTC system.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers of the certificates
among DTC participants on whose behalf it acts with respect to the certificates
and to receive and transmit distributions of principal, premium, if any, and
interest with respect to the certificates. DTC participants and indirect DTC
participants with which certificate owners have accounts similarly are required
to make book-entry transfers and receive and transmit the payments on behalf of
their respective customers. Certificate owners that are not DTC participants or
indirect DTC participants but desire to purchase, sell or otherwise transfer
ownership of, or other interests in, the certificates may do so only through DTC
participants and indirect DTC participants. In addition, certificate owners will
receive all distributions of principal, premium, if any, and interest from the
pass through trustee through DTC participants or indirect DTC participants, as
the case may be.
Under a book-entry format, certificate owners may experience some delay in
their receipt of payments, because payments with respect to the certificates
will be forwarded by the pass through trustee to Cede, as nominee for DTC. DTC
will forward payments in same-day funds to each DTC participant who is credited
with ownership of the certificates in an amount proportionate to the principal
amount of that DTC participant's holdings of beneficial interests in the
certificates, as shown on the records of DTC or its nominee. Each such DTC
participant will forward payments to its indirect DTC participants in accordance
with standing instructions and customary industry practices. DTC participants
and indirect DTC participants will be responsible for forwarding distributions
to certificate owners for whom they act. Accordingly, although
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certificate owners will not possess physical certificates, DTC's rules provide a
mechanism by which certificate owners will receive payments on the certificates
and will be able to transfer their interests.
Unless and until physical certificates are issued under the limited
circumstances described below, the only physical certificateholder will be Cede,
as nominee of DTC. Certificate owners will not be recognized by the pass through
trustee as registered owners of certificates under the pass through trust
agreement. Certificate owners will be permitted to exercise their rights under
the pass through trust agreement only indirectly through DTC. DTC will take any
action permitted to be taken by a certificateholder under the pass through trust
agreement only at the direction of one or more DTC participants to whose
accounts with DTC the certificates are credited. In the event any action
requires approval by certificateholders of a certain percentage of the
beneficial interests in a pass through trust, DTC will take action only at the
direction of and on behalf of DTC participants whose holdings include undivided
interests that satisfy the required percentage. DTC may take conflicting actions
with respect to other undivided interests to the extent that the actions are
taken on behalf of DTC participants whose holdings include those undivided
interests. DTC will convey notices and other communications to DTC participants,
and DTC participants will convey notices and other communications to indirect
DTC participants in accordance with arrangements among them. Arrangements among
DTC and its direct and indirect participants are subject to any statutory or
regulatory requirements as may be in effect from time to time. DTC's rules
applicable to itself and DTC participants are on file with the SEC.
A certificate owner's ability to pledge the certificates to persons or
entities that do not participate in the DTC system, or otherwise to act with
respect to the certificates, may be limited due to the lack of a physical
certificate to evidence ownership of the certificates, and because DTC can only
act on behalf of DTC participants, who in turn act on behalf of indirect DTC
participants.
Neither we nor the pass through trustee will have any liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the certificates held by Cede, as nominee for DTC, for
maintaining, supervising or reviewing any records relating to the beneficial
ownership interests or for the performance by DTC, any DTC participant or any
indirect DTC participant of their respective obligations under the rules and
procedures governing their obligations.
The applicable prospectus supplement will specify any additional book-entry
registration procedures applicable to certificates denominated in a currency
other than U.S. dollars.
SAME-DAY SETTLEMENT AND PAYMENT
As long as the certificates are registered in the name of DTC or its
nominee, we will make all payments to the loan trustee under any lease or any
owned aircraft indenture in immediately available funds. The pass through
trustee will pass through to DTC in immediately available funds all payments
received from us, including the final distribution of principal with respect to
the certificates of any pass through trust.
Any certificates registered in the name of DTC or its nominee will trade in
DTC's Same-Day Funds Settlement System until maturity. DTC will require
secondary market trading activity in the certificates to settle in immediately
available funds. We cannot give any assurance as to the effect, if any, of
settlement in same-day funds on trading activity in the certificates.
PHYSICAL CERTIFICATES
Physical certificates will be issued in paper form to certificateholders or
their nominees, rather than to DTC or its nominee, only if:
- we advise the pass through trustee in writing that DTC is no longer
willing or able to discharge properly its responsibilities as depository
with respect to the certificates and we are unable to locate a qualified
successor;
- we elect to terminate the book-entry system through DTC; or
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- after the occurrence of certain events of default or other events
specified in the related prospectus supplement, certificateholders owning
at least a majority in interest in a pass through trust advise the
applicable pass through trustee, us and DTC through DTC participants that
the continuation of a book-entry system through DTC or a successor to DTC
is no longer in the certificate owners' best interest.
Upon the occurrence of any of the events described in the three
subparagraphs above, the applicable pass through trustee will notify all
certificate owners through DTC participants of the availability of physical
certificates. Upon surrender by DTC of the global certificates and receipt of
instructions for re-registration, the pass through trustee will reissue the
certificates as physical certificates to certificate owners.
After physical certificates are issued, the pass through trustee or a
paying agent will make distributions of principal, premium, if any, and interest
with respect to certificates directly to holders in whose names the physical
certificates were registered at the close of business on the applicable record
date. Except for the final payment to be made with respect to a certificate, the
pass through trustee or a paying agent will make distributions by check mailed
to the addresses of the registered holders as they appear on the register
maintained by the pass through trustee. The pass through trustee or a paying
agent will make the final payment with respect to any pass through certificate
only upon presentation and surrender of the applicable pass through certificate
at the office or agency specified in the notice of final distribution to
certificateholders.
Physical certificates will be freely transferable and exchangeable at the
office of the pass through trustee upon compliance with the requirements set
forth in the pass through trust agreement. Neither the pass through trustee nor
any transfer or exchange agent will impose a service charge for any registration
of transfer or exchange. However, the pass through trustee or transfer or
exchange agent will require payment of a sum sufficient to cover any tax or
other governmental charge attributable to a transfer or exchange.
PAYMENTS AND DISTRIBUTIONS
Subject to the effect of any cross-subordination provisions set forth in
the prospectus supplement for a series of certificates:
- Payments of principal, premium, if any, and interest with respect to the
equipment notes held for each pass through trust will be distributed by
the pass through trustee, upon receipt, to certificateholders of that
trust on the dates and in the currency specified in the applicable
prospectus supplement, except in certain cases when some or all of the
equipment notes are in default as described in the applicable prospectus
supplement. Payments of principal of, and interest on, the unpaid
principal amount of the equipment notes held in each pass through trust
will be scheduled to be received by the pass through trustee on the dates
specified in the applicable prospectus supplement.
- Each certificateholder of a pass through trust will be entitled to
receive a pro rata share of any distribution in respect of scheduled
payments of principal and interest made on the equipment notes held for
such pass through trust.
If we elect or are required to redeem equipment notes relating to one or
more aircraft prior to their scheduled maturity date, payments of principal,
premium (if any) and interest received by the pass through trustee as a result
of the early redemption will be distributed on a special distribution date
determined as described in the applicable prospectus supplement. Payments
received by the pass through trustee following a default under the equipment
notes held for a pass through trust will also be distributed on a special
distribution date determined in the same way. However, if following such a
default the pass through trustee receives any scheduled payments on equipment
notes on a regular distribution date or within five days thereafter, the pass
through trustee will distribute those payments on the date they are received. In
addition, if following a default under equipment notes the pass through trustee
receives payments on the equipment notes on a regular distribution date by
making a drawing under any liquidity facility, as described in the applicable
prospectus supplement, those payments will be distributed to certificateholders
on the regular distribution date. The pass through trustee will mail notice to
the certificateholders of record of the applicable pass through trust stating
the anticipated special distribution date.
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POOL FACTORS
Unless otherwise described in the applicable prospectus supplement, the
"pool balance" for each pass through trust or for the certificates issued by any
pass through trust indicates, as of any date, the portion of the original
aggregate face amount of the certificates issued by that pass through trust that
has not been distributed to certificateholders (excluding any payments of
interest or premium). The pool balance for each pass through trust as of any
distribution date will be computed after giving effect to any distribution to
certificateholders to be made on that date.
Unless otherwise described in the applicable prospectus supplement, the
"pool factor" for a pass through trust as of any distribution date for that
trust is the quotient (rounded to the seventh decimal place) computed by
dividing (a) the pool balance by (b) the aggregate original face amount of the
certificates issued by that pass through trust. The pool factor for a pass
through trust as of any distribution date will be computed after giving effect
to the payment of principal, if any, on the equipment notes held for that pass
through trust and distribution to certificateholders of the payment of principal
to be made on that date. Each pass through trust will have a separate pool
factor.
The pool factor for a pass through trust initially will be 1.0000000. The
pool factor for a pass through trust will decline as described in this
prospectus and the related prospectus supplement to reflect reductions in the
pool balance of that pass through trust. As of any distribution date for a pass
through trust, a certificate will represent a share of the pool balance of that
pass through trust equal to the product obtained by multiplying the original
face amount of the certificate by the pool factor for the pass through trust
that issued such certificate. The pool factor and pool balance of each past
through trust will be mailed to the certificateholders of the pass through trust
on each distribution date.
The pool factor for each pass through trust will decline in proportion to
the scheduled repayments of principal on the equipment notes held by that pass
through trust, unless there is an early redemption or purchase of equipment
notes held by a pass through trust or if a default occurs in the repayment of
equipment notes held by a pass through trust. In the event of a redemption,
purchase or default, the pool factor and the pool balance of each pass through
trust affected by the redemption, purchase or default will be recomputed, and a
notice will be mailed to the certificateholders of the pass through trust.
REPORTS TO CERTIFICATEHOLDERS
The pass through trustee will include with each distribution of a payment
to certificateholders a statement setting forth the following information:
- the amount of the distribution allocable to principal and the amount
allocable to premium, if any;
- the amount of the distribution allocable to interest; and
- the pool balance and the pool factor for the pass through trust after
giving effect to the distribution.
As long as the certificates are registered in the name of DTC or its
nominee, on the record date prior to each distribution date, the pass through
trustee will request from DTC a securities position listing setting forth the
names of all DTC participants reflected on DTC's books as holding interests in
the certificates on that record date. On each distribution date, the applicable
pass through trustee will mail to each DTC participant holding certificates the
statement described above and will make available additional copies as requested
by the DTC participants for forwarding to certificate owners.
After the end of each calendar year, each pass through trustee will prepare
a report for each person that was a holder of one or more of its pass through
certificates at any time during the preceding calendar year. This report will
contain the sum of the amount of distributions allocable to principal, premium
and interest with respect to that pass through trust for the preceding calendar
year or, if the person was a holder of a pass through certificate during only a
portion of the preceding calendar year, for the applicable portion of the
preceding calendar year. In addition, each pass through trustee will prepare for
each person that was a holder of one or more of its pass through certificates at
any time during the preceding calendar year any other information that are
readily available to the pass through trustee and which a certificateholder
reasonably
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requests as necessary for the purpose of preparing its federal income tax
returns. The reports and other items described in this section will be prepared
on the basis of information supplied to the pass through trustee by DTC
participants and will be delivered by the pass through trustee to DTC
participants to be available for forwarding by DTC participants to certificate
owners in the manner described above.
If the certificates of a pass through trust are issued in the form of
physical certificates, the pass through trustee of that pass through trust will
prepare and deliver the information described above to each record holder of a
pass through certificate issued by that pass through trust as the name and
period of ownership of the holder appears on the records of the registrar of the
certificates.
VOTING OF EQUIPMENT NOTES
A pass through trustee has the right to vote and give consents and waivers
with respect to the equipment notes held by that pass through trust. However,
the pass through trustee's right to vote and give consents or waivers may be
restricted or may be exercisable by another person in accordance with the terms
of an intercreditor agreement, as described in the applicable prospectus
supplement. The pass through trust agreement will set forth:
- the circumstances in which a pass through trustee may direct any action
or cast any vote with respect to the equipment notes held for its pass
through trust at its own discretion;
- the circumstances in which a pass through trustee will seek instructions
from its certificateholders; and
- if applicable, the percentage of certificateholders required to direct
the pass through trustee to take action.
If the holders of certificates are entitled to the benefits of a liquidity
facility, and the liquidity facility is used to make any payments to
certificateholders, the provider of the liquidity facility may be entitled to
exercise rights to vote or give consents and waivers with respect to the
equipment notes held for the pass through trust that issued the certificates, as
described in the applicable prospectus supplement.
EVENTS OF DEFAULT AND CERTAIN RIGHTS UPON AN EVENT OF DEFAULT
The prospectus supplement will specify the events of default that can occur
under the pass through trust agreement and under the indentures relating to the
equipment notes held for the related pass through trust. In the case of a leased
aircraft indenture, an indenture default will include events of default under
the related lease. In the case of any equipment notes that are supported by a
liquidity facility, a default may include events of default under that liquidity
facility.
Unless otherwise provided in a prospectus supplement, all of the equipment
notes issued under the same indenture will relate to a specific aircraft and
there will be no cross-collateralization or cross-default provisions in the
indentures. As a result, events resulting in a default under any particular
indenture will not necessarily result in an a default under any other indenture.
If a default occurs in fewer than all of the indentures, payments of principal
and interest on the equipment notes issued under the indentures with respect to
which a default has not occurred will continue to be made as originally
scheduled.
As described below under "-- Cross-Subordination Issues", a prospectus
supplement may describe the terms of any cross-subordination provisions among
certificateholders of separate pass through trusts. If cross-subordination is
provided, payments made pursuant to an indenture under which a default has not
occurred may be distributed first to the holders of the certificates issued
under the pass through trust which holds the most senior equipment notes issued
under all of the indentures.
The ability of the applicable owner trustee or owner participant under a
leased aircraft indenture to cure a default under the indenture, including a
default that results from the occurrence of a default under the related lease,
will be described in the prospectus supplement. Unless otherwise provided in a
prospectus supplement, with respect to any pass through certificates or
equipment notes entitled to the benefits of a liquidity facility, a drawing
under the liquidity facility for the purpose of making a payment of interest as
a result of our failure to have made a corresponding payment will not cure a
default related to our failure.
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The prospectus supplement related to a series of pass through certificates
will describe the circumstances under which the pass through trustee of the
related pass through trust may vote some or all of the equipment notes held in
the pass through trust. The prospectus supplement also will set forth the
percentage of certificateholders of the pass through trust entitled to direct
the pass through trustee to take any action with respect to the equipment notes.
If the equipment notes outstanding under an indenture are held by more than one
pass through trust, then the ability of the certificateholders issued with
respect to any one pass through trust to cause the loan trustee with respect to
any equipment notes held in the pass through trust to accelerate the equipment
notes under the applicable indenture or to direct the exercise of remedies by
the loan trustee under the applicable indenture will depend, in part, upon the
proportion of the aggregate principal amount of the equipment notes outstanding
under that indenture and held in that pass through trust to the aggregate
principal amount of all equipment notes outstanding under that indenture.
In addition, if cross-subordination provisions are applicable to any series
of certificates, then the ability of the certificateholders of any one pass
through trust holding equipment notes issued under an indenture to cause the
loan trustee with respect to any equipment notes held in that pass through trust
to accelerate the equipment notes under that indenture or to direct the exercise
of remedies by the loan trustee under that indenture will depend, in part, upon
the class of equipment notes held in the pass through trust. If the equipment
notes outstanding under an indenture are held by more than one pass through
trust, then each pass through trust will hold equipment notes with different
terms from the equipment notes held in the other pass through trusts and
therefore the certificateholders of each pass through trust may have divergent
or conflicting interests from those of the certificateholders of the other pass
through trusts holding equipment notes issued under the same indenture. In
addition, so long as the same institution acts as pass through trustee of each
pass through trust, in the absence of instructions from the certificateholders
of any pass through trust, the pass through trustee for the pass through trust
could for the same reason be faced with a potential conflict of interest upon a
default under an indenture. In that event, the pass through trustee has
indicated that it would resign as pass through trustee of one or all the pass
through trusts, and a successor trustee would be appointed in accordance with
the terms of the Basic Agreement.
The prospectus supplement for a series of certificates will specify whether
and under what circumstances the pass through trustee may sell for cash to any
person all or part of the equipment notes held in the related pass through
trust. Any proceeds received by the pass through trustee upon a sale will be
deposited in an account established by the pass through trustee for the benefit
of the certificateholders of the pass through trust for the deposit of the
special payments and will be distributed to the certificateholders of the pass
through trust on a special distribution date.
The market for equipment notes in default may be very limited, and we
cannot assure you that they could be sold for a reasonable price. Furthermore,
so long as the same institution acts as pass through trustee of multiple pass
through trusts, it may be faced with a conflict in deciding from which pass
through trust to sell equipment notes to available buyers. If the pass through
trustee sells any equipment notes with respect to which a default under an
indenture exists for less than their outstanding principal amount, the
certificateholders of that pass through trust will receive a smaller amount of
principal distributions than anticipated and will not have any claim for the
shortfall against us, any owner trustee, owner participant or the pass through
trustee. Furthermore, neither the pass through trustee nor the
certificateholders of that pass through trust could take any action with respect
to any remaining equipment notes held in that pass through trust so long as no
default under an indenture exists.
Any amount, other than scheduled payments received on a regular
distribution date, distributed to the pass through trustee of any pass through
trust by the loan trustee under any indenture on account of the equipment notes
held in that pass through trust following a default under such indenture will be
deposited in the special payments account for that pass through trust and will
be distributed to the certificateholders of that pass through trust on a special
distribution date. In addition, if a prospectus supplement provides that the
applicable owner trustee may, under circumstances specified in the prospectus
supplement, redeem or purchase the outstanding equipment notes issued under the
applicable indenture, the price paid by the owner trustee to the pass through
trustee of any pass through trust for the equipment notes issued under that
indenture and held in that pass through trust will be deposited in the special
payments account for the pass
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through trust and will be distributed to the certificateholders of the pass
through trust on a special distribution date.
Any funds representing payments received with respect to any equipment
notes in default held in a pass through trust, or the proceeds from the sale by
the pass through trustee of any of those equipment notes, held by the pass
through trustee in the special payments account for that pass through trust
will, to the extent practicable, be invested and reinvested by the pass through
trustee in permitted investments pending the distribution of the funds on a
special distribution date. Permitted investments will be specified in the
related prospectus supplement.
The Basic Agreement provides that the pass through trustee of each pass
through trust will give to the certificateholders of that pass through trust
notice of all uncured or unwaived defaults known to it with respect to that pass
through trust. The Basic Agreement requires the pass through trustee to provide
the notice of default within 90 days after the occurrence of the default.
However, except in the case of default in the payment of principal, premium, if
any, or interest on any of the equipment notes held for a pass through trust,
the pass through trustee will be protected in withholding a notice of default if
it in good faith determines that withholding the notice is in the interest of
the certificateholders of such pass through trust. The term "default" as used in
this paragraph means only the occurrence of a default under an indenture with
respect to equipment notes held in a pass through trust as described above,
except that in determining whether any default under an indenture has occurred,
any related grace period or notice will be disregarded.
The Basic Agreement requires the pass through trustee to act with a
specified standard of care while a default is continuing under an indenture. In
addition, the Basic Agreement contains a provision entitling the pass through
trustee to require reasonable security or indemnification by the
certificateholders of the pass through trust before proceeding to exercise any
right or power under the Basic Agreement at the request of those
certificateholders.
The prospectus supplement for a series of certificates will specify the
percentage of certificateholders entitled to waive, or to instruct the pass
through trustee to waive, any past default with respect to the related pass
through trust and its consequences. The prospectus supplement for a series of
certificates also will specify the percentage of certificateholders entitled to
waive, or to instruct the pass through trustee or the loan trustee to waive, any
past default under an indenture.
MERGER, CONSOLIDATION AND TRANSFER OF ASSETS
We will be prohibited from consolidating with or merging into any other
corporation or transferring substantially all of our assets as an entirety to
any other corporation unless the surviving, successor or transferee corporation:
- is validly existing under the laws of the United States or any of its
states;
- is a citizen of the United States, as defined in Title 49 of the U.S.
Code relating to aviation, referred to as the "Transportation Code,"
holding an air carrier operating certificate issued pursuant to Chapter
447 of Title 49, U.S. Code, if, and so long as, that status is a
condition of entitlement to the benefits of Section 1110 of the U.S.
Bankruptcy Code relating to the rights of creditors of an airline in the
event of the airline's bankruptcy; and
- expressly assumes all of our obligations contained in the Basic Agreement
and any pass through trust supplement, the note purchase agreements, any
indentures, any participation agreements and, with respect to aircraft
leased by us, the applicable leases.
In addition, we will be required to deliver a certificate and an opinion or
opinions of counsel indicating that the transaction, in effect, complies with
these conditions.
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MODIFICATIONS OF THE BASIC AGREEMENT
The Basic Agreement contains provisions permitting us and the pass through
trustee of each pass through trust to enter into a supplemental trust agreement,
without the consent of the holders of any of the certificates issued by such
pass through trust, in order to do the following, among other things:
- to provide for the formation of such pass through trust and the issuance
of a series of certificates and to set forth the terms of the
certificates;
- to evidence the succession of another corporation to us and the
assumption by that corporation of our obligations under the Basic
Agreement and the pass through trust agreements;
- to add to our covenants for the benefit of holders of such certificates,
or to surrender any right or power in the Basic Agreement conferred upon
us;
- to cure any ambiguity or correct or supplement any defective or
inconsistent provision of the Basic Agreement or any pass through trust
agreement, so long as those changes will not materially adversely affect
the interests of the holders of such certificates, or to cure any
ambiguity or correct any mistake or, to give effect to or provide for
replacement liquidity facilities, if applicable, to such certificates;
- to comply with any requirement of the SEC, any applicable law, rules or
regulations of any exchange or quotation system on which any certificates
may be listed or of any regulatory body;
- to modify, eliminate or add to the provisions of the Basic Agreement to
the extent necessary to continue the qualification of the pass through
trust agreement under the Trust Indenture Act of 1939, and to add to the
Basic Agreement other provisions as may be expressly permitted by the
Trust Indenture Act;
- to provide for a successor pass through trustee or to add to or change
any provision of the Basic Agreement as necessary to facilitate the
administration of the pass through trusts created under the pass through
trust agreement by more than one pass through trustee; and
- to make any other amendments or modifications to the Basic Agreement so
long as those amendments or modifications apply only to certificates of a
series issued after the date of the amendment or modification.
No pass through trust supplement may be made that will adversely affect the
status of any pass through trust as a grantor trust for U.S. federal income tax
purposes.
The Basic Agreement also contains provisions permitting us and the pass
through trustee of each pass through trust, with the consent of a majority in
interest of the certificateholders of the pass through trust, to execute
supplemental trust agreements adding any provisions to or changing or
eliminating any of the provisions of the Basic Agreement, to the extent relating
to that pass through trust, and the applicable pass through trust supplement, or
modifying the rights of the certificateholders, except that no supplement may,
without the consent of each affected certificateholder:
- reduce in any manner the amount of, or delay the timing of, any receipt
by the pass through trustee of payments on the equipment notes held in
the pass through trust or distributions in respect of any pass through
certificate issued by the pass through trust;
- change the date or place of any payment in respect of any pass through
certificate, or make distributions payable in currency other than that
provided for in the certificates, or impair the right of any
certificateholder to institute suit for the enforcement of any payment
when due;
- permit the disposition of any equipment note held in the pass through
trust, except as provided in the pass through trust agreement, or
otherwise deprive any certificateholder of the benefit of the ownership
of the applicable equipment note;
- reduce the percentage of the aggregate fractional undivided interests of
the pass through trust that is required in order for any supplement or
waiver to be approved;
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- modify any of the provisions relating to the rights of the
certificateholders in respect of the waiver of events of default or
receipt of payment;
- alter the priority of distributions described in any applicable
intercreditor agreement, in a manner materially adverse to the interests
of the certificateholders of such pass through trust; or
- adversely affect the status of any pass through trust as a grantor trust
for U.S. federal income tax purposes.
MODIFICATION OF INDENTURE AND RELATED AGREEMENTS
The prospectus supplement will specify the pass through trustee's
obligations if a pass through trustee, as the holder of any equipment notes held
for a pass through trust, receives a request for its consent to any amendment,
modification or waiver under the indenture under which the equipment notes were
issued, under the lease relating to the aircraft leased by us that was financed
with the proceeds of the equipment notes or under any liquidity facility.
CROSS-SUBORDINATION ISSUES
The equipment notes issued under an indenture may be held in more than one
pass through trust, and one pass through trust may hold equipment notes issued
under more than one indenture. Unless otherwise provided in a prospectus
supplement, only equipment notes having the same priority for distributions
under the applicable indenture may be held in the same pass through trust. In
that event, payments made on account of a subordinate class of certificates
issued under a prospectus supplement may be subordinated, under circumstances
described in the prospectus supplement, to the prior payment of all amounts
owing to certificateholders of a pass through trust which holds senior equipment
notes issued under the applicable indentures. The prospectus supplement related
to an issuance of certificates will describe the "cross-subordination"
provisions and any related terms, including the percentage of certificateholders
under any pass through trust which are permitted to:
- grant waivers of defaults under any applicable indenture;
- consent to the amendment or modification of any applicable indenture; or
- direct the exercise of remedial actions under any applicable indenture.
TERMINATION OF THE PASS THROUGH TRUSTS
Our obligations and those of the pass through trustee with respect to a
pass through trust will terminate upon the distribution to certificateholders of
the pass through trust of all amounts required to be distributed to them
pursuant to the applicable pass through trust agreement and the disposition of
all property held in the pass through trust. In no event will any pass through
trust continue beyond 110 years following the date of the execution of the
applicable pass through trust supplement, or any other final expiration date as
may be specified in the pass through trust supplement. The pass through trustee
will send to each certificateholder of record of the pass through trust notice
of the termination of the pass through trust, the amount of the proposed final
payment and the proposed date for the distribution of the final payment for the
pass through trust. The final distribution to any certificateholder of the pass
through trust will be made only upon surrender of that certificateholder's
certificates at the office or agency of the pass through trustee specified in
the notice of termination.
DELAYED PURCHASE OF EQUIPMENT NOTES
On the issuance date of any certificates, if all of the proceeds from the
sale of the certificates are not used to purchase the equipment notes
contemplated to be held in the related pass through trust, the equipment notes
may be purchased by the pass through trustee at any time on or prior to the date
specified in the applicable prospectus supplement. In that event, the proceeds
from the sale of the certificates not used to purchase equipment notes will be
held under an arrangement described in the applicable prospectus
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supplement pending the purchase of equipment notes. The arrangements with
respect to the payment of interest on funds so held will be described in the
applicable prospectus supplement. If any proceeds are not used to purchase
equipment notes by the date specified in the applicable prospectus supplement,
the proceeds will be returned to the certificateholders.
LIQUIDITY FACILITY
The related prospectus supplement may provide that one or more payments of
interest on the certificates of one or more series will be supported by a
liquidity facility issued by an institution identified in the related prospectus
supplement. The provider of the liquidity facility may have a claim on money and
property belonging to a pass through trust that is senior to the
certificateholders' as specified in the related prospectus supplement.
THE PASS THROUGH TRUSTEE
Unless otherwise provided in the prospectus supplement for any series of
certificates, the pass through trustee for each series of certificates will be
Wilmington Trust Company. With certain exceptions, the pass through trustee
makes no representations as to the validity or sufficiency of the Basic
Agreement, the pass through trust supplements, the certificates, the equipment
notes, the indentures, the leases or other related documents. The pass through
trustee will not be liable with respect to any series of certificates for any
action taken or omitted to be taken by it in good faith in accordance with the
direction of the holders of a majority in principal amount of outstanding
certificates of that series issued under the Basic Agreement. Subject to those
provisions, the pass through trustee will be under no obligation to exercise any
of its rights or powers under the Basic Agreement at the request of any holders
of certificates issued under that agreement unless they will have offered to the
pass through trustee indemnity satisfactory to it. The Basic Agreement provides
that the pass through trustee in its individual or any other capacity may
acquire and hold certificates and, subject to certain conditions, may otherwise
deal with us and, with respect to the leased aircraft, with any owner trustee
with the same rights it would have if it were not the pass through trustee.
The pass through trustee may resign with respect to any or all of the pass
through trusts at any time, in which event we will be obligated to appoint a
successor trustee. If the pass through trustee ceases to be eligible to continue
as pass through trustee with respect to a pass through trust or becomes
incapable of acting as pass through trustee or becomes insolvent, we may remove
the pass through trustee, or any certificateholder of the pass through trust for
at least six months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the removal of the pass through
trustee and the appointment of a successor trustee. Any resignation or removal
of the pass through trustee with respect to a pass through trust and appointment
of a successor trustee for the pass through trust does not become effective
until acceptance of the appointment by the successor trustee. Pursuant to the
resignation and successor trustee provisions, it is possible that a different
trustee could be appointed to act as the successor trustee with respect to each
pass through trust. All references in this prospectus to the pass through
trustee should be read to take into account the possibility that the pass
through trusts could have different successor trustees in the event of a
resignation or removal.
The Basic Agreement provides that we will pay the pass through trustee's
fees and expenses and indemnify the pass through trustee against certain
liabilities.
DESCRIPTION OF THE EQUIPMENT NOTES
The statements made under this caption are summaries, and we refer you to
the entire prospectus and detailed information appearing in the applicable
prospectus supplement. Where no distinction is made between the leased aircraft
notes and the owned aircraft notes or between their respective indentures, those
statements refer to any equipment notes and any indenture.
To the extent that any provision in any prospectus supplement is
inconsistent with any provision in this summary, the provision of the prospectus
supplement will control.
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GENERAL
The equipment notes will be issued under indentures. Equipment notes
secured by an aircraft that is leased to us will be issued under an indenture
between an owner trustee and a loan trustee. Equipment notes secured by an
aircraft that is owned by us will be issued under an indenture between a loan
trustee and us.
The leased aircraft notes will be non-recourse obligations of the
applicable owner trustee. All of the leased aircraft notes issued under the same
indenture will relate to and will be secured by one or more specific aircraft
leased to us. Unless otherwise specified in the applicable prospectus
supplement, leased aircraft notes will not be secured by any other aircraft.
We will be the issuer of owned aircraft notes. The owned aircraft notes
will be our direct recourse obligations. All of the owned aircraft notes issued
under the same indenture will relate to, and will be secured by, one or more
specific aircraft that we own. Unless otherwise specified in the applicable
prospectus supplement, the owned aircraft notes will not be secured by any other
aircraft.
PRINCIPAL AND INTEREST PAYMENTS
Interest received by the pass through trustee on the equipment notes held
in a pass through trust will be passed through to the certificateholders of that
pass through trust on the dates and at the annual rate set forth in the
applicable prospectus supplement until the final distribution for that pass
through trust. Principal payments received by the pass through trustee on the
equipment notes held in a pass through trust will be passed through to the
certificateholders of that pass through trust in scheduled amounts on the dates
set forth in the applicable prospectus supplement until the final distribution
date for that pass through trust.
If any date scheduled for any payment of principal, premium, if any, or
interest with respect to the equipment notes is not a business day, the payment
will be made on the next succeeding business day without any additional
interest.
REDEMPTION
The applicable prospectus supplement will describe the circumstances,
whether voluntary or involuntary, under which the equipment notes may be
redeemed or purchased prior to their stated maturity date, in whole or in part.
The prospectus supplement will also describe the premium, if any, applicable
upon redemptions or purchases and other terms applying to the redemptions or
purchases of the equipment notes.
SECURITY
The leased aircraft notes will be secured by:
- an assignment by the related owner trustee to the related loan trustee of
the owner trustee's rights, except for certain rights described below,
under the lease or leases with respect to the related aircraft, including
the right to receive payments of rent under those leases; and
- a mortgage granted to the loan trustee on the aircraft, subject to our
rights under the lease or leases.
Under the terms of each lease, our obligations in respect of each leased
aircraft will be those of a lessee under a "net lease". Accordingly, we will be
obligated, among other things and at our expense, to cause each leased aircraft
to be duly registered, to pay all costs of operating the aircraft and to
maintain, service, repair and overhaul the aircraft or cause it to be
maintained, serviced, repaired and overhauled. With respect to the leased
aircraft, the assignment by the related owner trustee to the related loan
trustee of its rights under the related lease will exclude, among other things:
- rights of the owner trustee and the related owner participant relating to
indemnification by us for certain matters;
- insurance proceeds payable to the owner trustee in its individual
capacity and to the owner participant under liability insurance
maintained by us pursuant to the lease or by the owner trustee or the
owner participant;
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- insurance proceeds payable to the owner trustee in its individual
capacity or to the owner participant under certain casualty insurance
maintained by the owner trustee or the owner participant pursuant to the
lease; and
- any rights of the owner participant or the owner trustee to enforce
payment of the foregoing amounts and their respective rights to the
proceeds of the foregoing.
The owned aircraft notes will be secured by a mortgage granted to the
related loan trustee of all of our right, title and interest in and to the owned
aircraft. Under the terms of each owned aircraft indenture, we will be
obligated, among other things and at our expense, to cause each owned aircraft
to be duly registered, to pay all costs of operating the aircraft and to
maintain, service, repair and overhaul the aircraft or cause it to be
maintained, serviced, repaired and overhauled.
We will be required, except under certain circumstances, to keep each
aircraft registered under the Transportation Code, and to record the indenture
and the lease, if applicable, among other documents, with respect to each
aircraft under the Transportation Code. Recordation of the indenture, the lease,
if applicable, and other documents with respect to each aircraft will give the
related loan trustee a perfected security interest in the related aircraft
whenever it is located in the United States or any of its territories and
possessions. The Convention on the International Recognition of Rights in
Aircraft, referred to as the "Convention," provides that this security interest
will also be recognized, with certain limited exceptions, in those jurisdictions
that have ratified or adhere to the Convention.
We will have the right, subject to certain conditions, at our own expense
to register each aircraft in countries other than the United States. Each
aircraft may also be operated by us or under lease, sublease or interchange
arrangements in countries that are not parties to the Convention. The extent to
which the related loan trustee's security interest would be recognized in an
aircraft located in a country that is not a party to the Convention, and the
extent to which the security interest would be recognized in a jurisdiction
adhering to the Convention if the aircraft is registered in a jurisdiction not a
party to the Convention, is uncertain. Moreover, in the case of a default under
an indenture, the ability of the related loan trustee to realize upon its
security interest in an aircraft could be adversely affected as a legal or
practical matter if the aircraft were registered or located outside the United
States.
Unless otherwise specified in the applicable prospectus supplement, the
equipment notes will not be cross-collateralized. Consequently, the equipment
notes issued in respect of any one aircraft will not be secured by any other
aircraft. Unless and until a default under an indenture with respect to a leased
aircraft has occurred and is continuing, the related loan trustee may exercise
only limited rights of the related owner trustee under the related lease.
The loan trustee will invest and reinvest funds, if any, held by it from
time to time under an indenture. The loan trustee will, at our direction, invest
and reinvest funds in certain investments described in the applicable indenture.
We will not be entitled to direct the loan trustee to invest and reinvest funds
with respect to a leased aircraft in the case of a default under the applicable
lease or, with respect to an owned aircraft, in the case of a default under the
applicable indenture. We will pay the net amount of any loss resulting from
these investments.
In the case of Chapter 11 bankruptcy proceedings involving a holder of
"equipment" (defined as described below), Section 1110 of the U.S. Bankruptcy
Code provides special rights to lessors, conditional vendors and holders of
security interests with respect to such equipment. Under Section 1110, the right
of such financing parties to take possession of such equipment in compliance
with the provisions of a lease, conditional sale contract or security agreement
is not affected by any provision of the U.S. Bankruptcy Code or any power of the
bankruptcy court. Ordinarily, such right would be limited by the "automatic
stay" under the Bankruptcy Code. Such right to take possession may not be
exercised for 60 days following the date of commencement of the reorganization
proceedings. Thereafter, such right to take possession may be exercised during
such proceedings unless, within the 60-day period or any longer period consented
to by the relevant parties, the debtor agrees to perform its obligations that
become due on or after that date and cures all
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defaults on a timely basis. Defaults resulting solely from the financial
condition, bankruptcy, insolvency or reorganization of the debtor need not be
cured.
"Equipment" is defined in Section 1110 of the U.S. Bankruptcy Code, in
part, as an aircraft, aircraft engine, propeller, appliance, or spare part (as
defined in Section 40102 of Title 49 of the U.S. Code) that is subject to a
security interest granted by, leased to, or conditionally sold to a debtor that,
at the time such transaction is entered into, holds an air carrier operating
certificate issued pursuant to chapter 447 of title 49 of the U.S. Code for
aircraft capable of carrying 10 or more individuals or 6,000 pounds of more of
cargo (subject to certain limitations in the case of equipment first placed in
service on or prior to October 22, 1994).
In connection with any issuance of certificates under this prospectus and
the applicable prospectus supplement, it will be a condition to the pass through
trustee's obligation to purchase equipment notes with respect to each aircraft
that our outside counsel provide its opinion (which may assume that we hold, at
the time of the lease or mortgage, as the case may be, an air carrier operating
certificate issued pursuant to chapter 447 of title 49 of the U.S. Code for
aircraft capable of carrying 10 or more individuals or 6,000 pounds or more of
cargo) to the Pass Through Trustee that:
- if the aircraft is a leased aircraft, the owner trustee, as lessor under
the lease for the aircraft, and the loan trustee, as assignee of the
owner trustee's rights under the lease pursuant to the applicable
indenture, will be entitled to the benefits of Section 1110 of the U.S.
Bankruptcy Code with respect to the airframe and engines comprising the
aircraft; or
- if the aircraft is an owned aircraft, the loan trustee will be entitled
to the benefits of Section 1110 with respect to the airframe and engines
comprising the owned aircraft.
The opinion will not address the possible replacement of an aircraft after
an "Event of Loss", as defined in the applicable indenture, in the future.
RANKING OF EQUIPMENT NOTES
Some of the equipment notes related to one or more aircraft, as described
in the related prospectus supplement, may be subordinated and junior in right of
payment to other equipment notes related to the same aircraft. The terms of the
subordination, if any, will be described in the related prospectus supplement.
PAYMENTS AND LIMITATION OF LIABILITY
We will lease each leased aircraft from an owner trustee for a term
commencing on the delivery date of the aircraft to the owner trustee and
expiring on a date no earlier than the latest maturity date of the related
leased aircraft notes, unless previously terminated as permitted by the terms of
the related lease. We will make basic rent and other payments under each lease
to an owner trustee, as lessor. The owner trustee will assign these payments
under the applicable indenture to the related loan trustee to provide the funds
necessary to pay principal of, premium, if any, and interest due from the owner
trustee on the leased aircraft notes issued under the indenture. Each lease will
provide that under no circumstances will our rent payments be less than the
scheduled payments on the related leased aircraft notes. The balance of any
basic rent payment under each lease, after payment of amounts due on the leased
aircraft notes issued under the indenture corresponding to the lease, will be
paid over to the applicable owner trustee. Our obligation to pay rent and to
cause other payments to be made under each lease will be our direct obligation.
Except in circumstances in which we purchase a leased aircraft and assume
the related leased aircraft notes, the leased aircraft notes will not be our
direct obligation. None of the owner trustees, the owner participants or the
loan trustees will be personally liable to any holder of leased aircraft notes
for amounts payable under the leased aircraft notes. Except as provided in the
indentures relating to the leased aircraft notes, no owner trustee or loan
trustee will be liable for or incur any liability under the indentures. Except
in the circumstances described above, all amounts payable under any leased
aircraft notes, other than payments
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made in connection with an optional redemption or purchase by the related owner
trustee or the related owner participant, will be made only from:
- the assets subject to the lien of the applicable indenture with respect
to the aircraft or the income and proceeds received by the related loan
trustee from that aircraft, including rent payable by us under the
related lease; or
- if so provided in the related prospectus supplement, the applicable
liquidity facility.
With respect to the leased aircraft notes, except as otherwise provided in
the applicable indenture, no owner trustee will be personally liable for any
amount payable or for any statements, representations, warranties, agreements or
obligations under any indenture or under any leased aircraft notes. None of the
owner participants will have any duty or responsibility under the leased
aircraft indentures or under the leased aircraft notes to the related loan
trustee or to any holder of any leased aircraft note.
Our obligations under each owned aircraft indenture and under the owned
aircraft notes will be our direct obligations.
DEFEASANCE OF THE INDENTURES AND THE EQUIPMENT NOTES IN CERTAIN CIRCUMSTANCES
Unless otherwise specified in the applicable prospectus supplement, an
indenture may provide that the obligations of the related loan trustee, the
related owner trustee or us, as the case may be, under that indenture will be
deemed to have been discharged and paid in full on the 91st day after the date
that money or certain United States government securities, in an aggregate
amount sufficient to pay when due (including as a consequence of redemption in
respect of which notice is given on or prior to the date of the deposit)
principal, premium, if any, and interest on all equipment notes issued under
that indenture, are irrevocably deposited with the related loan trustee. The
discharge may occur only if, among other things, there has been published by the
IRS a ruling to the effect that holders of the equipment notes will not
recognize income, gain or loss for federal income tax purposes as a result of
the deposit, defeasance and discharge and will be subject to federal income tax
on the same amount and in the same manner and at the same time as would have
been the case if the deposit, defeasance and discharge had not occurred.
Upon defeasance of the equipment notes, or upon payment in full of the
principal of, premium, if any, and interest on all equipment notes issued under
any indenture on the applicable maturity date, or upon deposit with the
applicable loan trustee of sufficient money no earlier than one year prior to
the date of maturity, the holders of the equipment notes will have no beneficial
interest in or other rights with respect to the related aircraft or other assets
subject to the lien of the indenture and the lien will terminate.
ASSUMPTION OF OBLIGATIONS BY CONTINENTAL
Unless otherwise specified in the applicable prospectus supplement, upon
our purchase of any leased aircraft prior to the end of the applicable term, we
may assume on a full recourse basis all of the obligations of the owner trustee,
other than its obligations in its individual capacity, under the indenture and
the leased aircraft notes relating to that lease. If we assume leased aircraft
notes, provisions relating to maintenance, possession and use of the related
aircraft, liens and insurance will be incorporated into the indenture. If we
assume leased aircraft notes in connection with our purchase of a leased
aircraft, leased aircraft notes issued under the indenture will not be redeemed
and will continue to be secured by the aircraft.
LIQUIDITY FACILITY
The related prospectus supplement may provide that one or more payments of
interest on the related equipment notes of one or more series will be supported
by a liquidity facility issued by an institution identified in the related
prospectus supplement. Unless otherwise provided in the related prospectus
supplement, the provider of the liquidity facility will have a claim upon the
assets securing the equipment notes senior to the claim of the pass through
trustee, as owner of the equipment notes.
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INTERCREDITOR ISSUES
Equipment notes may be issued in different classes, which means that the
equipment notes may have different payment priorities even though they are
issued by the same borrower and relate to the same aircraft. If multiple classes
of equipment notes are issued, the related prospectus supplement will describe
the priority of distributions among the equipment notes, any liquidity
facilities, the ability of any class to exercise and/or enforce any or all
remedies with respect to the related aircraft, and, if the equipment notes are
leased aircraft notes, the related lease, and certain other intercreditor terms
and provisions.
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U.S. INCOME TAX MATTERS
GENERAL
Unless otherwise indicated in the applicable prospectus supplement, the
following summary describes all material generally applicable U.S. federal
income tax consequences to certificateholders of the purchase, ownership and
disposition of the certificates offered by this prospectus, and in the opinion
of Hughes Hubbard & Reed LLP, our special tax counsel, is accurate in all
material respects with respect to the matters discussed in this prospectus.
Except as otherwise specified, the summary is addressed to beneficial owners of
certificates that are citizens or residents of the United States, corporations,
partnerships or other entities created or organized in or under the laws of the
United States or any state therein, or estates or trusts the income of which is
subject to U.S. federal income taxation regardless of its source, and that will
hold the certificates as capital assets.
This summary does not address the tax treatment of U.S. certificateholders
that may be subject to special tax rules, such as banks, insurance companies,
dealers in securities or commodities, tax-exempt entities, holders that will
hold certificates as part of a straddle or holders that have a "functional
currency" other than the U.S. dollar, nor, except as specifically indicated,
does it address the tax treatment of U.S. certificateholders that do not acquire
certificates at the public offering price as part of the initial offering. The
summary is not a comprehensive description of all of the tax considerations that
may be relevant to a decision to purchase certificates. This summary does not
describe any tax consequences arising under the laws of any state, locality or
taxing jurisdiction other than the United States.
The summary is based upon the tax laws and practice of the United States as
in effect on the date of this prospectus, as well as judicial and administrative
interpretations, in final or proposed form, available on or before that date.
Changes to the existing laws could apply retroactively and could alter the tax
consequences discussed below. We have not sought any ruling from the IRS with
respect to the federal income tax consequences, discussed below, and we cannot
assure you that the IRS will not take contrary positions. The pass through
trusts are not indemnified for any federal income taxes that may be imposed upon
them, and the imposition of any such taxes on a pass through trust could result
in a reduction in the amounts available for distribution to the
certificateholders of that pass through trust. Prospective investors should
consult their own tax advisors with respect to the federal, state, local and
foreign tax consequences to them of the purchase, ownership and disposition of
the certificates.
TAX STATUS OF THE PASS THROUGH TRUSTS
In the opinion of our special tax counsel, each pass through trust will be
classified as a grantor trust for U.S. federal income tax purposes.
TAXATION OF CERTIFICATEHOLDERS GENERALLY
A U.S. certificateholder will be treated as owning its pro rata undivided
interest in each of the equipment notes and any other property held by the
related pass through trust. Accordingly, each U.S. certificateholder's share of
interest paid on the equipment notes will be taxable as ordinary income, as it
is paid or accrued, in accordance with such U.S. certificateholder's method of
accounting, and a U.S. certificateholder's share of any premium paid on
redemption of an equipment note will be treated as capital gain. If a pass
through trust is supported by a liquidity facility, any amounts received by the
pass through trust under the liquidity facility with respect to unpaid interest
will be treated for U.S. federal income tax purposes as having the same
characteristics as the payments they replace. If we assume an owner trust's
obligations under leased aircraft notes, the assumption would be treated for
federal income tax purposes as a taxable exchange of the leased aircraft notes,
resulting in recognition of gain or loss by the U.S. certificateholder.
Each U.S. certificateholder will be entitled to deduct, consistent with its
method of accounting, its pro rata share of fees and expenses paid or incurred
by the corresponding pass through trust as provided in Section 162 or 212 of the
Internal Revenue Code of 1986, as amended, referred to herein as the "Code".
Certain fees and expenses, including fees paid to the pass through trustee and
the provider of the liquidity
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facility, if applicable, will be paid by parties other than the
certificateholders. These fees and expenses could be treated as constructively
received by the pass through trust, in which event a U.S. certificateholder will
be required to include in income and will be entitled to deduct its pro rata
share of the fees and expenses. If a U.S. certificateholder is an individual,
estate or trust, the deduction for the certificateholder's share of fees or
expenses will be allowed only to the extent that all of the certificateholder's
miscellaneous itemized deductions, including the certificateholder's share of
fees and expenses, exceed 2% of the certificateholder's adjusted gross income.
In addition, in the case of U.S. certificateholders who are individuals, certain
otherwise allowable itemized deductions will be subject generally to additional
limitations on itemized deductions under applicable provisions of the Code.
EFFECT OF SUBORDINATION OF CERTIFICATEHOLDERS OF SUBORDINATED TRUSTS
If any pass through trust is subordinated in right of payment to any other
pass through trust and the subordinated trust receives less than the full amount
of the interest, principal or premium paid with respect to the equipment notes
held by it because of the subordination of such pass through trust, the
certificateholders of the subordinated trust would probably be treated for
federal income tax purposes as if they had:
- received as distributions their full share of interest, principal, or
premium;
- paid over to the preferred class of certificateholders an amount equal to
their share of the amount of the shortfall; and
- retained the right to reimbursement of the amount of the shortfall to the
extent of future amounts payable to the certificateholders of the
subordinated trust on account of the shortfall.
Under this analysis:
- subordinated certificateholders incurring a shortfall would be required
to include as current income any interest or other income of the
subordinated trust that was a component of the shortfall, even though
that amount was in fact paid to a preferred class of certificateholders;
- a loss would only be allowed to subordinated certificateholders when
their right to receive reimbursement of the shortfall becomes worthless;
that is, when it becomes clear that funds will not be available from any
source to reimburse the shortfall; and
- reimbursement of the shortfall before a claim of worthlessness would not
be taxable income to certificateholders because the amount reimbursed
would have been previously included in income.
These results should not significantly affect the inclusion of income for
certificateholders on the accrual method of accounting, but could accelerate
inclusion of income to certificateholders on the cash method of accounting by,
in effect, placing them on the accrual method.
ORIGINAL ISSUE DISCOUNT
The equipment notes may be issued with original issue discount, referred to
as OID. The prospectus supplement will state whether any equipment notes to be
held by the related pass through trust will be issued with OID. Generally, a
holder of a debt instrument issued with OID that is not negligible must include
the OID in income for federal income tax purposes as it accrues, in advance of
the receipt of the cash attributable to such income, under a method that takes
into account the compounding of interest.
SALE OR OTHER DISPOSITION OF THE CERTIFICATES
Upon the sale, exchange or other disposition of a certificate, a U.S.
certificateholder generally will recognize capital gain or loss equal to the
difference between the amount realized on the disposition, other than any amount
attributable to accrued interest which will be taxable as ordinary income, and
the U.S. certificateholder's adjusted tax basis in the related equipment notes
and any other property held by the corresponding pass through trust. Any gain or
loss will be long-term capital gain or loss to the extent
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attributable to property held by the pass through trust for more than one year.
In the case of individuals, estates, and trusts, the maximum rate of tax on net
long-term capital gains generally is 20%.
FOREIGN CERTIFICATEHOLDERS
Subject to the discussion of backup withholding below, payments of
principal and interest (including any OID) on the equipment notes to, or on
behalf of, any beneficial owner of a certificate that is not a U.S. person will
not be subject to U.S. federal withholding tax provided that:
- the non-U.S. certificateholder does not actually or constructively own
10% or more of the total combined voting power of all classes of stock of
an owner participant or us;
- the non-U.S. certificateholder is not a bank receiving interest pursuant
to a loan agreement entered into in the ordinary course of its trade or
business, or a controlled foreign corporation for U.S. tax purposes that
is related to an owner participant or us; and
- certain certification requirements (including identification of the
beneficial owner of the certificate) are complied with.
Any capital gain realized upon the sale, exchange, retirement or other
disposition of a certificate or upon receipt of premium paid on an equipment
note by a non-U.S. certificateholder will not be subject to U.S. federal income
or withholding taxes if (i) such gain is not effectively connected with a U.S.
trade or business of the non-U.S. certificateholder and (ii) in the case of an
individual, such non-U.S. certificateholder is not present in the United States
for 183 days or more in the taxable year of the sale, exchange, retirement or
other disposition or receipt.
BACKUP WITHHOLDING
Payments made on the certificates will not be subject to a backup
withholding tax of 31% unless, in general, the certificateholder fails to comply
with certain reporting procedures or otherwise fails to establish an exemption
from such tax under applicable provisions of the Code.
ERISA CONSIDERATIONS
Unless otherwise indicated in the applicable prospectus supplement, the
certificates may, subject to certain legal restrictions, be purchased and held
by an employee benefit plan subject to Title I of the Employee Retirement Income
Security Act of 1974, as amended, referred to as "ERISA," or an individual
retirement account or an employee benefit plan subject to section 4975 of the
Code. A fiduciary of an employee benefit plan must determine that the purchase
and holding of a certificate is consistent with its fiduciary duties under ERISA
and does not result in a non-exempt prohibited transaction as defined in section
406 of ERISA or section 4975 of the Code. Employee benefit plans which are
governmental plans, as defined in section 3(32) of ERISA, and certain church
plans, as defined in section 3(33) of ERISA, are not subject to Title I of ERISA
or section 4975 of the Code. The certificates may, subject to certain legal
restrictions, be purchased and held by such plans.
PLAN OF DISTRIBUTION
Certificates may be sold to one or more underwriters for public offering
and resale by them. Certificates may also be sold to investors or other persons
directly or through one or more dealers or agents. Any underwriter, dealer or
agent involved in the offer and sale of the certificates will be named in an
applicable prospectus supplement.
The certificates may be sold:
- at a fixed price or prices, which may be changed;
- at market prices prevailing at the time of sale;
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- at prices related to prevailing market prices; or
- at negotiated prices.
Dealer trading may take place in certain of the certificates, including
certificates not listed on any securities exchange. We do not intend to apply
for listing of the certificates on a national securities exchange. From time to
time, we also may authorize underwriters acting as our agents to offer and sell
the certificates upon the terms and conditions as will be set forth in any
prospectus supplement.
In connection with the sale of certificates, underwriters may be deemed to
have received compensation from us in the form of underwriting discounts or
commissions and may also receive commissions from purchasers of certificates for
whom they may act as agent. Underwriters may sell certificates to or through
dealers, and those dealers may receive compensation in the form of discounts,
concessions or commissions from the underwriters and/or commissions, which may
be changed from time to time, from the purchasers for whom they may act as
agent.
If a dealer is used directly by us in the sale of certificates in respect
of which this prospectus is delivered, we will sell the certificates to the
dealer, as principal. The dealer may then resell the certificates to the public
at varying prices to be determined by the dealer at the time of resale. The
dealer will be named in, and the terms of the sale, will be set forth in the
applicable prospectus supplement.
Certificates may be offered and sold through agents designated by us from
time to time. The agent involved in the offer or sale of the certificates will
be named in, and any commissions payable by us to the agent will be set forth
in, the applicable prospectus supplement. Unless otherwise indicated in the
applicable prospectus supplement, the agent will be acting on a best efforts
basis for the period of its appointment.
We may solicit directly offers to purchase certificates, and certificates
may be sold directly to institutional investors or others who may be deemed to
be underwriters within the meaning of the Securities Act with respect to any
resale. The terms of these sales will be described in the applicable prospectus
supplement. Except as set forth in the applicable prospectus supplement, no
director, officer or employee of ours will solicit or receive a commission in
connection with direct sales by us of the certificates, although those persons
may respond to inquiries by potential purchasers and perform ministerial and
clerical work in connection with our direct sales.
Any underwriting compensation that we pay to underwriters, dealers or
agents in connection with the offering of certificates, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in an applicable prospectus supplement.
Underwriters, dealers and agents participating in the distribution of the
certificates may be deemed to be underwriters, and any discounts and commissions
received by them and any profit realized by them on resale of the certificates
may be deemed to be underwriting discounts and commissions under the Securities
Act. Underwriters, dealers and agents may be entitled under agreements with us
to indemnification against and contribution toward certain civil liabilities,
including liabilities under the Securities Act, and to reimbursement by us for
certain expenses.
Underwriters, dealers and agents may engage in transactions with, or
perform services for, us and our subsidiaries in the ordinary course of
business.
If so indicated in an applicable prospectus supplement and subject to
existing market conditions, we will authorize dealers acting as our agents to
solicit offers by certain institutions to purchase certificates from us at the
public offering price set forth in the applicable prospectus supplement pursuant
to delayed delivery contracts. These contracts will provide for payment and
delivery on the date or dates stated in the applicable prospectus supplement.
Each contract will be for an amount not less than, and the aggregate principal
amount of certificates sold pursuant to these contracts will not be less nor
more than, the respective amounts stated in the applicable prospectus
supplement. Institutions with whom these contracts, when authorized, may be made
include commercial and savings banks, insurance companies, pension funds,
investment companies, educational and charitable institutions and other
institutions, but will in all cases be subject to our approval. These contracts
will not be subject to any conditions, except for the condition that the
purchase by an
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institution of the certificates not be prohibited at the time of delivery under
the laws of any jurisdiction in the United States to which the institution is
subject. A commission set forth in the applicable prospectus supplement will be
granted to underwriters and agents soliciting purchases of certificates pursuant
to contracts accepted by us. Agents and underwriters will have no responsibility
in respect of the delivery or performance of these contracts.
If an underwriter or underwriters is used in the sale of any certificates,
the applicable prospectus supplement will state the intention, if any, of the
underwriters at the date of the prospectus supplement to make a market in the
certificates. We cannot assure you that there will be a market for the
certificates.
The place and time of delivery for the certificates in respect of which
this prospectus is delivered will be set forth in the applicable prospectus
supplement.
LEGAL OPINIONS
Unless otherwise indicated in the applicable prospectus supplement, our
counsel, Hughes Hubbard & Reed LLP, New York, New York, will render an opinion
with respect to the validity of the certificates being offered by such
prospectus supplement. Unless otherwise indicated in the applicable prospectus
supplement, Hughes Hubbard & Reed LLP will rely on the opinion of counsel for
the pass through trustee as to certain matters relating to the authorization,
execution and delivery of the certificates by, and the valid and binding effect
on, the pass through trustee.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule included in our Annual Report on Form 10-K for
the year ended December 31, 1999, as set forth in their reports, which are
incorporated by reference in this prospectus and elsewhere in the registration
statement. Our financial statements and schedule are, and audited consolidated
financial statements to be included in subsequently filed documents will be,
incorporated by reference in reliance on Ernst & Young LLP's reports pertaining
to such financial statements, to the extent covered by consents filed with the
SEC, given on their authority as experts in auditing and accounting.
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