<PAGE>
 
 
                            SCHEDULE 14A INFORMATION
 
         Proxy Statement Pursuant to Section 14(a) of the Securities
                   Exchange Act of 1934 (Amendment No.  )
 
Filed by the Registrant [X]
 
Filed by a Party other than the Registrant [_]
 
Check the appropriate box:
 
[ ] Preliminary Proxy Statement        [_]  Confidential, for Use of the
                                            Commission Only (as permitted by
                                            Rule 14a-6(e)(2))
[X] Definitive Proxy Statement              
 
[_] Definitive Additional Materials
 
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
 
                          CONTINENTIAL AIRLINES, INC.
- --------------------------------------------------------------------------------
                (Name of Registrant as Specified In Its Charter)
 

- ------------------------------------------------------------------------------- 
     (Name of Person(s) Filing Proxy Statement, if other than the Registrant)
 
Payment of Filing Fee (Check the appropriate box):
 
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
    or Item 22(a)(2) of Schedule 14A.
 
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
    6(i)(3).
 
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
 
    (1) Title of each class of securities to which transaction applies:

    ---------------------------------------------------------------------------

 
    (2) Aggregate number of securities to which transaction applies:

    ----------------------------------------------------------------------------

 
    (3) Per unit price or other underlying value of transaction computed
        pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the 
        filing fee is calculated and state how it was determined):

    ----------------------------------------------------------------------------


    (4) Proposed maximum aggregate value of transaction:

    ---------------------------------------------------------------------------


    (5) Total fee paid:

    ---------------------------------------------------------------------------

[X] Fee paid previously with preliminary materials.
 
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
    0-11(a)(2) and identify the filing for which the offsetting fee was paid
    previously. Identify the previous filing by registration statement number,
    or the Form or Schedule and the date of its filing.
 
    (1) Amount Previously Paid:

    ----------------------------------------------------------------------------

 
    (2) Form, Schedule or Registration Statement No.:

    ---------------------------------------------------------------------------

 
    (3) Filing Party:

    ---------------------------------------------------------------------------

 
    (4) Date Filed:

    ---------------------------------------------------------------------------
 
Notes:

<PAGE>
 
                 [Logo of Continental Airlines appears here]
 
                                 May 15, 1996
 
To Our Stockholders:
 
  On behalf of the Board of Directors, we are pleased to invite you to attend
the Continental Airlines, Inc. 1996 Annual Meeting of Stockholders. As
indicated in the attached notice, the meeting will be held at The Hyatt
Regency, 1200 Louisiana Street, Houston, Texas on Wednesday, June 26, 1996, at
9:30 a.m., local time. At the meeting, in addition to acting on the matters
described in the attached proxy statement, there will be an opportunity to
discuss other matters of interest to you as a stockholder.
 
  Please date, sign and mail the enclosed proxy card in the envelope provided,
even if you plan to attend the meeting in person. We look forward to seeing
you in Houston.
 
                                          Cordially,
 
                                          LOGO
                                          [SIGNATURE OF DAVID BONDERMAN
                                          APPEARS HERE]
                                          David Bonderman
                                          Chairman of the Board
 
                                          LOGO
                                          [SIGNATURE OF GORDON BETHUNE APPEARS
                                          HERE]
                                          Gordon Bethune
                                          President and Chief Executive
                                           Officer

<PAGE>
 
                          CONTINENTAL AIRLINES, INC.
                        2929 ALLEN PARKWAY, SUITE 2010
                             HOUSTON, TEXAS 77019
 
                               ----------------
 

                 NOTICE OF 1996 ANNUAL MEETING OF STOCKHOLDERS
                           TO BE HELD JUNE 26, 1996
 
                               ----------------
 
  NOTICE IS HEREBY GIVEN that the 1996 Annual Meeting of Stockholders of
Continental Airlines, Inc., a Delaware corporation (the "Company" or
"Continental"), will be held at The Hyatt Regency, 1200 Louisiana Street,
Houston, Texas, on Wednesday, June 26, 1996, at 9:30 a.m., local time, for the
following purposes:
 
  1. To elect twelve directors to serve until the next annual meeting of
stockholders, assuming that the amendments to the Company's charter described
in Proposal 4 are approved by stockholders, or to elect eighteen directors to
serve until the next annual meeting of stockholders if such amendments are not
approved;
 
  2. To consider and act upon a proposal to approve certain amendments to the
Company's 1994 Incentive Equity Plan, as amended;
 
  3. To consider and act upon a proposal to approve the Company's Executive
Bonus Program;
 
  4. To consider and act upon a proposal to amend and restate the Company's
charter;
 
  5. To consider and act upon a proposal to ratify the appointment of Ernst &
Young LLP, independent public accountants, as independent auditors of the
Company and its subsidiaries for 1996; and
 
  6. To consider and act upon any other matters that may properly come before
the Annual Meeting or any adjournment or adjournments thereof.
 
  The holders of record of the Company's common stock at the close of business
on April 30, 1996 are entitled to notice of and to vote at the Annual Meeting.
 
                                          By Order of the Board of Directors,
 
                                    
                                          [SIGNATURE OF JEFFERY A. SMISEK
                                          APPEARS HERE]
                                          Jeffery A. Smisek
                                          Secretary
 
Houston, Texas
M
ay 15, 1996
 
  PLEASE SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY BY MAIL IN
THE ENCLOSED ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN
PERSON. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. IF YOU DO
ATTEND THE MEETING IN PERSON AND DESIRE TO WITHDRAW YOUR PROXY, YOU MAY DO SO
IN THE MANNER DESCRIBED IN THE ENCLOSED PROXY STATEMENT AND VOTE PERSONALLY ON
ALL MATTERS BROUGHT BEFORE THE MEETING.

<PAGE>
 
                          CONTINENTAL AIRLINES, INC.
                        2929 ALLEN PARKWAY, SUITE 2010
                             HOUSTON, TEXAS 77019
 
                               ----------------
 
                                PROXY STATEMENT
 
                      1996 ANNUAL MEETING OF STOCKHOLDERS
                           TO BE HELD JUNE 26, 1996
 
                               ----------------
 
  This proxy statement is furnished in connection with the solicitation by and
on behalf of the Board of Directors of Continental Airlines, Inc., a Delaware
corporation (the "Company" or "Continental"), of proxies to be voted at the
1996 Annual Meeting of Stockholders of the Company or any adjournment or
adjournments thereof (the "Meeting"), to be held at The Hyatt Regency, 1200
Louisiana Street, Houston, Texas on Wednesday, June 26, 1996, at 9:30 a.m.,
local time, for the purposes set forth in the accompanying Notice of 1996
Annual Meeting of Stockholders. This proxy statement and the accompanying
proxy, together with a copy of the Company's 1995 Annual Report, are being
first mailed to stockholders on or about May 15, 1996.
 
THE PROXY
 
  Stockholders giving proxies may revoke them at any time before they are
voted by notifying the Secretary of the Company in writing of such revocation
or by delivering to such Secretary a duly executed proxy bearing a later date.
Any such revocation or subsequent proxy must be received prior to the
commencement of voting at the Meeting to be effective. Air Canada, a Canadian
corporation, has delivered an irrevocable proxy in favor of Air Partners,
L.P., a Texas limited partnership ("Air Partners"), authorizing Air Partners
to vote, in its sole discretion, all the shares of common stock beneficially
owned, directly or indirectly, by Air Canada as of the record date (described
below under "Record Date and Voting Securities") (approximately 23.6% of the
voting power of all voting securities outstanding as of such record date) with
respect to the matters set forth in the accompanying Notice. Air Partners has
indicated to the Company that it intends to vote all such shares in favor of
all such matters and, unless otherwise directed by its investors with respect
to the shares of the Company held by Air Partners that are attributable to
such investors' respective limited partnership interests, to vote the shares
of common stock held by it as of the record date (approximately 35.7% of the
voting power of all voting securities outstanding as of such date) in favor of
all such matters. As a result, the matters set forth in Proposals 1, 2, 3, and
5 are expected to be approved at the Meeting. If a proxy is properly signed by
a holder of common stock and is not revoked, it will be voted at the Meeting
in the manner specified on the proxy or, if no manner is specified, it will be
voted "FOR" the election of directors nominated by the Board of Directors of
the Company (the "Board of Directors") and "FOR" approval of the other matters
set forth in the accompanying Notice.
 
  The Company will bear the costs of the solicitation of proxies. In addition
to the solicitation of proxies by mail, proxies may also be solicited by
telephone, telegram, fax and in person by regular employees and directors of
the Company, none of whom will receive additional compensation therefor, and
by Morrow & Co., Inc., which the Company has retained to assist in the
solicitation of proxies for a fee estimated not to exceed $5,000 plus
reasonable out-of-pocket expenses. Arrangements will be made with brokerage
houses and with other custodians, nominees and fiduciaries to forward proxy
soliciting materials to beneficial owners, and the Company will reimburse such
persons for their reasonable out-of-pocket expenses incurred in connection
therewith.
 
RECORD DATE AND VOTING SECURITIES
 
  The Board of Directors fixed the close of business on April 30, 1996 as the
record date for the determination of stockholders entitled to notice of and to
vote at the Meeting. At the close of business on the record date, the Company
had outstanding 6,301,056 shares of Class A common stock, par value $.01 per
share, and 21,492,124 shares of Class B common stock, par value $.01 per
share.

<PAGE>
 
  Continental's Restated Certificate of Incorporation ("Charter") currently
authorizes the issuance of up to 10 million shares of preferred stock, 50
million shares each of Class A common stock, Class C common stock and Class D
common stock, and 100 million shares of Class B common stock. No shares of
Class C common stock or Class D common stock have been issued. Subject to
certain limitations on voting by non-U.S. citizens, each share of Class A
common stock is entitled to ten votes per share and each share of Class B
common stock is entitled to one vote per share. The holders of shares
representing a majority of the aggregate voting power of the outstanding
voting securities entitled to vote at the Meeting, present or represented by
proxy, will constitute a quorum for the transaction of business at the
Meeting.
 
  In establishing the presence of a quorum, abstentions and broker non-votes
(if any) will be included in the determination of the number of shares
represented at the Meeting. Abstentions are treated as votes cast and thus
will have the same effect as a vote against a proposal. Broker non-votes are
not treated as votes cast or shares entitled to vote with respect to a matter
and thus will not affect the election of directors (who will be elected by a
plurality of the votes cast at the Meeting), or the outcome of the proposals
to (i) adopt the proposed amendment to the Company's 1994 Incentive Equity
Plan, as amended (the "Incentive Equity Plan") (which requires the affirmative
vote of a majority of the votes present or represented at the Meeting and
entitled to vote), (ii) approve the Executive Bonus Program (which requires
approval by a majority of the votes cast) or (ii) ratify the appointment of
independent auditors (which requires approval by a majority of the votes
cast). However, the proposed amendments to the Charter require the affirmative
vote of two-thirds of the votes outstanding as of the record date;
consequently, broker non-votes will have the same effect as a vote against
this proposal.
 
LIMITATION ON VOTING BY FOREIGN OWNERS
 
  The Charter defines "Foreign Ownership Restrictions" as "applicable
statutory, regulatory and interpretive restrictions regarding foreign
ownership or control of U.S. air carriers (as amended or modified from time to
time)". Such restrictions currently require that no more than 25% of the
voting stock of the Company be owned or controlled, directly or indirectly, by
persons who are not U.S. Citizens ("Foreigners") for purposes of the Foreign
Ownership Restrictions, and that the Company's president and at least two-
thirds of its directors be U.S. Citizens. For purposes of the Charter, "U.S.
Citizen" means (i) an individual who is a citizen of the United States; (ii) a
partnership each of whose partners is an individual who is a citizen of the
United States; or (iii) a corporation or association organized under the laws
of the United States or a State, the District of Columbia, or a territory or
possession of the United States, of which the president and at least two-
thirds of the board of directors and other managing officers are citizens of
the United States, and in which at least 75% of the voting interest is owned
or controlled by persons who are citizens of the United States. The Charter
provides that no shares of capital stock may be voted by or at the direction
of Foreigners, unless such shares are registered on a separate stock record
(the "Foreign Stock Record") maintained by the Company for the registration of
ownership of voting stock by Foreigners. The Company's bylaws ("Bylaws")
further provide that no shares will be registered on the Foreign Stock Record
if the amount so registered would cause the Company to violate the Foreign
Ownership Restrictions or adversely affect the Company's operating
certificates or authorities. Registration on the Foreign Stock Record is made
in chronological order based on the date the Company receives a written
request for registration, except that shares held by Air Canada and, after
such shares, shares acquired by Air Partners in connection with its original
investment in the Company that are subsequently transferred to any Foreigner,
are entitled to be registered prior to, and to the exclusion of, other shares.
Shares owned by Air Canada as of the record date and registered on the Foreign
Stock Record constitute substantially the maximum number of shares that may be
voted by Foreigners at the Meeting in accordance with the Foreign Ownership
Restrictions. As described below, in light of certain recent transactions, the
Bylaws are being amended (effective immediately after the Meeting) to delete
Air Canada's preferential right to be listed on the Foreign Stock Record, and
Air Canada has converted (subsequent to the record date) all its shares of
Class A common stock to Class B common stock, substantially increasing the
number of shares of common stock that may be registered on the Foreign Stock
Record by Foreigners other than Air Canada.
 
                                       2

<PAGE>
 
                              RECENT DEVELOPMENTS
 
  On April 19, 1996, the Board of Directors approved certain agreements (the
"Agreements") among the Company, Air Canada and Air Partners. See "Certain
Transactions." The Agreements contain a variety of arrangements intended
generally to reflect the intention that Air Canada has expressed to the
Company of divesting its investment in Continental by early 1997, subject to
market conditions. Air Canada has indicated to the Company that its original
investment in Continental has become less central to Air Canada in light of
other initiatives it has undertaken--particularly expansion within Canada and
exploitation of the 1995 Open Skies agreement to expand Air Canada's own
flights into the United States. Because of these initiatives, Air Canada has
determined it appropriate to redeploy the funds invested in the Company into
other uses in Air Canada's business. The Agreements also reflect the
distribution by Air Partners, effective March 29, 1996, to its investors (the
"AP Investors") of all of the shares of Class B common stock held by Air
Partners and the desire of some of the AP Investors to realize the increase in
value of their investment in the Company by selling a portion of their shares
of Class B common stock.
 
  Among other things, the Agreements required the Company to file a
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), to permit the sale by Air Canada of 2,200,000 shares of the
Class B common stock held by it and by certain of the AP Investors of an
aggregate of 1,730,240 such shares pursuant to an underwritten offering
arranged by the Company. The sale of these shares by Air Canada and the AP
Investors was completed on May 14, 1996. The Agreements provided for the
following additional steps to be taken in connection with the completion of
this offering:
 
  . in light of its reduced stake in the Company, Air Canada will no longer
    be entitled to designate nominees to the Board of Directors of the
    Company, will cause the four current or former members of the Air Canada
    board who currently serve as directors of Continental to decline
    nomination for reelection as directors (except as described under
    Proposal 1 below), and will convert all of its Class A common stock to
    Class B common stock;
 
  . Air Canada and Air Partners have entered into a number of agreements
    restricting, prior to December 16, 1996, further disposition of the
    common stock of the Company held by either of them; and
 
  . each of the existing Subscription and Stockholders' Agreement (the
    "Original Stockholders' Agreement") and the Registration Rights Agreement
    (the "Original Registration Agreement"), entered into by Air Canada, Air
    Partners and the Company in 1993 when Air Canada and Air Partners made
    their original investment in the Company, has been modified in a number
    of respects to reflect, among other matters, the changing composition of
    the respective equity interests of the parties.
 
  After such sale and the conversion by Air Canada of its Class A common stock
into Class B common stock, Air Canada holds approximately 10.1% of the common
equity interests and 4.0% of the general voting power of the Company, and Air
Partners holds approximately 9.9% of the common equity interests and 39.4% of
the general voting power of the Company. In addition, assuming exercise of all
of the warrants held by Air Partners, approximately 23.4% of the common equity
interests and 52.2% of the general voting power would by held by Air Partners.
 
  As a result of the reduction by Air Canada of its interest in the Company
and the decision of the current directors designated by Air Canada not to
stand for reelection to the Board (except as described under Proposal 1
below), as well as the expiration of the requirement that the Board include
three members designated by the committee of creditors from the Company's 1993
reorganization, the Board has approved changes to the Charter (see Proposal 4)
and Bylaws that are intended to streamline the Company's corporate governance
structure. These include deleting the requirement that the Board be comprised
of 18 members, allowing the Board to fix the size of the Board, the
elimination of supermajority provisions and the elimination of Air Canada's
right to appoint a specified number of directors upon the occurrence of
certain specified events. The Board has proposed that the number of directors
be reduced initially to 12 and has nominated a correspondingly reduced slate
of directors. If the amendments to the Charter are not approved, stockholders
will be asked to elect an alternate slate of directors comprised of 18
persons.
 
                                       3

<PAGE>
 
                   VOTING RIGHTS AND PRINCIPAL STOCKHOLDERS
 
  The following table sets forth, as of April 30, 1996 (except as otherwise
set forth below), certain information with respect to persons owning
beneficially (to the knowledge of the Company) more than five percent of any
class of the Company's voting securities. The table also sets forth the
respective general voting power of such persons. Information in the table is
based on reports that have been filed with Securities and Exchange Commission
(the "SEC" or the "Commission") pursuant to the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and information furnished to the
Company by such holders. In accordance with regulations promulgated by the
Commission, the table reflects for each beneficial owner the exercise of
warrants or the conversion of convertible securities (exercisable or
convertible within 60 days after the record date) owned by such beneficial
owner, but, in determining the percentage ownership of such person, does not
assume the exercise of warrants or the conversion of securities owned by any
other person.
 
  In connection with the transactions described above under "Recent
Developments," Air Canada irrevocably waived its right to exchange certain
shares of Class B common stock for shares of Class A common stock;
accordingly, no such potential exchange is shown in the following table. In
addition, in May 1996, Air Canada converted all its Class A common stock shown
below to Class B common stock. See "Recent Developments."
 

<TABLE>
<CAPTION>
                                              AMOUNT AND
                                                NATURE               GENERAL
   NAME AND ADDRESS                          OF BENEFICIAL  PERCENT   VOTING
 OF BENEFICIAL HOLDER      TITLE OF CLASS      OWNERSHIP    OF CLASS POWER(1)
 --------------------   -------------------- -------------  -------- --------
<S>                     <C>                  <C>            <C>      <C>
Air Canada              Class A common stock   1,661,056      26.4%    23.6%
Air Canada Center       Class B common stock   3,338,944      15.5%
Montreal Int'l Airport
(Dorval)
P.O. Box 14000
Postal Station, St.
 Laurent
Canada HAY 1H4
Air Partners, L.P.(2)   Class A common stock   4,259,734(3)   54.5%    44.6%
2420 Texas Commerce
 Tower                  Class B common stock   3,382,632(4)   13.6%
201 Main Street
Fort Worth, TX 75102
American General
 Corporation            Class A common stock     774,496(5)   11.8%     9.9%
2929 Allen Parkway      Class B common stock     997,381(6)    4.5%
Houston, TX 77019
FMR Corp.               Class B common stock   3,657,250(7)   16.6%     4.3%
82 Devonshire Street
Boston, MA 02109
</TABLE>

- --------
(1) Each share of Class A common stock is entitled to ten votes, and each
    share of Class B common stock is entitled to one vote. General Voting
    Power includes the combined total of the votes attributable to Class A
    common stock and Class B common stock.
(2) Based on reports filed with the Commission pursuant to the Exchange Act,
    the general partners of Air Partners are 1992 Air GP, managing general
    partner, and Air II General, Inc. The general partners of 1992 Air GP are
    1992 Air, Inc., majority general partner, and Air Saipan, Inc. David
    Bonderman is the controlling shareholder of Air II General, Inc. and 1992
    Air, Inc. and accordingly may be deemed the beneficial owner of shares
    held by Air Partners. In addition, Mr. Bonderman holds, directly and
    indirectly, limited partnership interests in Air Partners. Mr. Bonderman
    also holds director stock options to purchase 3,000 shares of Class B
    common stock and may be deemed to own 369,108 shares of Class B common
    stock owned as of the record date by 1992 Air, Inc. and 2,403 shares of
    Class B common stock owned as of the record date by Air II General, Inc.
    that are not included in the amounts shown. Bonderman Family Limited
    Partnership, of which David Bonderman is the general partner, holds 8,200
    shares of Class A common stock and 441,225 shares of Class B common stock
    that are not included in the amounts shown. The holders of limited
 
                                       4

<PAGE>
 
   partnership interests in Air Partners, together with Air Partners, may be
   deemed to be acting as a group for purposes of the federal securities laws.
   Bonderman Family Limited Partnership holds limited partnership interests in
   Air Partners. On the basis of certain provisions of the limited partnership
   agreement of Air Partners, Bonderman Family Limited Partnership may be
   deemed to beneficially own the shares of Class A common stock and any Class
   B common stock beneficially owned by Air Partners that are attributable to
   such limited partnership interests. However, Bonderman Family Limited
   Partnership, pursuant to Rule 13d-4 under the Exchange Act, disclaims
   beneficial ownership of all such shares. The estate of Larry L. Hillblom,
   solely in its capacity as the sole shareholder of Air Saipan, Inc., may be
   deemed the beneficial owner of shares of Class A common stock and any Class
   B common stock held by Air Partners. In addition, the estate of Mr.
   Hillblom also holds limited partnership interests in Air Partners. On the
   basis of certain provisions of the limited partnership agreement of Air
   Partners, the estate of Mr. Hillblom may be deemed to beneficially own the
   shares of Class A common stock and any Class B common stock beneficially
   owned by Air Partners that are attributable to such limited partnership
   interests. Bondo Air Limited Partnership ("Bondo Air"), solely in its
   capacity as a limited partner of Air Partners, may be deemed to
   beneficially own the shares of Class A common stock and any Class B common
   stock held by Air Partners that are attributable to such limited
   partnership interest. However, Bondo Air, pursuant to Rule 13d-4 under the
   Exchange Act, disclaims beneficial ownership of all such shares. Mr.
   Alfredo Brener, through a limited partnership whose corporate general
   partner he controls, owns warrants to purchase a 98.5% limited partnership
   interest in Bondo Air, and on the basis of certain provisions of the
   limited partnership agreement of Bondo Air, Mr. Brener may be deemed to
   beneficially own such limited partnership interests and, in turn, the
   shares attributable to Bondo Air's limited partnership interest in Air
   Partners. However, Mr. Brener, pursuant to Rule 13d-4 under the Exchange
   Act, disclaims beneficial ownership of all such shares. Donald Sturm, a
   director of the Company, holds a limited partnership interest in Air
   Partners. On the basis of certain provisions of the limited partnership
   agreement of Air Partners, Mr. Sturm may be deemed to beneficially own the
   shares of Class A common stock and any Class B common stock beneficially
   owned by Air Partners that are attributable to such limited partnership
   interest. However, Mr. Sturm, pursuant to Rule 13d-4 under the Exchange
   Act, disclaims beneficial ownership of all such shares.
(3) Includes 1,519,734 shares issuable upon exercise of warrants held by Air
    Partners to purchase Class A common stock.
(4) Represents shares subject to warrants held by Air Partners to purchase
    Class B common stock.
(5) Based on reports filed with the Commission under the Exchange Act, the
    shares reported represent the proportionate interest in shares
    beneficially owned by Air Partners, of which American General Corporation
    ("American General") is a limited partner, including shares issuable upon
    exercise of warrants held by Air Partners to purchase 276,315 shares of
    Class A common stock. On the basis of certain provisions of the limited
    partnership agreement of Air Partners, American General may be deemed to
    beneficially own the shares of Class A common stock and any Class B common
    stock beneficially owned by Air Partners that are attributable to such
    limited partnership interest. However, American General, pursuant to Rule
    13d-4 under the Exchange Act, disclaims beneficial ownership of all such
    shares. American General may be deemed to share voting and dispositive
    power with respect to all such shares.
(6) Based on reports filed with the Commission under the Exchange Act, the
    reported shares include 283 shares held by an indirect wholly owned
    subsidiary of American General and 615,024 shares issuable upon exercise
    of warrants held by Air Partners to purchase Class B common stock and
    attributable to the limited partnership interest of American General in
    Air Partners. American General may be deemed to share voting and
    dispositive power with respect to such 615,307 shares.
(7) Based on reports filed with the Commission under the Exchange Act and
    information furnished to the Company, the shares reported include 165,589
    shares of Class B common stock issuable upon conversion of the Company's 
    6-3/4% Convertible Subordinated Notes due April 15, 2006 and 420,011 shares
    of Class B common stock issuable upon conversion of the Company's 8-1/2%
    Convertible Preferred Securities of Trust. FMR, together with its wholly
    owned subsidiaries, Fidelity Management & Research Company and Fidelity
    Management Trust Company, has sole dispositive power with respect to all
    of the shares beneficially owned by it and sole voting power with respect
    to 2,509,399 of such shares. FMR has no shared voting or dispositive
    power. Members of the Edward D. Johnson 3d family own approximately 49% of
    the voting power of FMR Corp.
 
                                       5

<PAGE>
 
BENEFICIAL OWNERSHIP OF COMMON STOCK OF DIRECTORS, NOMINEES AND EXECUTIVE
OFFICERS
 
  The following table shows, as of April 30, 1996, the number of shares of
Class B common stock beneficially owned by each of the current directors and
director nominees, the executive officers named in the Summary Compensation
Table, and all executive officers and directors as a group. The beneficial
ownership of Class A common stock by certain of such persons is described in
the footnotes to the table. See also "Voting Rights and Principal
Stockholders."
 

<TABLE>
<CAPTION>
                           AMOUNT AND
                           NATURE OF
   NAME OF BENEFICIAL      BENEFICIAL        PERCENT
         OWNERS           OWNERSHIP(1)       OF CLASS
   ------------------     ------------       --------
<S>                       <C>                <C>
Thomas J. Barrack, Jr...       5,800(2)           *
Gordon M. Bethune.......     215,319(3)         1.0%
David Bonderman.........   4,341,052(4)        17.5%
Gregory D. Brenneman....     221,955(5)         1.0%
Joel H. Cowan...........       3,000(6)           *
Patrick Foley...........     783,468(7)         3.6%
Rowland C. Frazee, C.C..       3,000(6)           *
Hollis L. Harris........   3,341,944(8)        15.6%
Dean C. Kehler..........       1,500(9)           *
Lawrence W. Kellner.....      90,545(10)          *
Robert L. Lumpkins......       3,000(6)           *
Douglas H. McCorkindale.       3,000(6)           *
C.D. McLean.............      49,500(11)          *
David E. Mitchell, O.C..   3,341,944(8)        15.6%
George G.C. Parker......         200              *
Richard W. Pogue........       3,000(6)(12)       *
William S. Price III....   3,387,132(13)       13.6%
Barry P. Simon..........      48,736(14)          *
Donald L. Sturm.........     642,001(15)        3.0%
Claude I. Taylor, O.C...   3,342,944(8)        15.6%
Karen Hastie Williams...       3,000(6)           *
Charles A. Yamarone.....       5,500(16)          *
All executive officers
and directors as a
group...................   9,171,211(17)       36.1%
</TABLE>

- --------
 * Less than 1%
(1) The persons listed have the sole power to vote and dispose of the shares
    beneficially owned by them except as otherwise indicated.
(2) Includes 1,500 shares subject to a vested director stock option, and 1,500
    shares held in trust for the benefit of Mr. Barrack's children, as to which
    shares Mr. Barrack disclaims beneficial ownership.
(3) Includes 137,500 shares subject to vested options to purchase shares.
(4) Includes 3,000 shares subject to vested director stock options, 441,225
    shares beneficially owned by Bonderman Family Limited Partnership, 369,108
    shares owned as of the record date by 1992 Air, Inc. and 2,403 shares owned
    as of the record date by Air II General, Inc. (see note 2 to the previous
    table). Also includes 3,382,632 shares subject to warrants owned by Air
    Partners, which Mr. Bonderman may be deemed to own beneficially (see note 2
    to the previous table) and which Mr. Price may be deemed to own
    beneficially through shared voting and dispositive power as a Managing
    Director of Air Partners. Does not include 8,200 shares of Class A common
    stock beneficially owned by Bonderman Family Limited Partnership. Also does
    not include 2,740,000 shares of Class A common stock beneficially owned by
    Air Partners or 1,519,734 such shares subject to warrants (collectively,
    54.5% of the class) owned by Air Partners, which Messrs. Bonderman and
    Price also may be deemed to own beneficially (see note 2 to the previous
    table).
 
                                       6

<PAGE>
 
 (5) Includes 137,500 shares subject to a vested option and 37,500 restricted
     shares scheduled to vest in 50% increments on April 27, 1997 and 1998.
 (6) Represents shares subject to vested director stock options.
 (7) Includes 3,000 shares subject to vested director stock options. Also
     includes 322,970 shares held by DHL Management Services, Inc. ("DHL
     Management") and 457,498 shares representing the proportionate interest
     of DHL Management in shares issuable upon exercise of warrants held by
     Air Partners to purchase shares of Class B common stock. Does not include
     DHL Management's interest in 370,582 shares of Class A common stock
     beneficially owned by Air Partners or 205,543 shares of such stock
     issuable upon exercise of warrants held by Air Partners. DHL Management,
     and Mr. Foley as President of DHL Management, may be deemed to have
     voting and shared dispositive power with respect to all such shares.
 (8) Includes 3,000 shares subject to vested director stock options. Also
     includes 3,338,944 shares beneficially owned as of the record date by Air
     Canada. Does not include 1,661,056 shares of Class A common stock
     beneficially owned by Air Canada, which were converted to Class B common
     stock subsequent to the record date. Mr. Harris, as the "shareholder
     representative" of Air Canada, may be deemed to have sole voting power
     with respect to all such shares. Messrs. Harris, Mitchell and Taylor, as
     directors of Air Canada, may be deemed to have shared dispositive power
     with respect to all such shares.
 (9) Represents shares subject to a vested director stock option.
(10) Includes 37,500 shares subject to a vested option, or vesting within 60
     days after April 30, 1996, and 37,500 restricted shares scheduled to vest
     in 33 1/3% increments on June 5, 1996, 1997 and 1998.
(11) Includes 37,500 shares subject to a vested option and 5,000 restricted
     shares scheduled to vest on April 4, 1997.
(12) Does not include 3,000 shares of Class A common stock owned by Mr. Pogue.
(13) Includes 3,000 shares subject to vested director stock options. Also
     includes 1,500 shares held by Mr. Price's spouse, as to which shares Mr.
     Price disclaims beneficial ownership, shares held by Air Partners and
     shares subject to warrants held by Air Partners, each as described in
     note 4, above.
(14) Includes 37,500 shares subject to a vested option.
(15) Includes 3,000 shares subject to vested director stock options. Also
     includes 30,200 shares held in trusts for the benefit of Mr. Sturm's
     children, 15,100 shares held in a charitable trust for which Mr. Sturm
     acts as Trustee, 4,300 shares held by a corporation of which Mr. Sturm is
     the principal stockholder, and 285,937 shares representing the
     proportionate interest of Mr. Sturm in shares issuable upon exercise of
     warrants held by Air Partners to purchase shares of Class B common stock.
     Does not include Mr. Sturm's proportionate interest in 231,615 shares of
     Class A common stock beneficially owned by Air Partners or 128,465 such
     shares subject to warrants owned by Air Partners. Mr. Sturm is a limited
     partner of Air Partners and, as such, may be deemed to share voting and
     dispositive power with respect to the shares beneficially owned by Air
     Partners that are attributable to such limited partnership interest.
(16) Includes 1,500 shares subject to a vested director stock option.
(17) Includes 549,750 shares subject to vested options held by officers and
     non-employee directors of the Company and 3,382,632 shares subject to
     warrants owned by Air Partners. See notes 4, 7 and 15. Does not include
     2,740,000 shares of Class A common stock beneficially owned by Air
     Partners or 1,519,734 such shares subject to warrants owned by Air
     Partners. Also includes 3,338,944 shares beneficially owned as of the
     record date by Air Canada. See note 8. Does not include 1,661,056 shares
     of Class A common stock beneficially owned by Air Canada, which were
     converted to Class B common stock subsequent to the record date, or 4,000
     shares of Class A common stock held by certain executive officers and
     directors. See, e.g., note 12.
 
                                       7

<PAGE>
 
                              GENERAL INFORMATION
 
BOARD OF DIRECTORS MEETINGS
 
  Regular meetings of the Board of Directors are generally held four times per
year and special meetings are scheduled when required. The Board held four
regular meetings and three special meetings in 1995.
 
COMMITTEES OF THE BOARD
 
  The Audit Committee has the authority and power to act on behalf of the
Board of Directors with respect to the appointment of independent auditors for
the Company and with respect to authorizing any special audit or audit-related
activities which, in its discretion, are deemed necessary to perform its
functions. The committee monitors the audit activities of the Company and its
subsidiaries to assure that they have installed proper accounting and audit
controls. The committee, which consists of six non-employee directors, met
seven times in 1995.
 
  The Executive Committee exercises certain powers of the Board of Directors
between Board meetings. The committee, which consists of two non-employee
directors and one officer-director of the Company, held no formal meetings in
1995, but took a number of actions by unanimous written consent in lieu of
such meetings.
 
  The Finance and Strategy Committee reviews the Company's short and long-term
strategic plans and its plans for raising capital and increasing liquidity,
and makes recommendations to the Board of Directors regarding implementation
of those plans as the committee deems appropriate. The committee, which
consists of two officer-directors and seven non-employee directors, met five
times in 1995.
 
  The Human Resources Committee has the authority and power to act on behalf
of the Board of Directors with respect to all matters relating to the
employment of senior officers by the Company or its subsidiaries, including
but not limited to approval of compensation, benefits, incentives and
employment contracts, and relating to loans to any officers or employees and
administration of the Company's 1994 Employee Stock Purchase Plan and the
Incentive Equity Plan. The committee, which consists of seven non-employee
directors, met six times in 1995.
 
  The Company does not have a nominating committee.
 
  During 1995, each director of the Company other than Mr. Barrack attended
more than 75% of the sum of the total number of meetings of the Board and each
committee of which he or she was a member.
 

COMPENSATION OF DIRECTORS
 
  Members of the Company's Board of Directors who are not full-time employees
of the Company are paid $15,000 per year, plus $1,000 (or $1,500 for the
chairperson) for each Board and committee meeting attended. Stock options
relating to 1,500 shares of Class B common stock are automatically granted to
non-employee directors on the day following each annual meeting of
stockholders and bear exercise prices equal to the fair market value of such
stock on such date. In addition, each non-employee director receives certain
lifetime flight benefits, including space-available personal and family flight
passes, a travel card permitting positive space travel by the director, the
director's family and certain other individuals (which is taxable to the
director, subject to the payment of certain of such taxes by the Company
during Board service), a frequent flyer card and an airport lounge card.
 
  Full-time employees of the Company who serve as directors receive
reimbursement of expenses incurred in attending meetings, in addition to
flight and other benefits provided in their employment agreements or shared
generally by other employees of the Company.
 
                                       8

<PAGE>
 
EXECUTIVE OFFICERS
 
  The following table sets forth certain information with respect to the
Company's current executive officers:
 

<TABLE>
<CAPTION>
   NAME, AGE AND POSITION          TERM OF OFFICE AND BUSINESS EXPERIENCE
   ----------------------          --------------------------------------
<S>                           <C>
GORDON M. BETHUNE, age 54     President and Chief Executive Officer since
 President, Chief Executive   November 1994. Director since August 1994;
 Officer and Director         President and Chief Operating Officer (February
 (Executive Committee,        1994-November 1994); various positions with The
 Finance and Strategy         Boeing Company commencing in 1988, including
 Committee)                   Vice President and General Manager of the
                              Commercial Airplane Group Renton Division, Vice
                              President and General Manager of the Customer
                              Services Division, and Vice President of Airline
                              Logistics Support.
GREGORY D. BRENNEMAN, age 34  Chief Operating Officer since May 1995. Director
 Chief Operating Officer and  since June 1995. Consultant to the Company
 Director (Finance and        (February-April 1995); Various positions,
 Strategy Committee)          including Vice President, with Bain & Company,
                              Inc. (consulting firm) for more than five years.
B. BEN BALDANZA, age 34       Senior Vice President--Pricing and Route
 Senior Vice President--      Scheduling since April 1996; Vice President--
 Pricing and Route            Pricing and Route Scheduling (November 1995-
 Scheduling                   April 1996); Vice President--Pricing and Profit
                              Management (September 1994-November 1995);
                              Revenue Manager at United Parcel Service of
                              America, Inc. (July 1993 to September 1994);
                              various positions with Northwest Airlines
                              Corporation, including Managing Director Yield
                              Management (January 1991 to July 1993); various
                              positions with American Airlines, Inc.,
                              including Manager--Domestic Yield Management
                              (July 1986 to January 1991).
MARK A. ERWIN, age 40         Senior Vice President--Airport Services since
 Senior Vice President--      April 1995. Various positions with the Company
 Airport Services             commencing in 1987, including, most recently,
                              Vice President--Newark Hub.
LAWRENCE W. KELLNER, age 37   Senior Vice President and Chief Financial
 Senior Vice President and    Officer since June 1995. Executive Vice
 Chief Financial Officer      President and Chief Financial Officer of
                              American Savings Bank, F.A. (November 1992-May
                              1995); Executive Vice President and Director of
                              Loan Management of American Real Estate Group,
                              an affiliate of American Savings Bank, F.A.
                              (February 1992-October 1992); Executive Vice
                              President and Chief Financial Officer of The
                              Koll Co. (a Newport Beach-based real estate
                              developer and manager) (1987-1992).
C.D. McLEAN, age 55           Senior Vice President--Operations since April
 Senior Vice President--      1994. Executive Vice President--Operations
 Operations                   (January 1992- March 1994) of LeisureAir, Inc.;
                              self-employed (March 1990-December 1991); Senior
                              Vice President--Flight Operations (May 1989-
                              February 1990) of Braniff Airlines, Inc.
BONNIE S. REITZ, age 43       Vice President--Marketing and Sales since August
 Vice President--Marketing    1994. Vice President--Marketing and Sales of
 and Sales                    System One Information Management, Inc. (1989-
                              1994).
</TABLE>

 
 
                                       9

<PAGE>
 

<TABLE>
<CAPTION>
 NAME, AGE AND POSITION        TERM OF OFFICE AND BUSINESS EXPERIENCE
 ----------------------        --------------------------------------
<S>                       <C>
BARRY P. SIMON, age 53    Senior Vice President--Europe since June 1995.
 Senior Vice President--  Senior Vice President--Strategic Business Units
 Europe                   (April 1995-June 1995); Senior Vice President--
                          Widebody Division (August 1994-April 1995);
                          Senior Vice President and General Counsel (June
                          1990-August 1994), except Senior Vice President,
                          General Counsel and Director, GAF Corporation
                          (January-March 1993).
JEFFERY A. SMISEK, age    Senior Vice President and Secretary since April
 41                       1995. General Counsel since March 1995. Partner,
 Senior Vice President,   Vinson & Elkins L.L.P. (law firm) for more than
 General Counsel and      five years.
 Secretary
</TABLE>

 
  There is no family relationship between any of the executive officers. All
officers are appointed by the Board of Directors to serve until their
resignation or removal.
 
COMPENSATION OF EXECUTIVE OFFICERS
 
  The following tables set forth, for 1995, 1994 and 1993, with respect to
compensation for services to Continental and its subsidiaries, (i) the
aggregate amount of remuneration paid by the Company to the chief executive
officer and the four other most highly compensated executive officers of the
Company during 1995, (ii) the number of shares of Class B common stock subject
to options granted to such individuals during 1995 and the hypothetical value
thereof assuming specified annual rates of Class B common stock price
appreciation, and (iii) the value of the stock options held by such individuals
at the end of 1995.
 
                           SUMMARY COMPENSATION TABLE
 

<TABLE>
<CAPTION>
                                                                              LONG-TERM
                                       ANNUAL COMPENSATION               COMPENSATION AWARDS
                                 ------------------------------------   ---------------------
                                                                        RESTRICTED SECURITIES
   NAME AND PRINCIPAL                                    OTHER ANNUAL     STOCK    UNDERLYING     ALL OTHER
        POSITION         YEAR(1)  SALARY    BONUS        COMPENSATION   AWARDS (2)  OPTIONS      COMPENSATION
   ------------------    -------  ------  ----------     ------------   ---------- ----------    ------------
<S>                      <C>     <C>      <C>            <C>            <C>        <C>           <C>
Gordon M. Bethune.......  1995   $561,012 $  550,000       $278,638(3)           0   25,000(4)     $522,978(5)
 President and Chief      1994    434,185  1,500,000(6)      85,018(7)  $1,240,625  250,000(4)      286,969(8)
 Executive Officer        1993         --         --             --             --       --              --
Gregory D. Brenneman....  1995   $338,726 $  354,039       $ 56,459(9)  $1,200,000  275,000        $ 79,016(10)
 Chief Operating          1994         --         --             --             --       --              --
 Officer                  1993         --         --             --             --       --              --
Lawrence W. Kellner.....  1995   $193,369 $  438,500(11)   $ 17,928(12) $  862,500   75,000        $ 32,718(10)
 Senior Vice President    1994         --         --             --             --       --              --
 and Chief Financial      1993         --         --             --             --       --              --
 Officer
C.D. McLean.............  1995   $305,604 $  300,000       $    514(12) $  115,000   25,000(13)    $      0
 Senior Vice President    1994    182,557          0          8,807(12)          0   50,000(13)      13,531(10)
 --Operations             1993         --         --             --             --       --              --
Barry P. Simon..........  1995   $306,000 $  300,000       $    714(12) $        0        0(14)           0
 Senior Vice President    1994    293,480          0              0        213,750   75,000(14)           0
 --Europe                 1993    202,785          0              0              0        0               0
</TABLE>

- --------
(1) Messrs. Bethune, Brenneman, Kellner and McLean commenced employment with
    the Company in February 1994, April 1995, June 1995 and April 1994,
    respectively.
 
                                       10

<PAGE>
 
 (2) The value of restricted stock shown was calculated by multiplying the
     closing price of the Class B common stock on the date the restricted
     shares were granted by the number of restricted shares as follows: Mr.
     Bethune--50,000 shares at $14.125 and 25,000 shares at $21.375; Mr.
     Brenneman--75,000 shares at $16.00; Mr. Kellner--50,000 shares at $17.25;
     Mr. McLean--10,000 shares at $11.50 and Mr. Simon--10,000 shares at
     $21.375. At the end of 1995, the aggregate number of restricted shares
     held by Messrs. Bethune, Brenneman, Kellner, McLean and Simon was 67,400,
     75,000, 50,000, 10,000 and 10,000, respectively, and the year-end values
     of such shares were $2,931,900, $3,262,500, $2,175,000, $435,000 and
     $435,000, respectively, based on the December 29, 1995 closing price of
     the Class B common stock of $43.50. The shares held by Messrs. Bethune
     and Simon vested in 50% increments on March 15, 1995 and 1996. The shares
     held by Mr. Brenneman vest in 25% increments on October 27, 1995 and
     April 27, 1996, 1997 and 1998. The shares held by Mr. Kellner vest in 25%
     increments on December 6, 1995 and June 5, 1996, 1997 and 1998. The
     shares held by Mr. McLean vest in 50% increments on April 4, 1996 and
     1997. Although the Company has paid no dividends on its common stock, any
     dividends would be payable upon both vested and non-vested shares.
 (3) Represents a tax adjustment relating to termination of certain
     supplemental retirement plan benefits ($277,159) and certain travel
     benefits provided by the Company ($1,479). See footnote (5) below.
 (4) In addition, of the options granted to Mr. Bethune in 1994, the exercise
     price of 125,000 options was adjusted in 1995 from $14.125 per share to
     $11.00 per share (which exceeded the market value of the Class B common
     stock on the date of such adjustment) to comply with the terms of Mr.
     Bethune's agreements with the Company.
 (5) Represents payment in lieu of certain supplemental executive retirement
     plan benefits previously provided under Mr. Bethune's employment
     agreement.
 (6) Represents a bonus in connection with certain amendments to Mr. Bethune's
     employment agreement which were made as the result of an offer of
     employment to Mr. Bethune by one of the Company's competitors.
 (7) Represents a tax adjustment relating to (i) certain moving expenses paid
     by the Company and (ii) other costs of Mr. Bethune's relocation to
     Houston, Texas.
 (8) Represents (i) $144,463 paid to compensate Mr. Bethune for the forfeiture
     of certain benefits under his prior employer's compensation program when
     he joined the Company, (ii) $107,957 for other costs of Mr. Bethune's
     relocation to Houston, Texas (see note 7) and (iii) $34,549 for moving
     expenses (see note 7).
 (9) Represents a tax adjustment relating to (i) certain moving expenses paid
     by the Company, (ii) reimbursement for other costs of Mr. Brenneman's
     relocation to Houston, Texas and (iii) certain travel benefits provided
     by the Company.
(10) Represents certain moving expenses paid by the Company in connection with
     the named executives' relocation to Houston, Texas and, for Mr.
     Brenneman, other costs of Mr. Brenneman's relocation to Houston, Texas
     (see note 9).
(11) Includes $176,000 sign-on bonus.
(12) Represents a tax adjustment relating to (i) certain moving expenses paid
     by the Company and/or (ii) certain travel benefits provided by the
     Company.
(13) All of the options granted to Mr. McLean in 1994 were repriced in 1995
     from $21.375 to $16.00 per share. In addition, Mr. McLean was awarded an
     option in 1995 to purchase an additional 25,000 shares at a price of
     $16.00 per share.
(14) All of the options granted to Mr. Simon in 1994 were repriced in 1995
     from $21.375 to $16.00 per share.
 
                                      11

<PAGE>
 
                           OPTION GRANTS DURING 1995
 

<TABLE>
<CAPTION>
                                                                                                
                                                                                                
                                                                                                
                                                                                                
                                       INDIVIDUAL GRANTS                 POTENTIAL REALIZABLE   
                         -----------------------------------------------   VALUE AT ASSUMED     
                         NUMBER OF    PERCENTAGE OF                      ANNUAL RATES OF STOCK 
                         SECURITIES   TOTAL OPTIONS                       PRICE APPRECIATION   
                         UNDERLYING    GRANTED TO   EXERCISE                FOR OPTION TERM    
                          OPTIONS     EMPLOYEES IN    PRICE   EXPIRATION ---------------------  
          NAME           GRANTED(1)    FISCAL YEAR  ($/SHARE)    DATE        5%        10%
          ----           ----------   ------------- --------- ---------- ---------- ----------
<S>                      <C>          <C>           <C>       <C>        <C>        <C>
Gordon M. Bethune.......   25,000          1.2%      $ 9.25    01/02/05  $  145,500 $  368,500
                          125,000(2)       5.8%      $11.00    03/04/04     418,750  1,351,250
Gregory D. Brenneman....  275,000         12.7%      $16.00    04/27/00   1,215,500  2,686,750
Lawrence W. Kellner.....   75,000          3.5%      $17.25    06/05/00     357,750    789,750
C.D. McLean.............   75,000(3)       3.5%      $16.00    04/27/00     331,500    732,750
Barry P. Simon..........   75,000(4)       3.5%      $16.00    04/27/00     331,500    732,750
</TABLE>

- --------
(1) Mr. Bethune's options vest in annual 25% increments commencing January 2,
    1995. Messrs. Brenneman's, Kellner's, McLean's and Simon's options vest in
    25% increments on the dates that are six months, one year, two years and
    three years after the date of grant, April 27, 1995; June 5, 1995; April
    27, 1995 and April 27, 1995 respectively. See footnote 3.
(2) Represents options granted to Mr. Bethune in 1994 for which the exercise
    price was adjusted in 1995 from $14.125 per share to $11.00 per share
    (which exceeded the market value of the Class B common stock on the date
    of such adjustment) to comply with the terms of Mr. Bethune's agreements
    with the Company.
(3) Mr. McLean received 50,000 options in 1994, which were repriced in 1995
    from $21.375 to $16.00 per share as described in the Company's proxy
    statement relating to its 1995 annual meeting of stockholders. In
    addition, Mr. McLean was awarded an option in 1995 to purchase an
    additional 25,000 shares at a price of $16.00 per share.
(4) Represents options granted to Mr. Simon in 1994 for which the exercise
    price was adjusted in 1995 from $21.375 per share to $16.00 per share as
    described in the Company's proxy statement relating to its 1995 annual
    meeting of stockholders.
 
                          1995 YEAR-END OPTION VALUES
 

<TABLE>
<CAPTION>
                               NUMBER OF SECURITIES
                              UNDERLYING UNEXERCISED     VALUE OF UNEXERCISED
                              OPTIONS AT FISCAL YEAR    IN-THE-MONEY OPTIONS AT
                                        END                 FISCAL YEAR END
                             ------------------------- -------------------------
            NAME             EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
            ----             ----------- ------------- ----------- -------------
<S>                          <C>         <C>           <C>         <C>
Gordon M. Bethune...........   68,750       206,250    $2,147,656   $6,442,969
Gregory D. Brenneman........   68,750       206,250     1,890,625    5,671,875
Lawrence W. Kellner.........   18,750        56,250       492,188    1,476,563
C.D. McLean.................   18,750        56,250       515,625    1,546,875
Barry P. Simon..............   18,750        56,250       515,625    1,546,875
</TABLE>

 
  None of the above named executive officers exercised any options during
1995.
 
EMPLOYMENT AGREEMENTS
 
  Continental has entered into an amended and restated employment agreement,
as amended, with Mr. Bethune relating to his service as an officer of the
Company. The agreement provides for an annual base salary of not less than
$550,000, participation in any Company cash bonus program at the maximum level
available to any executive, a supplemental executive retirement plan, flight
benefits, and certain other matters. Pursuant to the supplemental executive
retirement plan, Mr. Bethune receives a base retirement benefit in the form of
an annual straight life annuity in an amount equal to the product of (1) 1.6%
times (2) the number of his credited years of service times (3) his final
average compensation. The agreement may be terminated at any time by either
 
                                      12

<PAGE>
 
party, with or without cause. The agreement is in effect until June 6, 1999
and is automatically extended for an additional three-year period on each
successive third anniversary of such date. If Mr. Bethune's employment is
terminated (A) because the Company elects to permit his employment agreement
to expire, (B) by the Company for reasons other than death, incapacity, cause
or material breach of the agreement, or (C) by Mr. Bethune due to certain
specified reasons, including a material diminution in responsibility, or for
any reason following a Change in Control (as defined in the Incentive Equity
Plan, as amended, see Proposal 2) then the Company shall (i) cause all options
and shares of restricted stock awarded to Mr. Bethune to vest immediately upon
such termination, (ii) make a lump-sum cash severance payment to Mr. Bethune
(calculated as described below), (iii) provide Mr. Bethune with out-placement
services and (iv) provide Mr. Bethune and his eligible dependents with certain
insurance benefits. In addition, following his termination of employment by
the Company for any reason, or if Mr. Bethune elects to terminate his
employment for any reason, benefits under the supplemental executive
retirement plan will continue to be payable, and Mr. Bethune will be provided
flight benefits substantially identical to those provided to non-employee
directors. The severance payment referred to above is equal to three times the
sum of (a) Mr. Bethune's then current annual base salary (of not less than
$550,000) and (b) a deemed annual bonus equal to 25% of such salary.
Additionally, the Company is required to maintain life insurance on his behalf
in an amount equal to the severance payment described above. Mr. Bethune is
indemnified by the Company for his tax obligations with respect to payments
under the agreement or otherwise to the extent that such payments are subject
to an excise or other special additional tax that would not have been imposed
absent such payments. The foregoing is reflected in an amendment to Mr.
Bethune's employment agreement recently entered into by the Company and Mr.
Bethune in connection with the matters discussed under "Recent Developments."
See "Certain Transactions."
 
  Continental has entered into an amended and restated employment agreement,
as amended, with Mr. Brenneman relating to his service as an officer of the
Company. The agreement provides for an annual base salary of not less than
$525,000, stock options to purchase 275,000 shares of Class B common stock, a
restricted stock grant for 75,000 shares of Class B common stock,
participation in any Company cash bonus program at the maximum level available
to any executive, flight benefits, and certain other matters. The agreement
may be terminated at any time by either party, with or without cause. The
agreement is in effect until June 6, 1999 and is automatically extended for an
additional three-year period on each successive third anniversary of such
date. If Mr. Brenneman's employment is terminated (A) because the Company
elects to permit his employment agreement to expire, (B) by the Company for
reasons other than death, incapacity, cause or material breach of the
agreement, or (C) by Mr. Brenneman due to certain specified reasons, including
a material diminution in responsibility, or for any reason following a Change
in Control (as defined in the Incentive Equity Plan, as amended, see Proposal
2) then the Company shall (i) cause all options and shares of restricted stock
awarded to Mr. Brenneman to vest immediately upon such termination, (ii) make
a lump-sum cash severance payment to Mr. Brenneman (calculated as described
below), (iii) provide Mr. Brenneman with out-placement services and (iv)
provide Mr. Brenneman and his eligible dependents with certain insurance
benefits. In addition, following his termination of employment by the Company
for any reason, or if Mr. Brenneman elects to terminate his employment for any
reason, he will be provided with flight benefits substantially identical to
those provided to non-employee directors. The severance payment is equal to
three times the sum of (1) Mr. Brenneman's then current annual base salary (of
not less than $525,000) and (2) a deemed annual bonus equal to 25% of such
salary. Additionally, the Company is required to maintain life insurance on
his behalf in an amount equal to the severance payment described above. Mr.
Brenneman is indemnified by the Company for his tax obligations with respect
to payments under the agreement or otherwise to the extent that such payments
are subject to an excise or other special additional tax that would not have
been imposed absent such payments. The foregoing is reflected in an amendment
to Mr. Brenneman's employment agreement recently entered into by the Company
and Mr. Brenneman in connection with the matters discussed under "Recent
Developments." See "Certain Transactions."
 
  Continental has entered into an amended and restated employment agreement,
as amended, with each of Messrs. Kellner, McLean, and Simon, which agreements
contain substantially identical terms and provide for an annual base salary of
not less than $350,000, $300,000 and $300,000, respectively, participation in
any Company cash bonus program at the maximum level available to any
executive, flight benefits, and certain other matters. Each of the agreements
may be terminated at any time by either party, with or without cause. Each
agreement is
 
                                      13

<PAGE>
 
for a four-year term of employment beginning in June 1995. If the applicable
executive's employment is terminated (A) by the Company for reasons other than
death, incapacity, cause or material breach of the agreement, or (B) by the
executive for certain specified reasons, including a material diminution in
responsibility, then the Company shall (i) make a lump-sum cash severance
payment to the executive (calculated as described below), (ii) provide the
executive with out-placement services, and (iii) provide the executive and his
eligible dependents with certain insurance benefits. In addition, following
any such termination, or if the executive elects to terminate his employment
for any reason, each agreement provides the executive with flight benefits
substantially identical to those provided to non-employee directors. The
severance payment referenced above is equal to the product of (A) the sum of
(1) the executive's then current annual base salary and (2) a deemed annual
bonus equal to 25% of such salary, multiplied by (B) a fraction, the numerator
of which is the number of months in the severance period (described below) and
the denominator of which is 12. If the executive's employment is terminated
within two years after a Change in Control (as defined in the Incentive Equity
Plan, see Proposal 2) the severance period means the period commencing on the
date of termination and continuing for 36 months. If the executive's
employment is terminated prior to a Change in Control or after the date which
is two years after a Change in Control, the severance period means the period
commencing on the date of termination and continuing for 24 months. Each of
the executives is indemnified by the Company for his tax obligations with
respect to payments under his agreement or otherwise to the extent that such
payments are subject to an excise or other special additional tax that would
not have been imposed absent such payments. The foregoing is reflected in an
amendment to each such executive's employment agreement recently entered into
by the Company and each such executive in connection with the matters
discussed under "Recent Developments." See "Certain Transactions."
 
RETIREMENT PLAN
 
  The Continental Airlines, Inc. Retirement Plan (the "Retirement Plan"),
adopted in 1988, is a noncontributory, defined benefit pension plan.
Substantially all employees of Continental and certain designated affiliates
are eligible to participate in the Retirement Plan.
 
  The following table represents the estimated annual benefits payable in the
form of a single life annuity to participants in specified service and
compensation categories under the Retirement Plan. Under the Retirement Plan,
final average compensation means the average of the participant's highest five
consecutive years of compensation during the last ten calendar years with
Continental. Final average compensation includes regular pay and shift
differential, but excludes bonuses, overtime, severance pay, incentive and
other special forms of pay. Regulations under the Internal Revenue Code of
1986, as amended (the "Code"), previously limited compensation covered by the
Retirement Plan to $235,840 and since December 1994 have limited such
compensation to $150,000.
 
                              PENSION PLAN TABLE
 

<TABLE>
<CAPTION>
                                               YEARS OF SERVICE
                               ------------------------------------------------
  FINAL AVERAGE COMPENSATION      5      10      15      20      25       30
  --------------------------   ------- ------- ------- ------- ------- --------
<S>                            <C>     <C>     <C>     <C>     <C>     <C>
$100,000...................... $ 7,656 $15,312 $22,968 $30,624 $38,280 $ 45,936
$125,000......................   9,707  19,414  29,121  38,828  48,535   58,242
$150,000......................  11,758  23,516  35,274  47,032  58,790   70,548
$175,000......................  13,434  27,206  40,697  53,690  66,200   78,615
$200,000......................  15,075  30,897  46,438  61,480  76,041   90,506
$225,000......................  16,716  34,588  52,178  69,270  85,882  102,397
</TABLE>

 
  The estimated credited years of service for Messrs. Bethune, Brenneman,
McLean and Simon are two years, one year, two years and nine years,
respectively. Mr. Kellner will be eligible to participate in the Retirement
Plan after completing one year of service with the Company. In addition, Mr.
Bethune's employment agreement provides for certain supplemental retirement
benefits, which benefits will be offset by amounts received under the
Retirement Plan. See "Employment Agreements," above. Under the Retirement
Plan, a retired participant's annual benefit commencing at or after the normal
retirement age of 65 (60 for pilots) is equal to 1.19% of the
 
                                      14

<PAGE>
 
participant's final average compensation plus 0.45% of the participant's final
average compensation in excess of the average Social Security wage base,
multiplied by the participant's years of participation up to a maximum of 30
years.
 
P
ERFORMANCE GRAPH
 
  The following graph compares the cumulative total return on the Class B
common stock (the more widely traded of the Company's common stocks) with the
cumulative total returns (assuming reinvestment of dividends) on the Standard &
Poor's Airline Index and the Standard & Poor's 500 Stock Index as if $100 were
invested in the Class B common stock and each such index on July 14, 1993, the
date on which the Company's common stock began trading on the New York Stock
Exchange on a "when-issued" basis.
 
 
                                [Paste-up Chart]
 
                              [GRAPH APPEARS HERE]
 

<TABLE>
  <S>          <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>
  Continental
   Airlines    100.00  66.02  79.61  75.73  50.00  66.99  35.92  43.20  97.57 142.23 168.93 218.93
  S&P Airlines
   Index
               100.00 104.11 108.56  91.06  91.49  79.12  75.75  90.18 110.64 108.82 110.63 131.35
  S&P 500
   Index       100.00 102.58 104.97 100.99 101.41 106.37 106.35 116.71 127.85 138.01 146.32 154.18
</TABLE>

 
 
                                       15

<PAGE>
 
EXECUTIVE COMPENSATION REPORT OF THE HUMAN RESOURCES COMMITTEE
 
To the Stockholders of Continental Airlines, Inc.:
 
  This report to the stockholders is submitted by the Human Resources
Committee of the Board of Directors of Continental Airlines, Inc. (the
"Committee").
 
 General Compensation Strategy
 
  As we reported to you last year, in 1993 the Committee retained an
independent, nationally recognized compensation consulting firm to assist in
designing a comprehensive compensation strategy for the Company. The
compensation strategy development process encompassed both executive and
broad-based employee compensation programs. The process also included a review
of competitive marketplace compensation data for U.S. airlines of comparable
size. Long-term and short-term compensation data for general industry
companies of comparable size to the Company (as measured by revenues) were
also examined. The airlines considered in this analysis included industry peer
airlines shown in the performance graph. The elements of compensation included
in the competitive analysis were base salaries, annual incentives, long-term
incentives and key employee benefits.
 
  The Committee's compensation strategy development process, concluded in
March 1994, resulted in the Company's adoption of the following key objectives
for both its executive and broad-based employee compensation programs:
 
  . Develop an appropriate linkage between compensation levels and the
    creation of stockholder value
 
  . Provide that the total program will be able to attract, motivate and
    retain employees of outstanding talent
 
  . Achieve competitiveness of total compensation over time
 
  . Focus on variable pay to the greatest extent possible to control fixed
    costs and provide the greatest possible incentive to improve performance
 
  In light of these key objectives, the Company revised its base salary
compensation strategy and established a variety of new incentive compensation
programs for both executive and non-executive employees. In 1995, these
incentive programs included stock options, restricted stock grants, a
management bonus plan, and broad-based profit sharing and on-time arrival
bonuses. In developing these programs, the Company has considered the effects
of Section 162(m) of the Code, which denies publicly held companies a tax
deduction for annual compensation in excess of one million dollars paid to
their chief executive officer or any of their four other most highly
compensated executive officers who are employed on the last day of a given
year, unless their compensation is based on performance criteria that are
established by a committee of outside directors and approved, as to their
material terms, by such company's stockholders. Stock options under the
Incentive Equity Plan are designed to qualify as performance-based
compensation under Section 162(m), and the Committee believes that these stock
options should be excluded from the limitation on deductibility. In addition,
the Company is proposing that stockholders consider and approve the Executive
Bonus Program to ensure that any incentive compensation received thereunder is
deductible under the Code. However, other awards which serve important
compensation objectives of the Company, such as restricted stock grants, do
not so qualify and will be subject to the limitation on deductibility.
 
  Base Salaries. The Company has established an objective of targeting its
executive salary levels conservatively (i.e., slightly below competitive
market norms for peer airlines and for general industry companies of
comparable size, based on revenues). The Committee believes it is crucial to
provide salaries within a competitive market range in order to attract and
retain highly talented employees. The specific competitive markets considered
depend on the nature and level of the positions in question and the labor
markets from which qualified individuals are recruited. Base salary levels are
also dependent on the performance of each individual employee over time. Thus,
employees who sustain higher levels of performance over time will have
correspondingly higher salaries. Salary adjustments are based on general
levels of market increases in salaries,
 
                                      16

<PAGE>
 
individual performance, overall financial results, and (for promotions)
changes in job duties and responsibilities. All base salary increases are
based on a philosophy of pay-for-performance.
 
  Incentive Compensation. The Committee believes that conservative base
salaries must be coupled with appropriate incentive compensation to attract
and retain qualified employees and that ownership by management and other
employees of the Company's common stock is one of the best incentives to
enhance performance. In 1994, the Company (i) awarded approximately one
million shares of Class B common stock to its non-management employees, (ii)
adopted an employee stock purchase plan open to substantially all employees of
the Company and (iii) adopted the Incentive Equity Plan to encourage
employees, including the Company's executive officers and key employees, as
well as the Company's non-employee directors, to identify their interests with
those of stockholders. The Committee believes that an equity stake in the
Company provides strong encouragement for quality performance. In addition, in
1994 the Company adopted a profit sharing plan, under which 15% of the
Company's pre-tax earnings (before unusual or nonrecurring items) is
distributed to substantially all non-management employees of the Company
(other than the Company's pilots) each year on a pro rata basis according to
base salary. Based on 1995 earnings, the first such distribution under the
Company's profit sharing plan totaled approximately $21 million and was made
in February 1996.
 
  In 1995, a management bonus program and a non-management on-time performance
bonus were added to focus employees on a common goal and to encourage them to
work together to achieve profitability. As discussed below, the Committee also
restruck the exercise price of the stock options held by a substantial number
of management personnel and certain executive officers in 1995 in light of the
fact that the previous exercise price in the vast majority of cases exceeded
by more than 33% the market value of the underlying shares. The Committee
believes that these incentives played a significant part in the Company's
financial and operational turnaround in 1995.
 
 1995 Executive Compensation
 
  Base Salaries. Based on the Company's performance in 1994, none of the
executive officers named above in the Summary Compensation Table (the "Named
Executives") received any increase in base salary during 1995. Moreover, the
Committee determined not to increase any of the Named Executives' salaries in
1995, notwithstanding the Company's turnaround, preferring to await full year
results. Certain other executive officers did receive salary increases during
1995 in accordance with the criteria set forth above under "Base Salaries."
 
  Stock Incentives. Consistent with the foregoing strategy, the Company
awarded stock options to executive officers and key employees during 1995.
Options granted to the Named Executives are described in the Summary
Compensation and other tables included above. With the exception of certain
options granted in the first quarter, options granted in 1995 bear five-year
terms and generally are fully vested on the third anniversary of their grant.
None of the stock options issued to the Named Executives has been exercised to
date. Including the options that were repriced, see "Repricing of Stock
Options" below, 2,161,000 options were granted in 1995.
 
  In addition to stock options, the Company awarded executive officers an
aggregate of 153,000 restricted shares of Class B common stock during 1995,
the majority of which are scheduled to vest over a three-year period and
64,000 of which are fully vested as of the date hereof.
 
  Other Plans. In early 1995, the Committee approved a special cash bonus
program for approximately 20 senior executives which paid quarterly cash
bonuses equal to such executives' quarterly base salaries based on cumulative
Company net income as compared to the Company's internal budget. Based on the
early success of the program, the Committee in April 1995 authorized a
broader-based annual bonus program for approximately 250 additional employees,
which pays an annual cash bonus of 15% or 30% of base salary, depending on the
employee, based on Company performance and, in certain cases, individual
performance as determined by the Company's Chief Executive Officer. The
Committee believed that a quarterly based cash bonus program for senior
executives directly tied to Company performance appropriately incentivized
senior management to implement the Company's strategic plan, and a broader
based annual bonus program appropriately incentivized
 
                                      17

<PAGE>
 
other managers to effect necessary changes in the Company's operations and
culture. The Committee, in light of the success of the quarterly cash bonus
program for senior management, adopted the Executive Bonus Program and intends
to continue the annual bonus program for other managers. Stockholders are
being asked to approve the Executive Bonus Program to ensure that amounts
received thereunder by the Chief Executive Officer and the other four most
highly compensated executive officers will be eligible for deduction by the
Company under Section 162(m) of the Code. See Proposal 3.
 
 1995 CEO Compensation
 
  Gordon Bethune became Continental's Chief Executive Officer on November 2,
1994. His 1995 salary and stock-based compensation were not related to the
Company's performance in 1995, but were based entirely on certain agreements
reached in 1994, discussed below, and upon Mr. Bethune's amended and restated
employment agreement. Mr. Bethune's bonus, set forth in the Summary
Compensation Table, was based on the Company's performance and achievement of
its 1995 budget and was paid pursuant to the 1995 special cash bonus plan,
described above under "Other Plans." The Company earned $224 million in 1995,
which was well in excess of the 1995 financial plan and was the highest profit
in the Company's history.
 
  Mr. Bethune had joined the Company in February 1994 as its President and
Chief Operating Officer. As reported in the proxy statement relating to the
Company's 1995 annual meeting of stockholders, subsequent to joining the
Company, Mr. Bethune received an offer of employment from one of the Company's
competitors, which included a substantial bonus and significantly higher
salary and benefits than the Company had agreed to pay Mr. Bethune. Consistent
with the Company's strategy to retain highly talented employees and provide a
competitive compensation package relative to the individual's position and
labor market alternatives, and based upon the favorable evaluation of Mr.
Bethune's performance with the Company, the Committee recommended, and the
Board of Directors approved, amendments to Mr. Bethune's employment agreement
providing for an increased salary and certain additional benefits. See
"General Information--Employment and Severance Agreements." In addition,
pursuant to his amended employment agreement in 1994, Mr. Bethune received an
enhanced stock option and restricted stock grant as well as a cash bonus
payment. The number of shares subject to Mr. Bethune's stock options was
increased from 150,000 to 250,000 and the exercise price with respect to
150,000 shares was reduced from $21.375 per share to $14.125. Also pursuant to
the agreements reached with the Company in 1994, Mr. Bethune's stock options
aggregating 250,000 shares granted in 1994 were repriced from $14.125 to
$11.00 with respect to 125,000 shares on January 2, 1995. The Market Value per
Share (as defined in the Incentive Equity Plan) on January 2, 1995 was $9.25.
In addition, pursuant to the 1994 agreements, Mr. Bethune received on January
2, 1995 an option to purchase an additional 25,000 shares of Class B common
stock at an exercise price of $9.25 (the Market Value per Share on such date).
 
  As stated above, the Committee concluded in 1995 not to raise any of the
Named Executives' base salaries for 1995. Subsequent to 1995, however, the
Committee determined to increase Mr. Bethune's salary from $550,000 to
$600,000 in light of the record financial and operating results achieved by
the Company in 1995 and the well developed financial and operating plan
prepared for 1996. The Committee believes that the moderately increased
salary, coupled with the Executive Bonus Program, will appropriately
incentivize Mr. Bethune for 1996. In addition, on February 1, 1996, the
Committee awarded Mr. Bethune a stock option to purchase 75,000 shares of
Class B common stock. See Proposal 2.
 
 Repricing of Stock Options
 
  In addition to the repricing of Mr. Bethune's options as described above, in
April 1995, the Committee authorized the exchange and repricing (the
"repricing") of certain outstanding non-qualified stock options ("Old
Options") held by certain employees of the Company (excluding the Chief
Executive Officer) and generally bearing an exercise price higher than the
then current market price of the common stock, whereby such employees could
surrender and cancel their respective Old Options and receive new options
("New Options") generally exercisable at a price lower than that of the
canceled options, subject to certain conditions, including approval by the
Company's stockholders at the 1995 annual meeting of an amendment to the
Incentive Equity
 
                                      18

<PAGE>
 
Plan. Inasmuch as the Old Options were designed to attract and retain
employees and to provide incentives for such persons to work to achieve the
Company's success, the Committee, after consulting with an independent,
nationally recognized compensation consulting firm, determined that the
decline in the market value of the Company's common stock since the dates the
Old Options were awarded had frustrated these purposes and diminished the
value of the Company's Incentive Equity Plan as an element of the Company's
compensation arrangements. At the time of the repricing, fewer than ten of
approximately 270 optionees had options with an exercise price lower than the
then current market price of the common stock. The vast majority of the Old
Options had an exercise price of $21.375 per share at a time when the price of
the Company's Class B common stock was $16. The Committee determined that
repricing options and making modest additional grants were the most cost-
effective method to retain key employees. The Committee also believed it was
appropriate, in connection with the repricing, to shorten the term of the
stock options from ten years to five years. Accordingly, the Committee adopted
a repricing program as described below.
 
  Certain employees, including certain executive officers (but excluding the
Chief Executive Officer) holding Old Options at the time of the repricing were
eligible to participate in the repricing program. Each such participant could
elect to surrender for cancellation all such individual's Old Options in
exchange for New Options (generally covering the same number of shares, with
certain exceptions), subject to certain conditions. The term of each New
Option was five years, and the exercise price of the New Options was equal to
the Market Value per Share (as defined in the Plan) on April 27, 1995, the
date of grant ($16.00). The options were scheduled to vest as to 25% six
months from the date of grant and to vest an additional 25% on the first,
second and third anniversary of the date of grant. The grant of the New
Options to an individual was conditioned on (i) termination of such
individual's Old Options, termination of such individual's then current
employment agreement with the Company or any subsidiary in exchange, in
certain cases, for a new employment agreement, surrender by such individual
for cancellation of any Annual Incentive Awards or Long-Term Incentive Awards
held by such individual under the Incentive Equity Plan, and surrender by such
individual for cancellation of any awards held by such individual under the
Executive Performance Units Program adopted in 1994 and certain other awards,
if any (provided that an individual was permitted to retain all or any portion
of such individual's Old Options with an exercise price lower than the
exercise price of the New Options if such individual's New Options were
reduced on the basis of one new option share for each outstanding option share
retained), and (ii) the approval of the First Amendment to the Incentive
Equity Plan by the stockholders of the Company as provided in such First
Amendment.
 
                                          Respectfully submitted,
 
                                          Human Resources Committee
 
                                          Karen Hastie Williams, Chair
                                          Thomas J. Barrack, Jr.
                                          Patrick Foley
                                          David E. Mitchell, O.C.
                                          Richard W. Pogue
                                          William S. Price III
                                          Donald L. Sturm
 
                                      19

<PAGE>
 
  The following table sets forth, in accordance with rules promulgated by the
Commission, each of the stock options held by any executive officer that has
been repriced by the Company during the last ten years. The Company is not
aware of the repricing of any of its stock options prior to its reorganization
in 1993 or of any options since such reorganization, except as described above
and set forth in the table below:
 
                          TEN-YEAR OPTION REPRICINGS
 

<TABLE>
<CAPTION>
                                                    MARKET                       LENGTH OF
                                        NUMBER OF  PRICE OF  EXERCISE             ORIGINAL
                                        SECURITIES STOCK AT  PRICE AT           OPTION TERM
                                        UNDERLYING  TIME OF   TIME OF           REMAINING AT
                                         OPTIONS   REPRICING REPRICING   NEW      DATE OF
                                         REPRICED     OR        OR     EXERCISE  REPRICING
          NAME                DATE      OR AMENDED AMENDMENT AMENDMENT  PRICE   OR AMENDMENT
- ------------------------ -------------- ---------- --------- --------- -------- ------------
<S>                      <C>            <C>        <C>       <C>       <C>      <C>
Gordon M. Bethune.......   July 7, 1994  150,000    $14.125   $21.375   $14.125   10 years
 President and Chief       Jan. 2, 1995  125,000    $ 9.25    $14.125   $11.00     9 years
 Executive Officer
Mark A. Erwin........... April 27, 1995   13,000    $16.00    $21.375   $16.00     9 years
 Senior Vice President--
 Airport Services
C.D. McLean............. April 27, 1995   50,000    $16.00    $21.375   $16.00     9 years
 Senior Vice President--
 Operations
Barry P. Simon.......... April 27, 1995   75,000    $16.00    $21.375   $16.00     9 years
 Senior Vice President--
 Europe
</TABLE>

 
 
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
 
  The Company's executive compensation programs are administered by the Human
Resources Committee of the Board of Directors. The committee is composed of
seven independent, non-employee directors, and no member of the committee has
been an officer or employee of the Company or any of its subsidiaries. Karen
Hastie Williams, who chairs the Human Resources Committee, is a Partner of
Crowell & Moring, a law firm that has provided services to the Company and its
subsidiaries for many years. The Company's fee arrangement with Crowell &
Moring is negotiated on the same basis as the Company's arrangements with its
other outside legal counsel and is subject to the same terms and conditions.
The fees paid by the Company to Crowell & Moring are comparable to those it
pays to other law firms for similar services.
 
  Patrick Foley, a member of the Human Resources Committee, is the Chairman of
the Board, President and Chief Executive Officer of DHL Airways, Inc., which
provides mail courier services to the Company. During 1995, the Company paid
approximately $127,000 to DHL Airways, Inc. in connection with such services.
Mr. Foley has no interest in such transactions other than as a director and
executive officer of DHL Airways, Inc.
 

CERTAIN TRANSACTIONS
 
  In connection with Air Canada's investment in the Company, Air Canada, Air
Partners and the Company agreed to identify and pursue opportunities to
achieve cost savings, revenue enhancement or other synergies from areas of
joint operation between the Company and Air Canada. The Company and Air Canada
entered into a series of synergy agreements, primarily in the areas of
aircraft maintenance and commercial and marketing alliances (including
agreements regarding coordination of connecting flights). The Company believes
that the synergy agreements allocate potential benefits to the Company and Air
Canada in a manner that is equitable and commercially reasonable, and contain
terms at least as favorable to the Company as could be obtained from unrelated
parties. As a result of these agreements, Continental paid Air Canada $38
million in 1995, and Air Canada paid Continental $16 million, primarily
relating to aircraft maintenance. As discussed above under "Recent
Developments," Air Canada has expressed its intention to divest its investment
in Continental to
 
                                      20

<PAGE>
 
redeploy its capital to its current strategic plan. In connection therewith,
the Company and Air Canada anticipate entering into discussions regarding
modifications to certain of the foregoing synergy agreements to resolve certain
outstanding commercial issues and otherwise to reflect the current needs of the
parties.
 
  In connection with the sale by Air Canada and the AP Investors of the shares
of Class B common stock described under "Recent Developments," certain costs of
the offering will be paid by the Company pursuant the Original Stockholders'
Agreement, as amended. In the aggregate, such costs are estimated to total
approximately $350,000.
 
  Also in connection with the matters discussed under "Recent Developments,"
Continental has entered into an agreement with Air Partners for the sale by Air
Partners to the Company from time to time, at Air Partners' election for the
one-year period beginning August 15, 1996, of up to an aggregate of $50 million
in intrinsic value (then-current market price of the Class B common stock minus
exercise price) of Air Partners' Class B common stock warrants. The purchase
price would be payable in cash. The Board of Directors of the Company has
authorized the Company to publicly issue up to $50 million of Class B common
stock in connection with any such purchase. In connection with this agreement,
the Company will reclassify $50 million from common equity to redeemable
warrants.
 
  In connection with the matters discussed under "Recent Developments," certain
aspects of the agreements described therein raised issues under the change in
control provisions of certain of the Company's employment agreements and
employee benefit plans. See Proposal 2. The employment agreements of Mr.
Bethune and the other named executive officers were amended in connection with
such transactions to provide a revised change in control definition (see
Proposal 2) that the Company believes is appropriate in light of the changes to
its equity ownership structure and to extend the terms of such agreements for
one year. Each of such persons (together with substantially all employees
holding outstanding options) was also granted options (subject to certain
conditions) in an amount equal to 10% of the amount of the options previously
granted to him, subject to each such person agreeing that the revised change in
control definition would be applicable to his employment, option and restricted
stock agreements, as applicable. In connection with the amendment of Mr.
Bethune's employment and other benefit agreements, the Company made a payment
to Mr. Bethune of $1,572,500 and made $115,000 in charitable contributions in
Mr. Bethune's name, including to the employee assistance fund of Continental.
In connection with the amendment of Mr. Brenneman's employment and other
benefit agreements, the Company made a payment to Mr. Brenneman of $776,563 and
made $700,000 in charitable contributions in Mr. Brenneman's name, including to
the employee assistance fund of Continental. In connection with the amendment
of the employment and other benefit agreements of the other named executive
officers, such officers were provided enhanced flight benefits.
 
  On September 29, 1995, Continental purchased from Air Canada warrants to
purchase an aggregate of 1,367,880 shares of Continental's Class A common stock
and 4,849,755 shares of Class B common stock for an aggregate purchase price of
approximately $56 million (including a waiver fee of $5 million paid to a major
creditor of the Company), of which Continental paid approximately $14 million
in cash and a $42 million one-year note (which note was subsequently repaid).
The 6,217,635 warrants purchased had exercise prices of $15.00 per share (as to
3,706,667 shares) and $30.00 per share (as to 2,510,968 shares).
 
  On July 27, 1995 and August 10, 1995, Air Partners purchased from the Company
an aggregate of 154,113 and 328,660 shares of Class B common stock,
respectively, at purchase prices of $15.86 per share (with respect to a total
of 355,330 shares) and $13.40 per share (with respect to a total of 127,443
shares). Of the total, 158,320 shares were purchased pursuant to the exercise
of anti-dilution rights granted to Air Partners under the Charter and the
remaining 324,453 shares were purchased pursuant to the exercise of anti-
dilution rights granted to Air Canada under the Charter (which rights were
purchased by Air Partners immediately prior to their exercise on August 10,
1995).
 
                                       21

<PAGE>
 
  In connection with America West's emergence from bankruptcy in August 1994,
Continental acquired approximately 4.1% of the equity interest (1,833,739
shares of common stock) and 17.1% of the voting power (exclusive of warrants
to purchase an additional 802,860 shares of common stock) of the reorganized
America West. In February 1996, Continental sold approximately 1.4 million
shares of America West's common stock for net proceeds of approximately $25
million in an underwritten public offering. Continental now owns approximately
1.0% of the equity interest and 7.9% of the voting power of America West
(exclusive of warrants to purchase an additional 802,860 shares of common
stock). Through partnerships that he controls, Mr. Bonderman has a significant
interest in America West.
 
  The Company and America West entered into a series of agreements during 1994
related to code sharing and ground handling that have created substantial
benefits for both airlines. The services provided are considered normal to the
daily operations of both airlines. As a result of these agreements,
Continental paid America West $11 million and America West paid Continental
$14 million in 1995.
 
  Prior to joining the Company in May 1995, Mr. Brenneman was a Vice President
with Bain & Company, Inc., a consulting firm that has provided consulting
services to the Company from time to time. In addition, Mr. Brenneman is the
Chairman, Chief Executive Officer and majority shareholder of Turnworks, Inc.
("Turnworks"), which acted as a consultant to the Company prior to May 1995
under a consulting agreement with the Company. Pursuant to, and in connection
with the termination of, the Turnworks consulting agreement, the Company paid
Turnworks an aggregate of $1,772,457 in 1995.
 
  Continental Micronesia, Inc. ("CMI"), a 91%-owned subsidiary of the Company,
and United Micronesia Development Association, Inc. ("UMDA"), which is
controlled by the estate of Larry L. Hillblom and is the minority stockholder
of CMI, have a services agreement whereby UMDA is paid a fee of 1.0% of CMI's
gross revenue, as defined, which will continue until January 1, 2012. During
1995, these fees totaled $6 million. As of December 31, 1995, the Company had
a payable of $7 million maturing in 2011 to UMDA. Annual payments of such
payable aggregating $1 million per year are applied to reduce the 1.0% fee.
 
 
                                 PROPOSAL 1:
                             ELECTION OF DIRECTORS
 
  It is the intention of the persons named in the enclosed form of proxy,
unless otherwise instructed, to vote each duly executed proxy for the election
of each nominee listed below; provided, however, that if the amendments to the
Charter as described in Proposal 4 are not approved at the Meeting by
stockholders, so that the entire Board of Directors is required to remain
comprised of 18 persons, it is the intention of the persons named in the
enclosed form of proxy, unless otherwise instructed, to vote each duly
executed proxy for the election of each nominee listed below under the heading
"Alternative Slate of Directors," which is comprised of the current directors
of the Company. Pursuant to the Company's Bylaws, directors will be elected by
a plurality of the votes duly cast at the Meeting. If elected, such nominee
will hold office until the next annual meeting of stockholders and until his
or her respective successor has been duly elected and has qualified. In
connection with the matters described under "Recent Developments," the four
directors of the Company originally designated by Air Canada have agreed to
resign from the Board of Directors upon the request of the Company. Management
does not contemplate that any of the nominees will become unavailable for any
reason, but if that should occur before the Meeting, proxies will be voted for
another nominee or nominees to be selected by the Board of Directors of the
Company.
 
  Air Partners has the limited right, in certain circumstances, to convert its
Class A common stock into Class D common stock. No person may hold or own
Class D common stock other than Air Partners and certain of its affiliates.
The Class D common stock, if issued, would permit Air Partners to elect one-
third of the directors to the Company's Board. To date, no shares of Class D
common stock have been issued.
 
  There is no family relationship between any of the nominees for director or
between any nominee and any executive officer.
 
                                      22

<PAGE>
 
  The following table shows, with respect to each nominee, (i) such person's
name and age, (ii) the period for which such person has served as a director of
the Company, (iii) all positions and offices with the Company currently held by
him or her and his or her principal occupation during the last five years
(including other directorships and business experience), and (iv) the standing
committees of the Board of Directors of which he or she is a member. Each of
the nominees, other than Mr. Parker, is currently a director of the Company.
 

<TABLE>
<CAPTION>
    NAME, AGE, POSITION
 AND COMMITTEE MEMBERSHIPS         TERM OF OFFICE AND BUSINESS EXPERIENCE
 -------------------------         --------------------------------------
<S>                           <C>
THOMAS J. BARRACK, JR., age   Director since August 1994. Chief Executive
 49                           Officer of Colony Capital, Inc. and Colony
 (Human Resources Committee)  Advisors, Inc. (real estate investments) since
                              1991; Officer of Keystone, Inc. (a private
                              investment firm) (1987-1991); Director of: The
                              Santa Ana Companies; Virgin/MGM Cinemas (U.K.);
                              Sonnenblick Goldman Company; Hilton Waikoloa
                              Village Corporation.
GORDON M. BETHUNE, age 54     Director since August 1994. President and Chief
 President, Chief Executive   Executive Officer since November 1994. President
 Officer and Director         and Chief Operating Officer (February 1994-
 (Executive Committee,        November 1994); various positions with The
 Finance and Strategy         Boeing Company commencing in 1988, including
 Committee)                   Vice President and General Manager of the
                              Commercial Airplane Group Renton Division, Vice
                              President and General Manager of the Customer
                              Services Division, and Vice President of Airline
                              Logistics Support.
DAVID BONDERMAN, age 53       Director since April 1993 and Chairman of the
 Chairman of the Board of     Board since May 1993. Managing Director of Air
 Directors (Executive         Partners, L.P. since November 1992; Principal of
 Committee, Finance and       Texas Pacific Group (a private investment firm)
 Strategy Committee)          since September 1992; Chief Operating Officer of
                              Keystone, Inc. (a private investment firm)
                              (1983-August 1992); Director of: Bell & Howell
                              Holdings Company; National Re Corporation;
                              National Education Corporation; Carr Realty
                              Company; American Savings Bank, F.A.; Virgin/MGM
                              Cinemas (U.K.); Beringer Wine Estates; Denbury
                              Resources, Inc.
GREGORY D. BRENNEMAN, age 34  Director since June 1995. Chief Operating
 Chief Operating Officer and  Officer since May 1995. Consultant to the
 Director (Finance and        Company (February-April 1995); Various
 Strategy Committee)          positions, including Vice President, with Bain &
                              Company, Inc. (consulting firm) for more than
                              five years.
PATRICK FOLEY, age 64         Director since April 1993. Chairman of the
 (Finance and Strategy        Board, President and Chief Executive Officer of
 Committee, Human Resources   DHL Airways, Inc. since 1988; Director of:
 Committee)                   Foundation Health Corporation; Glenborough
                              Realty Trust, Inc.
DOUGLAS McCORKINDALE, age 56  Director since April 1993. Vice Chairman and
 (Audit Committee)            Chief Financial and Administrative Officer of
                              Gannett Co., Inc. (a nationwide diversified
                              communications company) since 1984; Director of
                              seven funds which are part of the Prudential
                              Group of Mutual Funds; Director, Frontier
                              Corporation.
</TABLE>

 
                                       23

<PAGE>
 

<TABLE>
<CAPTION>
     NAME, AGE, POSITION
  AND COMMITTEE MEMBERSHIPS         TERM OF OFFICE AND BUSINESS EXPERIENCE
  -------------------------         --------------------------------------
<S>                            <C>
GEORGE G.C. PARKER, age 57     Associate Dean for Academic Affairs (since
 Nominee for Director          September 1993); Director of MBA Program (since
                               September 1993); and Professor of Management
                               (since November 1973) at the Graduate School of
                               Business, Stanford University. Director of:
                               California Casualty Group of Insurance Companies
                               (casualty insurance); Bailard, Biehl, and
                               Kaiser, Inc. (investment advisors); RCM Equity
                               Funds (international and domestic mutual funds);
                               H. Warshow & Sons, Inc. (manufacturers of
                               specialty textiles); Zurich Reinsurance Centre,
                               Inc. (large reinsurance underwriters); Peninsula
                               Banking Group (commercial bank holding company).
RICHARD W. POGUE, age 68       Director since April 1993. Senior Advisor of Dix
 (Human Resources Committee)   & Eaton (a public relations firm) since July
                               1994; Senior Partner (January 1993-June 1994)
                               and Managing Partner (1984-1992) of Jones, Day,
                               Reavis & Pogue (law firm); Director of: Derlan
                               Industries, Ltd.; M.A. Hanna Co.; KeyCorp; OHM
                               Corporation; Redland PLC; Rotek Incorporated;
                               TRW Inc.
WILLIAM S. PRICE III, age 40   Director since April 1993. Managing Director of
 (Finance and Strategy         Air Partners, L.P. since November 1992;
 Committee, Human Resources    Principal of Texas Pacific Group (a private
 Committee)                    investment firm) since November 1992; Vice
                               President--Strategic Planning and Business
                               Development of GE Capital Corporation (1991-
                               1992); Vice President of Bain & Company, Inc.
                               (consulting firm) (1985-1991); Chairman of the
                               Board of Directors of Favorite Brands, Inc.;
                               Beringer Wine Estates; Director of: Preferred
                               Provider Organization of Michigan; VIVRA Heart
                               Services; Banco Allianza; Denbury Resources,
                               Inc.
DONALD L. STURM, age 64        Director since April 1993. Chairman of the Board
 (Finance and Strategy         and Chief Executive Officer of: Community First
 Committee, Human Resources    Bankshares, Inc. (which owns four banks in
 Committee)                    Colorado) since 1993; Community First Bancorp,
                               Inc. (which owns four banks in Wyoming) since
                               1993; Sturm Investment, Inc. (which owns one
                               bank in Illinois) since 1984; Premier Bank since
                               1994; Continental Can Company, Inc., and various
                               subsidiaries and affiliated corporations (1984-
                               1991); Various positions culminating in Vice
                               Chairman of Peter Kiewit Sons, Inc. (1963-1991);
                               Limited Partner of Air Partners, L.P.
KAREN HASTIE WILLIAMS, age 51  Director since April 1993. Partner of Crowell &
 (Human Resources Committee)   Moring (law firm), Washington, D.C. since
                               December 1982; Director of: Federal National
                               Mortgage Association; Crestar Financial
                               Corporation; Washington Gas Light Company;
                               SunAmerica, Inc.
CHARLES A. YAMARONE, age 37    Director since January 1995. Executive Vice
 (Finance and Strategy         President and Research Director of Libra
 Committee)                    Investments, Inc. since July 1994; Senior Vice
                               President and General Counsel of Libra
                               Investments, Inc. (October 1991-June 1994);
                               Senior Vice President-Legal and Secretary of
                               Columbia Savings (January 1990-October 1991);
                               Director of: El Paso Electric Company; LIVE
                               Entertainment, Inc.
</TABLE>

 
                                       24

<PAGE>
 
 
 THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE NOMINEES
NAMED ABOVE, WHICH IS DESIGNATED AS PROPOSAL NO. 1 ON THE ENCLOSED PROXY.
 
 Alternative Slate of Directors
 
  As described above, if the amendments to the Charter as described in Proposal
4 are not approved at the Meeting by stockholders, it will be necessary for
stockholders to elect 18 directors at the Meeting. If this occurs, the Board
has nominated each of the current directors of the Company to serve as
directors for the ensuing year, and each of the following persons has agreed to
serve as a director if elected.
 

<TABLE>
<CAPTION>
    NAME, AGE, POSITION
 AND COMMITTEE MEMBERSHIPS         TERM OF OFFICE AND BUSINESS EXPERIENCE
 -------------------------         --------------------------------------
<S>                           <C>
THOMAS J. BARRACK, JR., age   Director since August 1994. Chief Executive
 49                           Officer of Colony Capital, Inc. and Colony
 (Human Resources Committee)  Advisors, Inc. (real estate investments) since
                              1991; Officer of Keystone, Inc. (a private
                              investment firm) (1987-1991); Director of: The
                              Santa Ana Companies; Virgin/MGM Cinemas (U.K.);
                              Sonnenblick Goldman Company; Hilton Waikoloa
                              Village Corporation.
GORDON M. BETHUNE, age 54     Director since August 1994. President and Chief
 President, Chief Executive   Executive Officer since November 1994. President
 Officer and Director         and Chief Operating Officer (February 1994-
 (Executive Committee,        November 1994); various positions with The
 Finance and Strategy         Boeing Company commencing in 1988, including
 Committee)                   Vice President and General Manager of the
                              Commercial Airplane Group Renton Division, Vice
                              President and General Manager of the Customer
                              Services Division, and Vice President of Airline
                              Logistics Support.
DAVID BONDERMAN, age 53       Director since April 1993 and Chairman of the
 Chairman of the Board of     Board since May 1993. Managing Director of Air
 Directors (Executive         Partners, L.P. since November 1992; Principal of
 Committee, Finance and       Texas Pacific Group (a private investment firm)
 Strategy Committee)          since September 1992; Chief Operating Officer of
                              Keystone, Inc. (a private investment firm)
                              (1983-August 1992); Director of: Bell & Howell
                              Holdings Company; National Re Corporation;
                              National Education Corporation; Carr Realty
                              Company; American Savings Bank, F.A.; Virgin/MGM
                              Cinemas (U.K.); Beringer Wine Estates; Denbury
                              Resources, Inc.
GREGORY D. BRENNEMAN, age 34  Director since June 1995. Chief Operating
 Chief Operating Officer and  Officer since May 1995. Consultant to the
 Director (Finance and        Company (February-April 1995); Various
 Strategy Committee)          positions, including Vice President, with Bain &
                              Company, Inc. (consulting firm) for more than
                              five years.
JOEL H. COWAN, age 59         Director since April 1993. President of Cowan &
 (Audit Committee)            Associates (real estate holding company) since
                              1976; Chairman, The Habersham Group
                              (international trade & investment) since 1984;
                              Director, Interstate General Company, L.P.
PATRICK FOLEY, age 64         Director since April 1993. Chairman of the
 (Finance and Strategy        Board, President and Chief Executive Officer of
 Committee, Human Resources   DHL Airways, Inc. since 1988; Director of:
 Committee)                   Foundation Health Corporation; Glenborough
                              Realty Trust, Inc.
</TABLE>

 
 
                                       25

<PAGE>
 

<TABLE>
<CAPTION>
    NAME, AGE, POSITION
 AND COMMITTEE MEMBERSHIPS         TERM OF OFFICE AND BUSINESS EXPERIENCE
 -------------------------         --------------------------------------
<S>                           <C>
ROWLAND C. FRAZEE, C.C., age  Director since April 1993. Various positions
 75                           with The Royal Bank of Canada since 1939,
 (Audit Committee)(1)         retiring as Chairman and Chief Executive
                              Officer; Director and Chairman of Ganong Bros.
                              Limited; Director of: International Minerals and
                              Chemical Corporation of Canada, Limited;
                              Newfoundland Capital Corporation Limited.
HOLLIS L. HARRIS, age 64      Director since April 1993. Chairman of the Board
 (Executive Committee,        of Air Canada since January 1993; Chairman of
 Finance and Strategy         the Board, President and Chief Executive Officer
 Committee)                   of Air Canada (January 1993-May 1996); Vice
                              Chairman, President and Chief Executive Officer
                              (February 1992-January 1993) of Air Canada;
                              Chairman of the Board, President and Chief
                              Executive Officer of Continental and President
                              and Chief Executive Officer of Holdings
                              (September 1990-August 1991); prior to that, 36
                              years with Delta with final position being
                              Director, President and Chief Operating Officer;
                              Director, American Business Products Inc.
DEAN C. KEHLER, age 39        Director since June 1995. Managing Director of
 (Audit Committee)            CIBC Wood Gundy Securities Corp. since August
                              1995; Managing Director and a founding partner
                              of The Argosy Group L.P. (investment banking)
                              (1990-August 1995); Trustee of the Care
                              Foundation.
ROBERT L. LUMPKINS, age 52    Director since April 1993. Vice Chairman of the
 (Audit Committee)            Board (since 1995), Director (since 1991) and
                              Chief Financial Officer (since 1989) of Cargill,
                              Inc.
DOUGLAS McCORKINDALE, age 56  Director since April 1993. Vice Chairman and
 (Audit Committee)            Chief Financial and Administrative Officer of
                              Gannett Co., Inc. (a nationwide diversified
                              communications company) since 1984; Director of
                              seven funds which are part of the Prudential
                              Group of Mutual Funds; Director, Frontier
                              Corporation.
DAVID E. MITCHELL, O.C., age  Director since April 1993. President and Chief
 69                           Executive Officer (1975-1993) and Chairman (1994
 (Human Resources             to present) of Alberta Energy Company, Ltd.;
 Committee)(1)                Chairman of the Board: Chieftain International,
                              Inc.; Chieftain International Funding Corp.;
                              Director of: Air Canada; The Bank of Nova
                              Scotia; Hudson's Bay Company; Lafarge
                              Corporation; Founder and President, the Ernest
                              C. Manning Awards Foundation.
RICHARD W. POGUE, age 68      Director since April 1993. Senior Advisor of Dix
 (Human Resources Committee)  & Eaton (a public relations firm) since July
                              1994; Senior Partner (January 1993-June 1994)
                              and Managing Partner (1984-1992) of Jones, Day,
                              Reavis & Pogue (law firm); Director of: Derlan
                              Industries, Ltd.; M.A. Hanna Co.; KeyCorp; OHM
                              Corporation; Redland PLC; Rotek Incorporated;
                              TRW Inc.
</TABLE>

 
 
                                       26

<PAGE>
 

<TABLE>
<CAPTION>
     NAME, AGE, POSITION
  AND COMMITTEE MEMBERSHIPS         TERM OF OFFICE AND BUSINESS EXPERIENCE
  -------------------------         --------------------------------------
<S>                            <C>
WILLIAM S. PRICE III, age 40   Director since April 1993. Managing Director of
 (Finance and Strategy         Air Partners, L.P. since November 1992;
 Committee, Human Resources    Principal of Texas Pacific Group (a private
 Committee)                    investment firm) since November 1992; Vice
                               President--Strategic Planning and Business
                               Development of GE Capital Corporation (1991-
                               1992); Vice President of Bain & Company, Inc.
                               (consulting firm) (1985-1991); Chairman of the
                               Board of Directors of Favorite Brands, Inc.;
                               Beringer Wine Estates; Director of: Preferred
                               Provider Organization of Michigan; VIVRA Heart
                               Services; Banco Allianza; Denbury Resources,
                               Inc.
DONALD L. STURM, age 64        Director since April 1993. Chairman of the Board
 (Finance and Strategy         and Chief Executive Officer of: Community First
 Committee, Human Resources    Bankshares, Inc. (which owns four banks in
 Committee)                    Colorado) since 1993; Community First Bancorp,
                               Inc. (which owns four banks in Wyoming) since
                               1993; Sturm Investment, Inc. (which owns one
                               bank in Illinois) since 1984; Premier Bank since
                               1994; Continental Can Company, Inc., and various
                               subsidiaries and affiliated corporations (1984-
                               1991); Various positions culminating in Vice
                               Chairman of Peter Kiewit Sons, Inc. (1963-1991);
                               Limited Partner of Air Partners, L.P.
CLAUDE I. TAYLOR, O.C., age    Director since April 1993. Chairman Emeritus of
 70                            Air Canada since January 1993; Chairman of the
 (Audit Committee, Finance     Board of Air Canada (February 1992-December
 and Strategy Committee)(1)    1993); Chairman of the Board, President and
                               Chief Executive Officer of Air Canada (1990-
                               1992); Chairman of the Board (1984-1990),
                               President and Chief Executive Officer (1976-
                               1984) of Air Canada; Chairman of the Board of
                               Medina Inc.; Vice Chairman of the Board of
                               Governors of Concordia University; Vice Chairman
                               of the Board of Directors of Friday's Child
                               International; Director of: Air Canada; CGI
                               Group Inc.; Blenheim Aviation Limited; Montreal
                               Neurological Hospital; National Quality
                               Institute of Canada; Canadian Aviation Hall of
                               Fame.
KAREN HASTIE WILLIAMS, age 51  Director since April 1993. Partner of Crowell &
 (Human Resources Committee)   Moring (law firm), Washington, D.C. since
                               December 1982; Director of: Federal National
                               Mortgage Association; Crestar Financial
                               Corporation; Washington Gas Light Company;
                               SunAmerica, Inc.
CHARLES A. YAMARONE, age 37    Director since January 1995. Executive Vice
 (Finance and Strategy         President and Research Director of Libra
 Committee)                    Investments, Inc. since July 1994; Senior Vice
                               President and General Counsel of Libra
                               Investments, Inc. (October 1991-June 1994);
                               Senior Vice President--Legal and Secretary of
                               Columbia Savings (January 1990-October 1991);
                               Director of: El Paso Electric Company; LIVE
                               Entertainment, Inc.
</TABLE>

- --------
(1) Citizen of Canada
 
  THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE ALTERNATE
NOMINEES NAMED ABOVE (WHICH WILL BE EFFECTIVE ONLY IF THE AMENDMENTS TO THE
CHARTER DESCRIBED IN PROPOSAL 4 ARE NOT APPROVED), WHICH IS DESIGNATED AS

PROPOSAL NO. 1.A ON THE ENCLOSED PROXY.
 
                                       27

<PAGE>
 
 
                                 PROPOSAL 2:
                      APPROVAL OF THE SECOND AMENDMENT TO
                        THE 1994 INCENTIVE EQUITY PLAN
 
  Subject to the approval of stockholders, the Board of Directors, on the
recommendation of the Human Resources Committee, has amended the Company's
1994 Incentive Equity Plan, as amended (the "Plan"). The proposed amendment
(the "Second Amendment") increases the number of shares of Class B common
stock covered by the Plan by 1,500,000 shares (from 3,000,000 shares to
4,500,000 shares) and amends the provisions of the Plan relating to a "Change
in Control."
 
  The purpose of increasing the number of shares of Class B common stock
covered by the Plan is to permit the granting of stock options in the future,
and to accommodate recent option grants, including the additional option
grants made in connection with the matters discussed under "Recent
Developments." At April 30, 1996, grants of stock options with respect to a
total of 3,764,475 shares of Class B common stock had been made under the Plan
(net of forfeitures), of which an aggregate of 1,136,600 had been made subject
to stockholder approval of the Second Amendment, and the Company had granted
272,500 shares of restricted stock (net of forfeitures).
 
  As currently defined in the Plan, a "Change in Control" includes (a) any
completion of a tender or exchange offer pursuant to which more than 50% of
the Company's common stock is acquired, (b) any merger or consolidation of the
Company pursuant to a transaction in which the Company is not the "Controlling
Corporation" (as defined), or a sale of all or substantially all of its
assets, (c) any person (other than Air Partners and Air Canada) owns
securities entitling such person to elect a majority of the Board of
Directors, and (d) either Air Partners or Air Canada ceases to own securities
entitling such person to elect at least one-sixth of the members of the Board
(provided, however, that this clause (d) would not apply in the case of any
sale by Air Canada of shares of Company stock to another foreign air carrier).
 
  Upon a Change in Control, the Plan and the participants' stock option and
restricted stock agreements provide that all such participants' stock options
shall immediately become exercisable in full, whether or not otherwise
exercisable, for a period of 30 calendar days following the Change in Control
and all restrictions on the transfer of shares acquired thereunder will
terminate, and all restrictions applicable to restricted stock will be deemed
to have been satisfied.
 
  In connection with the transactions described under "Recent Developments,"
it might have been argued that such transactions constituted a Change in
Control under the Plan, by virtue of Air Canada's reduction in ownership of
voting securities of the Company. The occurrence of a Change in Control under
the Plan could have had a number of adverse effects on the Company, including
permitting premature exercisability of options and vesting of restricted
stock, accelerated payments under the Company's bonus program for senior
management, and the entitlement of senior management to certain payments and
other benefits under their employment agreements.
 
  The Company sought and obtained waivers and amendments from Plan
participants representing the vast majority of options and restricted stock
outstanding under the Plan, pursuant to which such participants agreed to
substitute the revised Change in Control provisions described below for the
provisions currently contained in the Plan in their option, restricted stock
and employment agreements, and waived any rights that they may have had to
claim that a Change in Control had occurred. In connection therewith, such
participants were granted options with respect to an additional 10% of such
participants' original option grants (subject to approval by the stockholders
of the Second Amendment), certain payments and enhancements to flight benefits
were made to certain participants, and the term of certain employment
agreements was extended by one year. See "Certain Transactions."
 
  Under the revised provision contained in the Second Amendment, a Change in
Control generally would occur if:
 
    (a) any Person (as defined) is or becomes the "beneficial owner,"
  directly or indirectly, of securities of the Company representing the
  greater of (x) 25% of the combined voting power of the Company's
 
                                      28

<PAGE>
 
  outstanding securities and (y) the proportion of the combined voting power
  of the Company's outstanding securities represented by securities of the
  Company beneficially owned, directly or indirectly, by Air Partners and
  certain of its affiliates (excluding any securities beneficially owned by
  Air Partners and such affiliates that are deemed to be beneficially owned
  by such acquiring person), other than beneficial ownership by (i) the
  Company or any subsidiary of the Company, (ii) any employee benefit plan of
  the Company or any Person organized, appointed or established pursuant to
  the terms of any such employee benefit plan (unless such plan or Person is
  a party to or is utilized in connection with a transaction led by Persons
  other than Excluded Persons (as defined below) or senior management of the
  Company), (iii) Air Partners or any Person (other than any air carrier that
  is not the Company and that is affiliated with Air Partners, or a holding
  company or subsidiary of any such air carrier) affiliated with Air
  Partners, or (iv) Air Canada or any Person affiliated with Air Canada (the
  Persons referred to in clauses (i) through (iv), collectively, the
  "Excluded Persons"); or
 
    (b) individuals who constituted the Board as of April 19, 1996 (the
  "Incumbent Board") cease for any reason to constitute at least a majority
  of the Board, provided that any individual becoming a director subsequent
  to April 19, 1996 whose appointment to fill a vacancy or new Board position
  or nomination for election by the Company's stockholders was approved by a
  vote of at least a majority of the directors then comprising the Incumbent
  Board, or who was nominated for election by Excluded Persons, shall be
  considered as though such individual were a member of the Incumbent Board;
  or
 
    (c) the Company merges with or consolidates into or engages in a
  reorganization or similar transaction with another entity pursuant to a
  transaction in which the Company is not the "Controlling Corporation"; or
 
    (d) the Company sells or otherwise disposes of all or substantially all
  of its assets, other than to Excluded Persons.
 
  In general, the Company will be considered the "Controlling Corporation" in
any merger, consolidation, reorganization or similar transaction unless either
the stockholders of the Company immediately prior to the consummation of the
transaction would not immediately thereafter own securities of the resulting
entity entitled to elect a majority of the members of the board or other
governing body thereof, or those persons who were directors of the Company
immediately prior to the consummation of the proposed transaction would not,
immediately thereafter, constitute a majority of the directors of the
resulting entity. In addition, the Second Amendment contains certain
exceptions to the definition of Excluded Persons.
 
  Upon the occurrence of a Change in Control, all stock options will
immediately become exercisable in full (whether or not then exercisable) for a
period of 30 days following such Change in Control, all restrictions on
transfer of shares acquired pursuant thereto will terminate (except as
required by law), and all restrictions applicable to participants' restricted
stock shall be deemed to have been satisfied in full and such restricted stock
will vest in full.
 
  The Second Amendment also contains a provision for payments to be made to
participants for certain excise taxes in identical form to the provision
contained in the current Plan.
 
  The Plan may be amended by the Board in the future, but may not be so
amended without further approval by the stockholders of the Company if such
amendment would result in the Plan no longer satisfying the requirements of
Rule 16b-3 under the Exchange Act.
 
  The following is a brief summary of certain of the federal income tax
consequences of certain transactions under the Plan based on federal income
tax laws in effect on the date hereof. This summary is not exhaustive and does
not describe state or local tax consequences.
 
  In general, (i) no income will be recognized by an optionee at the time a
non-qualified stock option is granted; (ii) at the time of exercise of a non-
qualified stock option, ordinary income will be recognized by the optionee in
an amount equal to the difference between the option price paid for the shares
and the fair market
 
                                      29

<PAGE>
 
value of the shares if they are nonrestricted on the date of exercise; and
(iii) at the time of sale of shares acquired pursuant to the exercise of a
non-qualified stock option, any appreciation (or depreciation) in the value of
the shares after the date of exercise will be treated as either short-term or
long-term capital gain (or loss) depending on how long the shares have been
held.
 
  No income generally will be recognized by an optionee under the grant or
exercise of an incentive stock option and, upon exercise, the difference
between the fair market value and the exercise price may be subject to the
alternative minimum tax. If shares of common stock are issued to an optionee
pursuant to the exercise of an incentive stock option and no disqualifying
disposition of the share is made by the optionee within two years after the
date of grant or within one year after the transfer of the shares to the
optionee, then upon the sale of the shares any amount realized in excess of
the option price will be taxed to the optionee as long-term capital gain and
any loss sustained will be a long-term capital loss.
 
  If shares of common stock acquired upon the exercise of incentive stock
options are disposed of prior to the expiration of either holding period
described in the foregoing paragraph, the optionee generally will recognize
ordinary income in the year of disposition in an amount equal to any excess of
the fair market value of the shares at the time of exercise (or, if less, the
amount realized on the disposition of the shares in a sale or exchange) over
the option price paid for the shares. Any further gain (or loss) realized by
the optionee generally will be taxed as a short-term or long-term capital gain
(or loss) depending on the holding period.
 
  A recipient of restricted stock generally will be subject to tax at ordinary
income rates on the fair market value of the restricted stock reduced by any
amount paid by the recipient at such time as the shares are no longer subject
to a risk of forfeiture or restrictions on transfer for purposes of Section 83
of the Code. However, a recipient who so elects under Section 83(b) of the
Code within 30 days of the date of transfer of the shares will have taxable
ordinary income on the date of transfer of the shares equal to the excess of
the fair market value of the shares (determined without regard to the risk of
forfeiture or restrictions on transfer) over any purchase price paid for the
shares. If a Section 83(b) election has not been made, any dividends received
with respect to restricted stock that are subject at that time to a risk of
forfeiture or restrictions on transfer generally will be treated as
compensation that is taxable as ordinary income to the recipient.
 
  In limited circumstances where the sale of stock that is received as the
result of a grant of an award could subject an officer or director to suit
under Section 16(b) of the Exchange Act, the tax consequences to the officer
or director may differ from the tax consequences described above. In these
circumstances, unless a special election has been made, the principal
difference usually will be to postpone valuation and taxation of the stock
received so long as the sale of the stock received could subject the officer
of director to such suit, but no longer than six months.
 
  To the extent that a participant recognizes ordinary income in the
circumstances described above, the Company or subsidiary for which the
participant performs services will be entitled to a corresponding deduction,
provided that, among other things, (i) the income meets the test of
reasonableness, is an ordinary and necessary business expense and is not an
"excess parachute payment" within the meaning of Section 280G of the Code,
(ii) any applicable withholding obligations are satisfied, and (iii) the one
million dollar limitation of Section 162(m) of the Code is not exceeded. No
deduction will be available to the Company or any subsidiary for any amounts
paid under the Plan with respect to (i) any excise taxes due under Section
4999 of the Code with respect to amounts that are vested and/or payable due to
a Change in Control and (ii) any taxes due on the payment of such excise taxes
described in clause (i).
 
  The text of the Second Amendment to the 1994 Incentive Equity Plan, as
amended, is attached as Appendix A to this proxy statement. Stockholders are
being asked to vote upon approval of the Second Amendment as contemplated
therein. The Second Amendment will be adopted upon a majority of the votes
duly represented at the Meeting and entitled to vote being cast in favor
thereof.
 
  At April 30, 1996, there were stock options with respect to an aggregate of
3,515,350 shares of Class B common stock outstanding under the Plan (of which
options with respect to 1,136,600 shares are subject to stockholder approval
of the Second Amendment), and 89,000 shares of unvested restricted stock were
 
                                      30

<PAGE>
 
outstanding under the Plan. The exercise prices of options outstanding under
the Plan range from $7.75 to $59.375. Approximately 400 employees
(substantially all of the Company's manager level employees) are eligible to
participate in the Plan. See the "New Plan Benefits" table following Proposal
3 for an indication of the level of certain options anticipated to be awarded
under the Plan, as amended.
 
 
 THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE SECOND
AMENDMENT TO THE 1994 INCENTIVE EQUITY PLAN, AS AMENDED, AS DESCRIBED ABOVE
AND AS SET FORTH IN APPENDIX A, WHICH IS DESIGNATED AS PROPOSAL NO. 2 ON THE
ENCLOSED PROXY.
 

                                  PROPOSAL 3:
                                APPROVAL OF THE
                            EXECUTIVE BONUS PROGRAM
 
  As discussed in the Executive Compensation Report of the Human Resources
Committee (the "Committee") above, the Committee adopted the Executive Bonus
Program (the "Program") to attract and retain key officers of the Company and
its subsidiaries and to compensate such officers based on performance goals
consisting of achievement of cumulative quarterly net income targets of the
Company and its consolidated subsidiaries contained in the annual financial
plan of the Company approved by the Board of Directors of the Company prior to
and for the applicable fiscal year of the Company (the "Budget").
 
  Each of the executive officers of the Company, including the Chief Executive
Officer, the Chief Operating Officer, the Chief Financial Officer and the
General Counsel of the Company, each Senior Vice President of the Company, and
the Vice President--Marketing and Sales of the Company, automatically
participates in the Program with respect to each fiscal year, and the Chief
Executive Officer may recommend to the Committee that it designate other
specified officers to participate in a particular fiscal year. It is
anticipated that approximately 23 officers will participate in the Program.
The Chief Executive Officer has the power to terminate any Participant's
participation in the Program upon written notice to such Participant of such
termination, subject to ratification of such action by the Committee.
 
  Commencing with the fiscal quarter during which the Program is approved by
stockholders of the Company as required under Section 162(m) of the Code,
participants in the Program will be eligible to receive on a fiscal quarterly
basis a cash bonus (a "Quarterly Bonus") equal to (i) the dollar amount
calculated by multiplying such Participant's Cumulative Base Salary (as
defined) with respect to such quarter by (x) (in the case of a positive
variance (which includes a zero variance)), 100% plus the positive variance,
if any, expressed as a percentage (but not more than 25%), between the
Cumulative Actual Net Income (as defined) with respect to such quarter, and
the Cumulative Target Net Income (as defined) with respect to such quarter, or
(y) (in the case of a negative variance), 100% less the absolute value of the
negative variance, expressed as a percentage, between the Cumulative Actual
Net Income (as defined) with respect to such quarter, and the Cumulative
Target Net Income (as defined) with respect to such quarter (provided, that if
such negative variance is greater than negative 25% (e.g., negative 30%), then
such negative variance shall be deemed negative 100%), less (ii) the amount of
the Quarterly Bonuses (up to the amount calculated pursuant to clause (i))
received by such Participant with respect to prior quarters in such fiscal
year. With respect to the Company's 1996 fiscal year only, quarterly bonuses
paid under the Company's terminated 1996 executive bonus program to persons
who are Participants under the Program with respect to fiscal quarters in 1996
ending prior to the quarter during which stockholder approval of the Program
is obtained shall be deducted for purposes of clause (ii) of the foregoing
sentence.
 
  As used in the Program, the term "Cumulative Base Salary" with respect to a
quarter shall mean the aggregate of the Participant's base salary earned,
while a Participant under the Program, during the period commencing on the
first day of the fiscal year in which such quarter occurs and ending on the
last day of such quarter; the term "Cumulative Actual Net Income" with respect
to a quarter shall mean the aggregate consolidated net income of the Company
and its consolidated subsidiaries, as shown on the regularly prepared
statement of operations of the Company prepared in accordance with generally
accepted accounting principles, for the period commencing on the first day of
the fiscal year in which such quarter occurs and ending on the last
 
                                      31

<PAGE>
 
day of such quarter; and the term "Cumulative Target Net Income"with respect
to a quarter shall mean the aggregate consolidated net income of the Company
and its consolidated subsidiaries, as set forth in the Budget, for the period
commencing on the first day of the fiscal year in which such quarter occurs
and ending on the last day of such quarter. Notwithstanding any other
provision of the Program, the maximum amount of aggregate Quarterly Bonuses
which any Participant may receive during any fiscal year under the Program
shall be $1,000,000.
 
  The Program will be administered by the Committee, which at all times will
consist of not less than two persons, each of whom is an "outside director"
within the meaning of Section 162(m) of the Code. The Committee will certify,
prior to the payment of any Quarterly Bonus with respect to a quarter, whether
the performance goals have been met and whether any other material terms
relating to the payment of such Quarterly Bonuses have been satisfied, to the
extent required by Section 162(m) of the Code.
 
  If a Change in Control occurs (as such term is defined in the Second
Amendment to the Company's 1994 Incentive Equity Plan, as amended) and
thereafter (or in connection therewith or in contemplation thereof) during the
year in which such Change in Control occurs (a "Change Year"), a Participant
suffers a Qualifying Event (as defined), then such Participant shall, upon the
occurrence of the Qualifying Event, receive an amount in cash from the Company
equal to (x) the aggregate Quarterly Bonuses such Participant would have
received under the Program had the variance of the Cumulative Actual Net
Income with respect to each quarter during the Change Year exceeded the
Cumulative Target Net Income with respect to each quarter during the Change
Year by more than 25%, less (y) the aggregate of the Quarterly Bonuses paid to
such Participant pursuant to the Program during the Change Year through the
date immediately prior to the occurrence of the Qualifying Event (with respect
to the Company's 1996 fiscal year only, quarterly bonuses paid under the
Company's terminated 1996 executive bonus program to persons who are
Participants under the Program with respect to fiscal quarters in 1996 ending
prior to the quarter during which stockholder approval of the Program is
obtained shall be deducted for purposes of clause (y) of the foregoing
sentence), and such Participant shall not be entitled to any additional
Quarterly Bonuses with respect to such Change Year. As used in the Program,
the term "Qualifying Event" with respect to a Participant means (i) the
termination of such Participant's participation in the Program, (ii) the
assignment to such Participant of duties materially inconsistent with the
duties associated with his position as such duties are constituted as of the
first day of the Change Year, (iii) a material diminution in the nature or
scope of such Participant's authority, responsibilities, or title from those
applicable to him as of the first day of the Change Year, (iv) the occurrence
of material acts or conduct on the part of the Company or its officers or
representatives which prevent such Participant from performing his duties and
responsibilities as they existed on the first day of the Change Year, (v) the
Company requiring such Participant to be permanently based anywhere outside a
major urban center in the state in which he was based as of the first day of
the Change Year, or (vi) the taking of any action by the Company that would
materially adversely affect the corporate amenities enjoyed by such
Participant on the first day of the Change Year, except in each case if such
Participant's employment is terminated (a) upon such Participant's death, (b)
upon such Participant's becoming incapacitated, (c) for cause, (d) upon the
voluntary resignation from employment of such Participant, or (e) for such
Participant's material breach of any provision of any contract of employment
between such Participant and the Company or any of its subsidiaries.
 
  The Program may be amended from time to time or terminated by the Committee;
provided that the Program may not be amended by the Committee without the
further approval of the stockholders of the Company if such amendment would
result in the Program no longer satisfying the requirements of Section 162(m)
of the Code, and the Program may not be amended or terminated in contemplation
of or in connection with a Change in Control, nor may any Participant's
participation therein be terminated in contemplation of or in connection with
a Change in Control, unless adequate and effective provision for the making of
all payments otherwise payable with respect to such Change in Control shall be
made in connection with any such amendment or termination. Participation in
the Program by a Participant shall terminate upon such Participant's
termination of employment with the Company and its subsidiaries or as
otherwise set forth in the Program. The Program is unfunded and will not
create a trust or separate fund, and each Participant shall be entitled only
to look to the Company for any benefit thereunder, and shall have no greater
right than an unsecured creditor of the Company.
 
                                      32

<PAGE>
 
  The Company shall have the right to withhold from any payment under the
Program all applicable federal, state, local and other taxes as required by
law.
 
  The Program was adopted by the Board on April 19, 1996, to be effective as
of the date of stockholder approval of the Program. The Company's 1996
executive bonus program, as currently in effect, will terminate upon the date
of such stockholder approval.
 
  During 1995, the named executive officers received the following amounts as
bonuses under the predecessor to the Program: Mr. Bethune, $550,000, Mr.
Brenneman, $354,039, Mr. Kellner, $262,500, Mr. McLean, $300,000 and Mr.
Simon, $300,000.
 
  Section 162(m) of the Code denies publicly held companies a tax deduction
for annual compensation in excess of one million dollars paid to their chief
executive officer or any of the four other most highly compensated executive
officers who are employed on the last day of a given year, unless their
compensation is based on performance criteria that are established by a
committee of outside directors and approved, as to their material terms, by
such company's stockholders. The Program has been designed to meet the
requirements of Section 162(m), and stockholders of the Company are being
requested to approve the Program in order to permit the Company to deduct, for
federal income tax purposes, all of the compensation payable under the Program
to the Named Executives. If the Program is not approved, the Committee intends
to review and reconsider the Program in light of such vote and the principles
described in the Executive Compensation Report of the Human Resources
Committee.
 
  The Program will be approved upon a majority of the votes duly represented
at the Meeting being cast in favor thereof.
 
 
 THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE PROGRAM, AS
DESCRIBED ABOVE AND AS SET FORTH IN APPENDIX B, WHICH IS DESIGNATED AS

PROPOSAL NO. 3 ON THE ENCLOSED PROXY.
 
                                      33

<PAGE>
 
  The following table reflects the annual benefits anticipated to be awarded
under the Incentive Equity Plan, as amended, and that may be awarded under the
Executive Bonus Program. As of April 30, 1996, the Market Value per Share (as
defined in the Incentive Equity Plan) of the Class B common stock was $57.00.
 
                               NEW PLAN BENEFITS
 

<TABLE>
<CAPTION>
                             INCENTIVE EQUITY
                                   PLAN             EXECUTIVE BONUS PROGRAM
                           -------------------- --------------------------------
                             STOCK     STOCK
                            OPTIONS   OPTIONS
                            GRANTED   GRANTED     75% OF               125% OF
    NAME AND POSITION      2/1/96(1) 4/19/96(2)   TARGET     TARGET     TARGET
    -----------------      --------- ---------- ---------- ---------- ----------
<S>                        <C>       <C>        <C>        <C>        <C>
Gordon M. Bethune.........   75,000    35,000   $  450,000 $  600,000 $  750,000
 President and Chief
 Executive Officer
Gregory D. Brenneman......   45,000    32,000   $  393,750 $  525,000 $  656,250
 Chief Operating Officer
Lawrence W. Kellner.......   25,000    10,000   $  300,000 $  400,000 $  500,000
 Senior Vice President and
 Chief Financial Officer
C.D. McLean...............   25,000    10,000   $  225,000 $  300,000 $  375,000
 Senior Vice President--
 Operations
Barry P. Simon............   25,000    10,000   $  225,000 $  300,000 $  375,000
 Senior Vice President--
 Europe
George G.C. Parker(3).....      -0-       -0-          -0-        -0-        -0-
 Nominee for Director
All current executive
 officers as a group......  269,000   154,400   $2,325,000 $3,100,000 $3,875,000
All current directors
 (other than executive
 officers) as a group(3)..      -0-       -0-          -0-        -0-        -0-
All employees (other than
 executive officers)
 as a group...............  510,000   178,200   $2,100,000 $2,800,000 $3,500,000
</TABLE>

- --------
(1) Options to purchase Class B common stock, which vest in 33 1/3% increments
    on February 1, 1997, 1998 and 1999, expire on February 1, 2001 and bear
    exercise prices of $46.00 per share.
(2) These options were granted, subject to certain conditions, in connection
    with the matters described under "Recent Developments" and "Certain
    Transactions," and are not indicative of future annual grants. Options to
    purchase Class B common stock, which vest in 33 1/3% increments on April
    19, 1997, 1998 and 1999, expire on April 19, 2001 and bear exercise prices
    of $59.375 per share.
(3) Non-employee directors receive annual grants of options to purchase 1,500
    shares of Class B common stock. See "General Information--Compensation of
    Directors."
 
 
                                 PROPOSAL 4:
               APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE

                     RESTATED CERTIFICATE OF INCORPORATION
 
  The Company's Charter currently reflects a capital and voting structure that
was designed to accommodate the dual ownership of substantial blocks of the
Company's voting securities by Air Canada and Air Partners and to protect
their respective interests in the Company by, among other things, specifying
matters as to which a supermajority vote of the Board or of the stockholders
is required to take action. In connection with the transactions described
under "Recent Developments" above, the Board of Directors has approved and
adopted an amendment and restatement (the "amendment") of the Charter that
curtails or eliminates the application of a number of these provisions and
deletes other provisions deemed extraneous by the Board of Directors. The full
text of the proposed Charter amendment is set forth as Appendix C to this
proxy statement.
 
                                      34

<PAGE>
 
  The following discussion summarizes proposed amendments to the Charter
adopted by the Board on April 19, 1996 and submitted to stockholders of the
Company for their approval and adoption at the Meeting:
 
1. INCREASE THE TOTAL NUMBER OF SHARES OF CLASS B COMMON STOCK AUTHORIZED FOR
ISSUANCE
 
  Article Fourth of Continental's Charter authorizes the issuance of 260
million shares of capital stock, par value $.01 per share, comprised of 10
million shares of preferred stock, 50 million shares of Class A common stock,
100 million shares of Class B common stock, 50 million shares of Class C
common stock, and 50 million shares of Class D common stock. Pursuant to
Delaware law and under the provisions of the Charter, the Board of Directors
is authorized to issue shares of capital stock up to the number of shares
authorized at such times, in such amounts, to such persons and for such
consideration as it may determine.
 
  The Board of Directors has approved and recommended adoption by the
stockholders of an amendment to the Charter to increase the total number of
shares of capital stock authorized for issuance to 310 million, comprised of
10 million shares of preferred stock, 50 million shares of Class A common
stock, 200 million shares of Class B common stock, and 50 million shares of
Class D common stock. The purpose of the increase in the authorized number of
shares is to permit the Board of Directors to issue additional shares of
capital stock for corporate purposes without further stockholder approval,
unless required by applicable law or regulation. Although Continental does not
have any present understandings, agreements or specific plans concerning the
issuance of the additional authorized capital stock, the Board of Directors
believes the proposed amendment to be in the best interest of the Company in
that it will provide flexibility in future planning. If the Charter is
amended, the additional shares will be available for issuance from time to
time for use in obtaining funds for present and future operations, for use in
connection with possible acquisitions of businesses or properties, for use in
possible stock dividends and stock splits, or for any other proper corporate
purpose.
 
  The Board of Directors does not intend to issue any capital stock to be
authorized under the amendment except upon terms that the Board of Directors
deems to be in the best interest of the Company and its stockholders. The
issuance of additional capital stock may, among other things, have a dilutive
effect on earnings per share and on the equity of the present holders of
capital stock and their voting rights. Holders of the capital stock of the
Company have no preemptive rights, other than anti-dilution rights held by Air
Partners.
 
  The existence of additional authorized shares could have the effect of
rendering more difficult or discouraging hostile takeover attempts. Although
the Board of Directors has no present intention of doing so, the authorized
and unissued shares of capital stock could be issued (within the limits
imposed by applicable law and the rules of any stock exchange upon which the
shares may be listed), by private placement or otherwise, without the need for
any action by stockholders, in one or more transactions which could make more
difficult, discourage or thwart attempts by third parties to gain control of
the Company if the Board of Directors did not approve of such attempted
takeover. The Company is not aware of any existing effort on the part of any
party to accumulate material amounts of voting stock, or to acquire the
Company by means of a merger, tender offer, solicitation of proxies in
opposition to management or otherwise, or to change the Company's management,
nor is the Company aware of any person having made any offer to acquire the
voting stock or assets of the Company.
 
2. ELIMINATE THE CLASS C COMMON STOCK
 
  The Charter currently authorizes the issuance of Class C common stock and
Class D common stock as a mechanism to provide, under certain circumstances, a
specified level of Board representation for each of Air Canada and Air
Partners, respectively. No shares of Class C common stock or Class D common
stock are currently outstanding, and they may only be issued in limited
circumstances upon conversion of all of the Class A common stock held by Air
Canada and Air Partners, respectively. In the event Air Canada and Air
Partners hold shares of Class A common stock and Class B common stock
representing 50% or less of the combined voting power of all classes of common
stock, or if the Original Stockholders' Agreement, as amended, is no longer in
effect, each of Air Canada and Air Partners has the option, which may be
exercised only once, to
 
                                      35

<PAGE>
 
convert all (but not less than all) shares of Class A common stock held by it
into an equal number of shares of Class C common stock, in the case of Air
Canada, or Class D common stock, in the case of Air Partners. Such right of
conversion is further conditioned upon Air Canada or Air Partners, as the case
may be, holding common stock having at least 20% of the total voting power of
all classes of common stock.
 
  After such conversion, holders of Class C common stock and Class D common
stock are each entitled to elect six directors, voting as a separate class.
When shares of Class C common stock are outstanding, Air Canada has no right
to vote any of its shares of Class B common stock for the election of
directors; and if Air Canada becomes the beneficial owner of additional shares
of Class A common stock during such time, such shares will automatically be
converted into an equal number of shares of Class C common stock. Likewise,
when shares of Class D common stock are outstanding, Air Partners may not vote
any of its shares of Class B common stock for the election of directors; and
if Air Partners becomes the beneficial owner of any additional shares of Class
A common stock during such time, such shares will automatically be converted
into Class D common stock. Each share of Class C common stock and Class D
common stock has ten votes and, as to matters other than the election of
directors, votes together with all other classes of common stock as a single
class. In the event the voting power of all common stock held by Air Canada or
Air Partners represents less than 20% of the voting power of all classes of
common stock, all Class C common stock or Class D common stock held by such
person will automatically convert into an equal number of Class A common
stock. Shares of Class C common stock and Class D common stock also convert
automatically into an equal number of shares of Class A common stock upon the
transfer of record or beneficial ownership of such Class C common stock or
Class D common stock to any person other than certain related parties of the
original holder. Each of Air Canada and Air Partners may also at any time
voluntarily convert all (but not less than all) shares of Class C common stock
or Class D common stock held by it into an equal number of shares of Class A
common stock. All shares of Class C common stock or Class D common stock
surrendered by such person for conversion into Class A common stock will be
canceled and may not be reissued.
 
  The Charter amendment would eliminate the Class C common stock and all
provisions relating thereto, as a result of Air Canada's conversion of all its
Class A common stock into Class B common stock, and its irrevocable waiver of
its right to exchange certain of its Class B common stock for Class A common
stock, in connection with the transactions described under "Recent
Developments." In connection therewith, the Charter provisions dealing with
the rights of Air Partners (or any 100% subsidiary thereof), as a prospective
holder of Class D common stock, are proposed to be amended to provide that the
holders of Class D common stock will be entitled to elect one-third of the
number of directors determined by the Board from time to time to constitute
the entire Board, rounded to the nearest whole number.
 
3. PERMIT SHARES OF CLASS A COMMON STOCK TO BE CONVERTED INTO SHARES OF CLASS
B COMMON STOCK
 
  Continental's Charter currently permits Air Canada to convert, at any time
and from time to time, any or all shares of Class A common stock beneficially
owned by it into shares of Class B common stock. Upon any such conversion the
shares of Class A common stock so converted are to be canceled by the Company.
Holders of Class A common stock are entitled to ten votes per share and
holders of Class B common stock are entitled to one vote per share. As of
April 30, 1996, 6,301,056 shares of Class A common stock and 21,492,124 shares
of Class B common stock were outstanding and the closing prices of such stock
on the New York Stock Exchange on such date were $54.75 and $57.00,
respectively.
 
  The limitation in the current Charter permitting only Air Canada to so
convert its Class A common stock was designed to ensure compliance with
applicable foreign ownership restrictions by giving Air Canada a method for
reducing its voting power, if necessary, while preventing conversions by other
stockholders that would have the effect of increasing Air Canada's voting
control without any action by Air Canada itself. In light of Air Canada's
reduced stake in the Company, the Board of Directors has determined that this
restriction is no longer necessary. In addition, in recent periods, the market
price for the Class A common stock has generally been below the price of the
Class B common stock, which the Company believes is attributable in part to
the reduced
 
                                      36

<PAGE>
 
liquidity present in the trading market for Class A common stock. A number of
holders of Class A common stock have requested that the Charter be amended to
give all stockholders the right to convert Class A common stock into Class B
common stock.
 
  The proposed Charter amendment would permit the conversion of shares of
Class A common stock into an equal number of shares of Class B common stock by
any holder of Class A common stock, at any time and from time to time after
January 1, 1997. Because the Class A common stock has ten votes per share and
the Class B common stock has one vote per share, any such conversions would
effectively increase the relative voting power of those Class A stockholders
who did not so convert. See "Recent Developments" and "Voting Rights and
Principal Stockholders."
 
4. DELETE THE REQUIREMENT THAT THE BOARD OF DIRECTORS BE COMPRISED OF 18
   MEMBERS
 
  The Charter currently provides that the Board of Directors must consist of
eighteen directors to be elected by holders of common stock, exclusive of any
directors who may be elected by holders of preferred stock. Pursuant to the
Original Stockholders' Agreement, Air Canada and Air Partners agreed to vote
their shares to elect six directors designated by Air Partners, six directors
designated by Air Canada, and six additional directors satisfactory to Air
Partners. Pursuant to the Charter, (i) the six additional directors must be
independent of Air Partners and Air Canada (the "Independent Directors") and,
until the first annual meeting of stockholders after April 27, 1996, must
include three directors designated by the committee representing pre-petition
creditors (the "Creditors Committee"), and (ii) at each annual meeting, the
Board must nominate the Chief Executive Officer for election as a director.
 
  The Board of Directors proposes to amend the Charter to permit the number of
members of the Board to be determined by the Board from time to time (and
initially to consist of 12 directors), subject to the rights of holders of
preferred stock to elect additional directors as set forth in any preferred
stock designation. In connection therewith, and with the expiry of the right
of the Creditors Committee to designate members of the Board, the deletion of
supermajority voting provisions currently contained in the Charter (as
described below), and the reduction by Air Canada of its stake in the Company,
all references to Creditors Committee designees, Air Canada designees and
Independent Directors have been eliminated in the proposed Charter amendment.
 
5. DELETE SUPERMAJORITY VOTING REQUIREMENTS
 
  The Charter currently requires the affirmative vote of shares having at
least two-thirds of the total voting power of all issued and outstanding
shares of common stock, voting together as a single class, to amend the
provisions of the Charter that govern the number of authorized shares and the
relative rights of classes of capital stock, election and voting of directors,
and rights of Air Partners and Air Canada to purchase additional shares of
Class B common stock.
 
  The Charter also provides that, unless prohibited by law, the affirmative
vote of at least 70% (75% if more than one director is elected by holders of
preferred stock or in certain other instances) of directors (a "Supermajority
Vote") is required to approve certain extraordinary transactions, including
(i) authorization, issuance or disposition of Class A common stock or rights
to acquire Class A common stock, (ii) liquidation or dissolution of the
Company, (iii) any fundamental change in the lines of business of the Company,
(iv) appointment of a receiver for the Company or commencement of bankruptcy
proceedings or (v) any amendment to the Company's 1993 plan of reorganization.
In addition, a Supermajority Vote of directors is required to approve the
following transactions, if such Supermajority Vote requirements are first
presented to and approved by the United States Department of Transportation as
complying with the Foreign Ownership Restrictions: (a) approval of capital
expenditures in any fiscal year that exceed by more then $50 million the
amount of capital expenditures set forth in the Company's capital budget; (b)
approval to incur indebtedness for money borrowed in any fiscal year that
exceeds by more than $50 million the maximum principal amount of indebtedness
projected in the Company's financial plan for such year; (c) certain
acquisitions or dispositions of a significant amount of assets other than in
the ordinary course of business; and (d) the taking of certain actions with
respect
 
                                      37

<PAGE>
 
to material contracts (including, among others, contracts providing for the
merger or consolidation of the Corporation, contracts with periods in excess
of four years or contemplating expenditures in excess of $50 million in any
year and $150 million in the aggregate), and any compensatory plan in which
any director or executive officer of the Company participates.
 
  The Charter further requires approval by two-thirds of the directors in
office (assuming no vacancies) to approve contracts (or any amendments
thereof) between the Company and any air carrier (other than Air Canada) with
respect to a code-sharing or marketing alliance or to amend certain provisions
of the Company's Bylaws governing (i) the election and voting of directors and
committees of the Board of Directors or (ii) the ownership and voting of stock
by Foreigners. Such Bylaw amendments also must be approved by at least a
majority of the total voting power of all issued and outstanding shares of
common stock, unless they have been approved by a majority of the directors
designated or elected by Air Partners and Air Canada.
 
  Contracts and transactions between the Company and its directors, officers
or other related parties also must be approved by a majority (or, in cases
otherwise subject to a Supermajority Vote, by 75%) of disinterested directors,
unless such contracts or transactions are approved by the stockholders or are
otherwise fair to the Company.
 
  The proposed Charter amendment would eliminate all of the supermajority
voting provisions described above, which were originally designed to permit
Air Canada and Air Partners to protect their respective interests in the
Company. Since Air Canada has sold a substantial portion of its investment in
the Company and has converted its Class A common stock into Class B common
stock, the Board has determined that such supermajority voting provisions no
longer serve their original purpose, and that a simplified voting structure is
appropriate given the Company's current stock ownership.
 
6. DELETE REQUIREMENTS AS TO FAIRNESS OPINION
 
  The Charter provides that the Board of Directors will not approve any merger
or similar corporate transaction unless, prior to the approval, the Board
receives an opinion of an independent investment banking firm that the
consideration to be received by the holders of common stock is fair from a
financial point of view to such holders. The Board has determined that, given
its fiduciary duties to stockholders in the context of a merger or similar
corporate transaction, such charter provision is unnecessary.
 
  Under the proposed Charter amendments, the Charter would be amended to
delete the requirement that the Board receive such an opinion.
 
7. MODIFY ANTI-DILUTION RIGHTS
 
  Pursuant to the Charter, each of Air Partners and Air Canada is given the
right to purchase from the Company additional shares of Class B common stock
to the extent necessary to maintain its pro rata ownership of the outstanding
Class B common stock. Such preemptive rights terminate as to Air Partners or
Air Canada if the total voting power of the common stock beneficially owned by
such person is less than 20% of the total voting power of all of the
outstanding common stock.
 
  Under the proposed Charter amendments, the Charter would be amended to
delete Air Canada's anti-dilution rights, and to provide for appropriate
adjustment of the purchase price relating to Air Partners' anti-dilution
rights in the event of a stock split, stock dividend or similar transaction.
 
8. DELETE THE PROHIBITION ON THE ISSUANCE BY THE COMPANY OF ANY NON-VOTING
EQUITY SECURITIES
 
  As part of its reorganization in 1993, the Company was required to include
in the Charter a provision prohibiting it from issuing non-voting equity
securities within the meaning of the relevant bankruptcy statute. The proposed
Charter amendments would eliminate this provision.
 
                                      38

<PAGE>
 
  The amendment and restatement of the Charter, as set forth in Appendix C,
will be adopted upon the affirmative vote of the holders of two-thirds or more
of the voting power of the outstanding shares of common stock, voting together
as a single class.
 
 
 THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENT AND
RESTATEMENT OF THE CHARTER AS DESCRIBED ABOVE AND AS SET FORTH IN APPENDIX C,
WHICH IS DESIGNATED AS PROPOSAL NO. 4 ON THE ENCLOSED PROXY.
 

                                  PROPOSAL 5:
              RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
 
  The firm of Ernst & Young LLP has been the Company's independent auditors
since 1993, and the Board of Directors desires to continue to engage the
services of this firm for the fiscal year ending December 31, 1996.
Accordingly, the Board of Directors, upon the recommendation of the Audit
Committee, has reappointed Ernst & Young LLP to audit the financial statements
of the Company and its subsidiaries for fiscal 1996 and report thereon.
Stockholders are being asked to vote upon the ratification of such
appointment. In the event stockholders do not ratify such appointment, the
Audit Committee and Board will reconsider such appointment.
 
  Representatives of Ernst & Young LLP will be present at the Meeting and will
be available to respond to appropriate questions and make a statement should
they so desire.
 
 
 THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF THE INDEPENDENT AUDITORS, WHICH IS DESIGNATED AS PROPOSAL NO. 5
ON THE ENCLOSED PROXY.
 
                                 OTHER MATTERS
 
  Management knows of no business to be presented for action at the Meeting
other than that described in this proxy statement. If any other matters should
properly come before the Meeting calling for a vote of the stockholders, it is
the intention of the persons named in the accompanying proxy, unless otherwise
directed in such proxy, to vote on such matters in accordance with their best
judgment.
 
  Each director, executive officer (and, for a specified period, certain
former directors and executive officers), certain trusts and other entities
with which such individuals are affiliated, and each holder of greater than
ten percent of a class of the Company's equity securities is required to
report to the Commission his or her pertinent position or relationship, as
well as transactions in such securities, by certain specified dates. A trust
for which Mr. Pogue serves as trustee, and two trusts for which Mr. Sturm
serves as trustee, failed to timely file initial statements of beneficial
ownership of certain of the Company's equity securities, although each of such
individuals timely filed reports reflecting the interest he is deemed to have
in the shares of common stock of the Company held by the respective trusts.
Michael Bonds, Staff Vice President and Controller of the Company, failed to
timely file his initial statement of beneficial ownership upon his election to
such position. David Siegel, then Vice President-Route Scheduling of the
Company, failed to timely file a statement of changes in beneficial ownership
with respect to a purchase of common stock in 1994, which he reported instead
on his annual statement of changes in beneficial ownership, which was not
filed with the Commission by the specified date. John Luth, a former Senior
Vice President of the Company, failed to timely file a report with respect to
two purchases of common stock that occurred after his resignation. Finally,
Air Canada's reports with respect to one transaction in 1994 and one
transaction in 1995 were not timely filed. In each of the foregoing cases,
appropriate forms were subsequently filed.
 
  EVEN IF YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN, DATE AND MAIL PROMPTLY
THE ENCLOSED PROXY.
 
                                      39

<PAGE>
 
                              1997 ANNUAL MEETING
 
  Any stockholder who desires to present proposals at the 1997 annual meeting
of stockholders and to have such proposals set forth in the proxy statement
and form of proxy mailed in conjunction with such annual meeting must submit
such proposals in writing to the Secretary of the Company not later than
December 29, 1996. The Company's Bylaws require that for nominations of
persons for election to the Board of Directors of the Company or the proposal
of business to be considered by the stockholders at an annual meeting, a
stockholder must give timely written notice thereof. To be timely for the 1997
annual meeting of stockholders, such notice must be delivered to the Secretary
of the Company at the principal executive offices of the Company not less than
70 days nor more than 90 days prior to June 26, 1997, provided, that if the
1997 annual meeting of stockholders is advanced by more than 20 days, or
delayed by more than 70 days, from June 26, 1997, such notice must be
delivered not earlier than the ninetieth day prior to the 1997 annual meeting
and not later than the close of business on the later of (a) the seventieth
day prior to the 1997 annual meeting or (b) the tenth day following the day on
which public announcement of the date of the 1997 annual meeting is first
made. The stockholder's notice must contain and be accompanied by certain
information as specified in the Bylaws. It is recommended that any stockholder
desiring to make a nomination or submit a proposal for consideration obtain a
copy of the Company's Bylaws, which may be obtained without charge from the
Secretary of the Company upon written request addressed to the Secretary at
the Company's principal executive offices.
 
                                          By Order of the Board of Directors,
 

                                          [SIGNATURE OF JEFFERY A. SMISEK
                                          APPEARS HERE]
                                          Jeffery A. Smisek
                                          Secretary
 
Houston, Texas
May 15, 1996
 
  THE COMPANY WILL FURNISH TO INTERESTED SECURITY HOLDERS WITHOUT CHARGE, UPON
WRITTEN REQUEST, COPIES OF ITS ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1995. THE COMPANY WILL FURNISH ANY EXHIBIT TO SUCH REPORT,
UPON WRITTEN REQUEST, TO ANY SECURITY HOLDER REQUESTING SUCH REPORT UPON
PAYMENT OF REASONABLE FEES RELATING TO THE COMPANY'S FURNISHING SUCH EXHIBIT.
REQUESTS FOR COPIES SHOULD BE ADDRESSED TO THE SECRETARY OF THE COMPANY AT THE
COMPANY'S HEADQUARTERS: 2929 ALLEN PARKWAY, SUITE 2010, HOUSTON, TEXAS 77019.
 
                                      40

<PAGE>
 
                                                                     APPENDIX A
 
                              SECOND AMENDMENT TO
 
                          CONTINENTAL AIRLINES, INC.
 
                          1994 INCENTIVE EQUITY PLAN
 
  The Board of Directors (the "Board") of Continental Airlines, Inc. (the
"Company") adopted the Continental Airlines, Inc. 1994 Incentive Equity Plan,
as amended (the "Plan"), on March 4, 1994, subject to approval by the
stockholders of the Company, which was obtained at the Company's 1994 Annual
Meeting of Stockholders. Subject to applicable provisions of Paragraph 15 of
the Plan, the Board retained the right to amend the Plan, which was amended by
the First Amendment to Continental Airlines, Inc. 1994 Incentive Equity Plan,
which amendment was approved by the stockholders at the Company's 1995 Annual
Meeting of Stockholders. The Board has determined by resolutions adopted on
February 1, 1996 and April 19, 1996 that the Plan be further amended (the
"Second Amendment") as follows. Capitalized terms not otherwise defined in
this Second Amendment to the Plan have the meanings ascribed thereto in the
Plan.
 
  The Plan is hereby amended as follows:
 
  1. The first sentence of Paragraph 3 of the Plan is hereby amended to read
in its entirety as follows:
 
    "Subject to adjustment as provided in Paragraph 10 and in accordance
    with and subject to Rule 16b-3 under the Exchange Act and applicable
    judicial and administrative interpretations thereof, the shares of
    Common Stock covered by all Awards granted under this Plan will not
    exceed in the aggregate 4,500,000 shares, of which number (a) no more
    than 300,000 shares will be granted or sold as Restricted Stock, (b)
    Stock Options with respect to no more than 400,000 shares will be
    granted to any Participant during any calendar year, and (c) no more
    than 200,000 shares will be delivered in payment of Annual Incentive
    Awards (for all Participants in the aggregate) in respect of any given
    year."
 
  2. Paragraph 2(d) of the Plan is hereby amended to read in its entirety as
follows:
 
      "(d) "Change in Control" shall have the meaning set forth in
    Paragraph 11.".
 
  3. Paragraph 11 of the Plan is hereby amended to read in its entirety as
follows:
 
      "11. CHANGE IN CONTROL. As used in this Plan, the term "Change in
    Control" shall mean:
 
      (a) any person (within the meaning of Section 13(d) or 14(d) under
    the Exchange Act, including any group (within the meaning of Section
    13(d)(3) under the Exchange Act), a "Person") is or becomes the
    "beneficial owner" (as such term is defined in Rule 13d-3 promulgated
    under the Exchange Act), directly or indirectly, of securities of the
    Company (such Person being referred to as an "Acquiring Person")
    representing the greater of (x) 25% of the combined voting power of the
    Company's outstanding securities and (y) the proportion of the combined
    voting power of the Company's outstanding securities represented by
    securities of the Company beneficially owned, directly or indirectly,
    by Air Partners and any Person controlling, controlled by or under
    common control with Air Partners at the time of reference (excluding,
    for purposes of determining such proportion of the combined voting
    power under this clause (y), any securities beneficially owned by Air
    Partners (and any Person controlling, controlled by or under common
    control with Air Partners) which are deemed beneficially owned by such
    Acquiring Person); other than beneficial ownership by (i) the Company
    or any subsidiary of the Company, (ii) any employee benefit plan of the
    Company or any Person organized, appointed or established pursuant to
    the terms of any such employee benefit plan (unless such plan or Person
    is a party to or is utilized in connection with a transaction led by
    Outside Persons), (iii) Air Partners or any Person (other than any air
    carrier that is not the Company and that is currently controlled by or
    under common control with Air Partners, or a holding company or
    subsidiary
 
                                      A-1

<PAGE>
 
    of any such air carrier) controlling, controlled by or under common
    control with Air Partners, or (iv) Air Canada or any Person
    controlling, controlled by or under common control with Air Canada
    (Persons referred to in clauses (i) through (iv) hereof are hereinafter
    referred to as "Excluded Persons"); or
 
      (b) individuals who constituted the Board as of April 19, 1996 (the
    "Incumbent Board") cease for any reason to constitute at least a
    majority of the Board, provided that any individual becoming a director
    subsequent to April 19, 1996 whose appointment to fill a vacancy or to
    fill a new Board position or whose nomination for election by the
    Company's shareholders was approved by a vote of at least a majority of
    the directors then comprising the Incumbent Board or who was nominated
    for election by Excluded Persons shall be considered as though such
    individual were a member of the Incumbent Board; or
 
      (c) the Company merges with or consolidates into or engages in a
    reorganization or similar transaction with another entity pursuant to a
    transaction in which the Company is not the "Controlling Corporation";
    or
 
      (d) the Company sells or otherwise disposes of all or substantially
    all of its assets, other than to Excluded Persons.
 
      For purposes of clause (a) above, if at any time there exist
    securities of different classes entitled to vote separately in the
    election of directors, the calculation of the proportion of the voting
    power held by a beneficial owner of the Company's securities shall be
    determined as follows: first, the proportion of the voting power
    represented by securities held by such beneficial owner of each
    separate class or group of classes voting separately in the election of
    directors shall be determined, provided that securities representing
    more than 50% of the voting power of securities of any such class or
    group of classes shall be deemed to represent 100% of such voting
    power; second, such proportion shall then be multiplied by a fraction,
    the numerator of which is the number of directors which such class or
    classes is entitled to elect and the denominator of which is the total
    number of directors elected to membership on the Board at the time; and
    third, the product obtained for each such separate class or group of
    classes shall be added together, which sum shall be the proportion of
    the combined voting power of the Company's outstanding securities held
    by such beneficial owner.
 
      For purposes of clause (a) above, the term "Outside Persons" means
    any Persons other than Persons described in clauses (a)(i), (iii) or
    (iv) above (as to Persons described in clauses (a)(iii) or (iv) above,
    while they are Excluded Persons) or members of senior management of the
    Company in office immediately prior to the time the Acquiring Person
    acquires the beneficial ownership described in clause (a).
 
      For purposes of clause (c) above, the Company shall be considered to
    be the Controlling Corporation in any merger, consolidation,
    reorganization or similar transaction unless either (1) the
    shareholders of the Company immediately prior to the consummation of
    the transaction (the "Old Shareholders") would not, immediately after
    such consummation, beneficially own, directly or indirectly, securities
    of the resulting entity entitled to elect a majority of the members of
    the Board of Directors or other governing body of the resulting entity
    or (2) those persons who were directors of the Company immediately
    prior to the consummation of the proposed transaction would not,
    immediately after such consummation, constitute a majority of the
    directors of the resulting entity, provided that (I) there shall be
    excluded from the determination of the voting power of the Old
    Shareholders securities in the resulting entity beneficially owned,
    directly or indirectly, by the other party to the transaction and any
    such securities beneficially owned, directly or indirectly, by any
    Person acting in concert with the other party to the transaction
    (unless such other party or such Person is Air Partners, if Air
    Partners has not ceased to be an Excluded Person), (II) there shall be
    excluded from the determination of the voting power of the Old
    Shareholders securities in the resulting entity acquired in any such
    transaction other than as a result of the beneficial ownership of
    Company securities prior to the transaction and
 
                                      A-2

<PAGE>
 
    (III) persons who are directors of the resulting entity shall be deemed
    not to have been directors of the Company immediately prior to the
    consummation of the transaction if they were elected as directors of
    the Company within 90 days prior to the consummation of the
    transaction.
 
      The exclusion described in clause (a)(iii) above shall cease to have
    any force or effect (and the Persons described therein shall cease to
    be Excluded Persons) if (A) Air Partners ceases to be, for a period of
    thirty consecutive calendar days, the beneficial owner, directly or
    indirectly, of securities of the Company representing at least 25% of
    the combined voting power of the Company's outstanding securities or
    (B) there occurs a "change in the ownership or effective control"
    (within the meaning of Section 280G of the Code) of Air Partners. The
    exclusion described in clause (a)(iv) above shall cease to have any
    force or effect (and the Persons described therein shall cease to be
    Excluded Persons) if (c) Air Canada ceases to be, for a period of
    thirty consecutive calendar days, the beneficial owner, directly or
    indirectly, of securities of the Company representing at least 20% of
    the combined voting power of the Company's outstanding securities or
    (D) there occurs a "change in the ownership or effective control"
    (within the meaning of Section 280G of the Code) of Air Canada.
 
      Upon the occurrence of a Change in Control, with respect to each
    Participant, (AA) all Stock Options granted to such Participant and
    outstanding at such time shall immediately become exercisable in full,
    whether or not otherwise exercisable, for a period of thirty (30)
    calendar days following the occurrence of the Change in Control (but
    subject, however, in the case of ISOs, to the aggregate fair market
    value, determined as of the date the ISOs are granted, of the stock
    with respect to which ISOs are exercisable for the first time by such
    Participant during any calendar year not exceeding $100,000) and,
    except as required by law, all restrictions on the transfer of shares
    acquired pursuant to such Stock Options shall terminate and (BB) all
    restrictions applicable to such Participant's Restricted Stock shall be
    deemed to have been satisfied and such Restricted Stock shall vest in
    full.
 
      In addition, if a Participant becomes entitled to one or more
    payments (with a "payment" including, without limitation, the vesting
    of an Award) pursuant to the terms of the Plan (the "Total Payments"),
    which are or become subject to the tax imposed by Section 4999 of the
    Code (or any similar tax that may hereafter be imposed) (the "Excise
    Tax"), the Company or Subsidiary for whom the Participant is then
    performing services shall pay to the Participant an additional amount
    (the "Gross-Up Payment") such that the net amount retained by the
    Participant, after reduction for any Excise Tax on the Total Payments
    and any federal, state and local income or employment tax and Excise
    Tax on the Gross-Up Payment, shall equal the Total Payments. For
    purposes of determining the amount of the Gross-Up Payment, the
    Participant shall be deemed (aa) to pay federal income taxes at the
    highest stated rate of federal income taxation (including surtaxes, if
    any) for the calendar year in which the Gross-Up Payment is to be made
    (for 1994, the highest stated rate is 39.6%); and (bb) to pay any
    applicable state and local income taxes at the highest stated rate of
    taxation (including surtaxes, if any) for the calendar year in which
    the Gross-Up Payment is to be made. Any Gross-Up Payment required
    hereunder shall be made to the Participant at the same time any Total
    Payment subject to the Excise Tax is paid or deemed received by the
    Participant."
 
  The amendment to Paragraph 3 of the Plan is effective February 1, 1996, and
the amendments to Paragraph 2(d) and the Paragraph 11 of the Plan are
effective April 19, 1996; provided, however, that such amendments shall be
subject to approval by the stockholders of the Company at the 1996 Annual
Meeting of Stockholders of the Company as required for the Plan to continue to
satisfy the requirements of Rule 16b-3 under the Securities Exchange Act of
1934, as amended.
 
                                      A-3

<PAGE>
 
                                                                     APPENDIX B
 
                            EXECUTIVE BONUS PROGRAM
 
                          CONTINENTAL AIRLINES, INC.
 
                            EXECUTIVE BONUS PROGRAM
 
  Continental Airlines, Inc., a Delaware corporation (the "Company"), hereby
establishes this Continental Airlines, Inc. Executive Bonus Program (the
"Program"), effective as set forth below.
 
  1. PURPOSE. The purpose of the Program is to attract and retain key officers
of the Company and its subsidiaries and to compensate such officers based on
performance goals consisting of achievement of cumulative quarterly net income
targets of the Company and its consolidated subsidiaries contained in the
Annual Financial Plan of the Company contemplated by Section 3.3 of the
Company's By-Laws and approved by the Board of Directors of the Company prior
to and for the applicable fiscal year of the Company (with respect to a
particular fiscal year, the "Budget" for such fiscal year).
 
  2. PARTICIPANTS. Each of the Chief Executive Officer, the Chief Operating
Officer, the Chief Financial Officer and the General Counsel of the Company,
each Senior Vice President of the Company, and the Vice President--Marketing
and Sales of the Company, shall automatically participate in the Program with
respect to each fiscal year, and, with respect to a particular fiscal year,
such other officers of the Company or its subsidiaries shall participate in
the Program as may be recommended to the Human Resources Committee of the
Board of Directors of the Company (the "Committee") by the Chief Executive
Officer of the Company and designated by the Committee to be a participant in
the Program with respect to such fiscal year. Each of the foregoing persons is
referred to herein as a "Participant". The Chief Executive Officer shall have
the power to terminate any Participant's participation in the Program upon
written notice to such Participant of such termination, subject to
ratification of such action by the Committee.
 
  3. QUARTERLY BONUSES. Commencing with the fiscal quarter during which this
Program is approved by the stockholders of the Company as required under
section 162(m) of the Internal Revenue Code of 1986 (the "Code") ("Stockholder
Approval"), each Participant in the Program shall receive, on a fiscal
quarterly basis no later than the public release of the Company's consolidated
earnings with respect to such quarter and the certification by the Committee
described below, a cash bonus (a "Quarterly Bonus") equal to (i) the dollar
amount calculated by multiplying such Participant's Cumulative Base Salary (as
defined below) with respect to such quarter by (x) (in the case of a positive
variance (which shall include a zero variance)), 100% plus the positive
variance, if any, expressed as a percentage (but in no event more than 25%),
between the Cumulative Actual Net Income (as defined below) with respect to
such quarter, and the Cumulative Target Net Income (as defined below) with
respect to such quarter, or (y) (in the case of a negative variance), 100%
less the absolute value of the negative variance, expressed as a percentage,
between the Cumulative Actual Net Income (as defined below) with respect to
such quarter, and the Cumulative Target Net Income (as defined below) with
respect to such quarter (provided, that if such negative variance is greater
than negative 25% (e.g., negative 30%), then such negative variance shall be
deemed negative 100%), less (ii) the amount of the Quarterly Bonuses (up to
the amount calculated pursuant to clause (i)) received by such Participant
with respect to prior quarters in such fiscal year. With respect to the
Company's 1996 fiscal year only, quarterly bonuses paid under the Company's
terminated 1996 executive bonus program to persons who are Participants under
this Program with respect to fiscal quarters in 1996 ending prior to the
quarter during which Stockholder Approval is obtained shall be deducted for
purposes of clause (ii) of the foregoing sentence. As used herein, the term
"Cumulative Base Salary" with respect to a quarter shall mean the aggregate of
the Participant's base salary earned, while a Participant under the Program,
during the period commencing on the first day of the fiscal year in which such
quarter occurs and ending on the last day of such quarter; the term
"Cumulative Actual Net Income" with respect to a quarter shall mean the
aggregate consolidated net income of the Company and its consolidated
subsidiaries, as shown on the regularly prepared statement of operations of
the Company prepared in accordance with generally accepted accounting
principles, for the period commencing on the first day of the fiscal year in
 
                                      B-1

<PAGE>
 
which such quarter occurs and ending on the last day of such quarter; and the
term "Cumulative Target Net Income" with respect to a quarter shall mean the
aggregate consolidated net income of the Company and its consolidated
subsidiaries, as set forth in the Budget, for the period commencing on the
first day of the fiscal year in which such quarter occurs and ending on the
last day of such quarter. Notwithstanding any other provision of this Program,
the maximum amount of aggregate Quarterly Bonuses which any Participant may
receive during any fiscal year under this Program shall be $1,000,000.
 
  4. ADMINISTRATION. The Program will be administered by the Committee, which
at all times will consist of not less than two persons, each of whom is an
"outside director" within the meaning of section 162(m) of the Code. The
action of a majority of the members of the Committee will be the act of the
Committee. The interpretation and construction by the Committee of any
provision of this Program, and any determination or action by the Committee
pursuant to any provision hereof, will be final and conclusive for all
purposes, and each Participant's participation in the Program is expressly
subject to the foregoing. No member of the Committee shall be liable for any
action or determination taken or made in good faith or upon reliance in good
faith on the records of the Company or information presented to the Committee
by the Company's officers, employees, or other persons (including the
Company's outside auditors) as to matters such member reasonably believes are
within such other person's professional or expert competence. As to each
fiscal quarter during which this Program is effective, the Committee will
certify, prior to the payment of any Quarterly Bonus with respect to such
quarter, whether the performance goals described in Section 3 have been met
and whether any other material terms relating to the payment of such Quarterly
Bonuses have been satisfied, to the extent required by section 162(m) of the
Code.
 
  5. PAYMENTS UPON A CHANGE IN CONTROL. If a Change in Control occurs (as such
term is defined in the Company's 1994 Incentive Equity Plan, as amended on
April 19, 1996 and in effect on such date) and thereafter (or in connection
therewith or in contemplation thereof) during the year in which such Change in
Control occurs (a "Change Year"), a Participant suffers a Qualifying Event (as
herein defined), then such Participant shall, upon the occurrence of the
Qualifying Event, receive an amount in cash from the Company equal to (x) the
aggregate Quarterly Bonuses such Participant would have received under the
Program had the variance of the Cumulative Actual Net Income with respect to
each quarter during the Change Year exceeded the Cumulative Target Net Income
with respect to each quarter during the Change Year by more than 25%, less (y)
the aggregate of the Quarterly Bonuses paid to such Participant pursuant to
the Program during the Change Year through the date immediately prior to the
occurrence of the Qualifying Event (with respect to the Company's 1996 fiscal
year only, quarterly bonuses paid under the Company's terminated 1996
executive bonus program to persons who are Participants under this Program
with respect to fiscal quarters in 1996 ending prior to the quarter during
which Stockholder Approval is obtained shall be deducted for purposes of
clause (y) of the foregoing sentence), and such Participant shall not be
entitled to any additional Quarterly Bonuses with respect to such Change Year.
As used herein, the term "Qualifying Event" with respect to a Participant
means (i) the termination of such Participant's participation in the Program,
(ii) the assignment to such Participant by the Board of Directors or the
Committee or other officers or representatives of the Company of duties
materially inconsistent with the duties associated with his position as such
duties are constituted as of the first day of the Change Year, (iii) a
material diminution in the nature or scope of such Participant's authority,
responsibilities, or title from those applicable to him as of the first day of
the Change Year, (iv) the occurrence of material acts or conduct on the part
of the Company or its officers or representatives which prevent such
Participant from performing his duties and responsibilities as they existed on
the first day of the Change Year, (v) the Company requiring such Participant
to be permanently based anywhere outside a major urban center in the state in
which he was based as of the first day of the Change Year, or (vi) the taking
of any action by the Company that would materially adversely affect the
corporate amenities enjoyed by such Participant on the first day of the Change
Year, except in each case if such Participant's employment is terminated (a)
upon such Participant's death, (b) upon such Participant's becoming
incapacitated for a period of at least 180 days by accident, sickness or other
circumstance which renders him mentally or physically incapable of performing
the material duties and services required of him in his employment on a full-
time basis during such period, (c) for cause, which for purposes hereof shall
mean such Participant's gross negligence or willful misconduct in the
performance of, or such Participant's abuse
 
                                      B-2

<PAGE>
 
of alcohol or drugs rendering him unable to perform, the material duties and
services required of him in his employment, (d) upon the voluntary resignation
from employment of such Participant (other than in connection with
circumstances which would permit such Participant to receive severance
benefits pursuant to any contract of employment between such Participant and
the Company or any of its subsidiaries), or (e) for such Participant's
material breach of any provision of any contract of employment between such
Participant and the Company or any of its subsidiaries which, if correctable,
remains uncorrected for 30 days following written notice to Participant by
Company of such breach.
 
  6. AMENDMENTS, TERMINATION AND OTHER MATTERS. Subject to the other
provisions of this Section 6, this Program may be amended from time to time or
terminated by the Committee; provided that this Program may not be amended by
the Committee without the further approval of the stockholders of the Company
if such amendment would result in the Program no longer satisfying the
requirements of section 162(m) of the Code, and this Program may not be
amended or terminated in contemplation of or in connection with a Change in
Control, nor may any Participant's participation herein be terminated in
contemplation of or in connection with a Change in Control, unless adequate
and effective provision for the making of all payments otherwise payable
(based on the applicable Budget and Participants' base salaries as in effect
immediately prior to such Change in Control) pursuant to Section 5 of this
Program (as in effect on the date of Stockholder Approval) with respect to
such Change in Control shall be made in connection with any such amendment or
termination. Participation in the Program by a Participant shall terminate
upon such Participant's termination of employment with the Company and its
subsidiaries or as otherwise set forth herein, and no Participant shall have
any right to continue to participate in the Program or have any vested right
to any bonus or other payment hereunder (except as aforesaid in connection
with a Change in Control and except with respect to quarterly periods which
have already passed prior to such amendment or termination or prior to such
Participant's termination of employment with the Company and its
subsidiaries). Participation in the Program shall not confer any right of
future employment. The Program is not intended to create a pension or welfare
benefit plan and is intended to be exempt from application of the Employee
Retirement Income Security Act of 1974, as amended. The Program is unfunded
and shall not create, or be construed to create, a trust or separate fund or
funds, and each Participant shall be entitled only to look to the Company for
any benefit hereunder, and shall have no greater right than an unsecured
creditor of the Company. No liability whatsoever shall attach to or be
incurred by any past, present or future stockholders, officers or directors,
as such, of the Company or any of its subsidiaries, under or by reason of this
Program or the administration thereof, and each Participant, in consideration
of receiving benefits and participating hereunder, expressly waives and
releases any and all claims relating to any such liability. The provisions of
this Program shall be binding on all successors and assigns of a Participant,
including without limitation the estate of such Participant and the executor,
administrator or trustee of such estate, or any receiver or trustee in
bankruptcy or representative of the Participant's creditors. This Program
shall be construed in accordance with the laws of the State of Texas.
 
  7. TAX WITHHOLDING. The Company shall have the right to withhold from any
payment hereunder all applicable federal, state, local and other taxes as
required by law.
 
  8. EFFECTIVE DATE. This Program has been adopted by the Board as of April
19, 1996, to be effective as of the date of Stockholder Approval. The
Company's 1996 executive bonus program, as in effect prior to the date of
Stockholder Approval, is hereby terminated upon the date of such Stockholder
Approval.
 
                                      B-3

<PAGE>
 
                                                                     APPENDIX C

 
               AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
 
                                      OF
 
                          CONTINENTAL AIRLINES, INC.
 
                FILED IN ACCORDANCE WITH SECTIONS 103, 242 AND
          245 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
                        AND RESTATED ON JUNE   , 1996.
 
            (THIS CORPORATION WAS ORIGINALLY INCORPORATED UNDER THE
                 NAME PEOPLE EXPRESS, INC. ON APRIL 7, 1980.)
 
  FIRST: The name of this corporation is Continental Airlines, Inc. (the
"Corporation").
 
  SECOND: The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle. The name of the Corporation's registered agent at such address is The
Corporation Trust Company.
 
  THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware ("GCL").
 
  FOURTH: The total number of shares of all classes of capital stock which the
Corporation shall have the authority to issue is 310 million shares, par value
$.01 per share, of which 10 million shall be Preferred Stock ("Preferred
Stock"), 50 million shall be Class A Common Stock ("Class A Common Stock"),
200 million shall be Class B Common Stock ("Class B Common Stock") and 50
million shall be Class D Common Stock ("Class D Common Stock" and collectively
with Class A Common Stock and Class B Common Stock, "Common Stock"). The
powers, designations, preferences and relative, participating, optional or
other special rights, if any, and the qualifications, limitations or
restrictions of each class of stock shall be governed by the following
provisions:
 
    SECTION 1. Preferred Stock. The Preferred Stock may be issued from time
  to time in one or more series. The Board of Directors is hereby authorized
  (i) to provide by resolution or resolutions from time to time for the
  issuance of shares of Preferred Stock in one or more series, (ii) to
  establish from time to time the number of shares to be included in each
  such series, (iii) (to the extent not expressly provided for herein) to fix
  the designations, powers, preferences and relative, participating, optional
  or other special rights of the shares of each such series and the
  qualifications, limitations or restrictions, if any, thereof, by filing one
  or more certificates pursuant to the GCL (hereinafter, referred to as a
  "Preferred Stock Designation"), and (iv) to increase or decrease the number
  of shares of any such series to the extent permitted by the GCL and the
  Preferred Stock Designation. The authority of the Board of Directors with
  respect to each series shall include, but not be limited to, determination
  of the following:
 
      (i) The designation of the series, which may be by distinguishing the
    number, letter or title of such series.
 
      (ii) The number of shares of the series.
 
      (iii) Whether dividends, if any, shall be paid in cash or in capital
    stock or other securities, whether such dividends shall be cumulative
    (and, if so, from which date or dates for each such series) or
    noncumulative, the preference or relation which such dividends, if any,
    shall bear to the dividends payable on any other class or classes or
    any other series of capital stock, and the dividend rate, if any, of
    the series.
 
      (iv) Conditions and dates upon which dividends, if any, shall be
    payable.
 
      (v) The redemption rights and redemption price or prices, if any, for
    shares of the series.
 
                                      C-1

<PAGE>
 
      (vi) The terms and amount of any sinking fund provided for the
    purchase or redemption of shares of the series.
 
      (vii) The amounts payable on and the preferences, if any, of shares
    of the series in the event of any voluntary or involuntary liquidation,
    dissolution or winding up of the affairs of the Corporation.
 
      (viii) Whether the shares of the series shall be convertible into or
    exchangeable for shares of any other class or series of capital stock,
    or any other security, of the Corporation or any other corporation and,
    if so, the specification of such other class or series or such other
    security, the conversion or exchange price or prices or rate or rates,
    any adjustments thereof, the date or dates at which such shares shall
    be convertible or exchangeable and all other terms and conditions upon
    which such conversion or exchange may be made.
 
      (ix) Restrictions on the issuance of shares of the same series or of
    any other class or series.
 
      (x) The voting rights, if any, of the holders of shares of the
    series, whether as a class or otherwise, with respect to the election
    of directors or otherwise.
 
      (xi) The price or other consideration for which shares of the series
    shall be issued and, if deemed desirable, the stated value or other
    valuation of the shares constituting such series.
 
      (xii) Any other relative rights, preferences and limitations of that
    series.
 
Notwithstanding anything to the contrary in this Amended and Restated
Certificate of Incorporation or in a Preferred Stock Designation, the holders
of Preferred Stock shall not be entitled to vote separately as a class with
respect to any amendment to this Amended and Restated Certificate of
Incorporation to increase the number of authorized shares of Preferred Stock.
 
    SECTION 2. Common Stock. All shares of Common Stock shall be identical
  and will entitle the holders thereof to the same rights and privileges,
  except as otherwise provided herein. Except as may be provided herein or in
  a Preferred Stock Designation, the holders of shares of Common Stock shall
  be entitled to receive, when and if declared by the Board of Directors, out
  of the assets of the Corporation which are by law available therefor,
  dividends payable either in cash, in stock or otherwise.
 
    (a) Ownership Restrictions. In addition to the restrictions contained in
  Article Sixth, shares of Class D Common Stock shall be issued only to Air
  Partners, L.P., a Texas limited partnership, or any successor partnership
  thereto by merger, consolidation or other similar transaction, or to any
  100% Party Subsidiary of Air Partners ("Air Partners"), in exchange for
  shares of Class A Common Stock pursuant to Section 2(e) of this Article
  Fourth. As used in this Amended and Restated Certificate of Incorporation,
  the term "100% Party Subsidiary" means, with respect to any Person, any
  entity as to which 100% of the capital stock (other than directors'
  qualifying shares and the like) is Beneficially Owned (as defined in
  Article Sixth, Section 3), directly or indirectly, by such Person, and
  "Person" means any person or entity of any nature whatsoever, specifically
  including an individual, a firm, a company, a corporation, a partnership, a
  trust or other entity.
 
    (b) Voting Rights.
 
      (i) Except as provided in Article Sixth, each registered holder of
    Class A Common Stock and Class D Common Stock shall be entitled to ten
    votes for each share of such stock held by such holder, and each
    registered holder of Class B Common Stock shall be entitled to one vote
    for each share of such stock held by such holder.
 
      (ii) Except as otherwise provided in this Article Fourth or required
    by law,
 
        (A) Class A Common Stock and Class B Common Stock, voting together
      as a single class and Class D Common Stock, voting as a class, shall
      be entitled to elect directors of the Corporation as provided for in
      Section 1 of Article Fifth; and
 
                                      C-2

<PAGE>
 
        (B) Common Stock shall be entitled, voting together as a single
      class, to vote on all other matters submitted to a vote of
      stockholders of the Corporation.
 
      (c) Dividends. Any dividend or distribution on the Common Stock shall
    be payable on shares of Common Stock ratably; provided, however, that
    in the case of dividends payable in shares of Common Stock, or options,
    warrants or rights to acquire shares of such Common Stock, or
    securities convertible into or exchangeable for shares of such Common
    Stock, the shares, options, warrants, rights or securities so payable
    shall be payable in shares of, or options, warrants or rights to
    acquire, or securities convertible into or exchangeable for, Common
    Stock of the same class upon which the dividend or distribution is
    being paid.
 
      (d) Liquidation. In the event of any voluntary or involuntary
    liquidation, dissolution or winding up of the Corporation, after
    payment or provision for payment of the debts and other liabilities of
    the Corporation, including the liquidation preferences of any series of
    Preferred Stock, the holders of shares of all classes of Common Stock
    shall be entitled to share ratably in the remaining net assets of the
    Corporation. Neither the merger or consolidation of the Corporation,
    nor the sale, lease or conveyance of all or part of its assets, shall
    be deemed to be a liquidation, dissolution or winding up of the
    Corporation, either voluntarily or involuntarily, within the meaning of
    this Section 2(d).
 
      (e) Conversion. The conversion of shares of the Corporation under
    this Section 2(e) shall be effected by the surrender of the certificate
    or certificates representing the shares to be converted (the
    "Converting Shares") at the principal office of the Corporation's
    transfer agent for Common Stock at any time during its usual business
    hours, together with written notice by the surrendering stockholder,
    stating that such holder desires to convert the Converting Shares into
    an equal number of shares of the class of Common Stock into which such
    shares may be converted under this Section 2(e) the ("Conversion
    Shares"). Such notice shall certify that the Conversion Shares are
    being issued in accordance with Section 2(a) hereof (if such section is
    applicable) and this Section 2(e) and shall also state the name or
    names (with addresses) and denominations in which the certificate or
    certificates for Conversion Shares are to be issued and shall include
    instructions for the delivery thereof. Promptly after such surrender
    and the receipt of such written notice, the Corporation will, subject
    to the provisions of Section 2(a) hereof (if such section is
    applicable), issue and deliver in accordance with the surrendering
    holder's instructions the certificate or certificates evidencing the
    Conversion Shares issuable upon such conversion. Such conversion, to
    the extent permitted by law, shall be deemed to have been effected as
    of the close of business on the date on which the certificate or
    certificates representing the Converting Shares shall have been
    surrendered and the notice of conversion shall have been received by
    the Corporation, and at such time, subject to the provisions of Section
    2(a) hereof, the rights of the holder of the Converting Shares as such
    holder shall cease and the Person or Persons in whose name or names the
    certificate or certificates for the Conversion Shares are to be issued
    upon such conversion shall be deemed to have become the holder or
    holders of record of the Conversion Shares. Upon issuance of shares in
    accordance with this Section 2(e), such Conversion Shares shall be
    deemed to be duly authorized, validly issued, fully paid and non-
    assessable. The right of Air Partners to convert Converting Shares into
    Conversion Shares pursuant to each of clauses (i) and (vi) of this
    Section 2(e) may be exercised by Air Partners only once, and after any
    such conversion by Air Partners pursuant to clause (i) or (vi) of this
    Section 2(e), no further shares of Common Stock shall be converted by
    Air Partners into Conversion Shares pursuant to such clause.
 
        (i) If at any time (A) the total number of outstanding shares of
      Class A Common Stock and Class B Common Stock held by Air Canada, a
      Canadian corporation, or any successor to Air Canada by merger,
      consolidation or other similar transaction, or any 100% Party
      Subsidiary of Air Canada ("Air Canada") and Air Partners shall not
      constitute more than 50% of the voting power of the outstanding
      shares of Common Stock or (B) Section 7.01 of the Subscription and
      Stockholders' Agreement, dated as of April 27, 1993, among the
      Corporation, Air Partners and Air Canada, as it may be amended or
      modified from time to time, shall no longer be in full force and
      effect, Air Partners shall be entitled to convert all, but not less
      than all, shares of Class A
 
                                      C-3

<PAGE>
 
      Common Stock held by Air Partners into an equal number of Class D
      Common Stock, provided the Class A Common Stock and Class B Common
      Stock Beneficially Owned by Air Partners at the time of such
      conversion constitutes at least 20% of the voting power of the
      outstanding shares of Common Stock. Converting Shares received by
      the Corporation upon surrender hereunder shall not be canceled, but
      shall be held by the Corporation as treasury shares.
 
        (ii) If at any time the total number of outstanding shares of
      Class D Common Stock and Class B Common Stock Beneficially Owned by
      Air Partners shall constitute less than 20% of the voting power of
      the outstanding shares of Common Stock, the shares of Class D Common
      Stock shall be converted automatically, without any action on the
      part of the holder thereof, into an equal number of shares of Class
      A Common Stock, and at any time upon or after such a conversion,
      upon presentation to the Corporation's transfer agent for transfer
      or exchange of the certificate or certificates representing such
      shares of Class D Common Stock, a certificate or certificates
      representing an equal number of shares of Class A Common Stock shall
      be issued in exchange therefor. Upon any such conversion, the shares
      of Class D Common Stock so converted shall be canceled by the
      Corporation.
 
        (iii) Each share of Class D Common Stock shall convert
      automatically, without any action on the part of the registered
      holder thereof, into one share of Class A Common Stock, upon the
      transfer of record or beneficial ownership thereof to any Person
      other than a transfer of Class D Common Stock to a successor
      partnership by merger, consolidation or other similar transaction of
      Air Partners or to a 100% Party Subsidiary of Air Partners; provided
      that if a 100% Party Subsidiary of Air Partners that has acquired
      Class D Common Stock ceases to be a 100% Party Subsidiary of Air
      Partners, each share of Class D Common Stock beneficially owned by
      such 100% Party Subsidiary of Air Partners shall convert
      automatically, without any action on the part of the registered
      holder thereof, into one share of Class A Common Stock; provided,
      further that no change-in-control or change in ownership of Air
      Partners shall constitute a transfer of record or beneficial
      ownership for purposes of this sentence. Upon any such conversion,
      the shares of Class D Common Stock so converted shall be canceled by
      the Corporation. As used in this Amended and Restated Certificate of
      Incorporation, "Affiliate" means any Person that directly, or
      indirectly through one or more intermediaries, controls, is
      controlled by, or is under common control with the Person specified
      (as used in this definition, "control" (including, with its
      correlative meanings "controlled by" and "under common control
      with") shall mean ownership, directly or indirectly, of 50.1% or
      more of the securities having ordinary voting power for the election
      of directors or other governing body of a corporation or 50.1% or
      more of the partnership or other ownership interests of any other
      Person (other than as a Limited Partner of such Person)).
 
        (iv) Notwithstanding anything to the contrary in this Amended and
      Restated Certificate of Incorporation, no shares of Class B Common
      Stock Beneficially Owned by Air Partners shall be entitled to vote
      in any election of Directors of the Corporation at any time that any
      shares of Class D Common Stock shall be outstanding.
 
        (v) Each share of Class A Common Stock which shall become
      Beneficially Owned by Air Partners at any time that any shares of
      Class D Common Stock shall be outstanding shall convert immediately
      and without any action on the part of the registered holder thereof
      into one share of Class D Common Stock. Converting shares received
      by the Corporation upon surrender hereunder shall not be canceled,
      but shall be held by the Corporation as treasury shares.
 
        (vi) Each holder of Class D Common Stock shall have the right to
      convert all, but not less than all, of its shares of Class D Common
      Stock into an equal number of shares of Class A Common Stock. Upon
      any such conversion, the shares of Class D Common Stock, as the case
      may be, so converted shall be canceled by the Corporation.
 
        (vii) Each holder of Class A Common Stock shall have the right to
      convert, at any time and from time to time after January 1, 1997,
      any or all shares of Class A Common Stock held of record
 
                                      C-4

<PAGE>
 
      by it into an equal number of shares of Class B Common Stock. Upon
      any such conversion, the shares of Class A Common Stock so converted
      shall be canceled by the Corporation.
 
        (viii) The Corporation shall at all times reserve and keep
      available out of its authorized but unissued (or authorized and held
      in treasury) shares of (A) Class A Common Stock, solely for the
      purposes of issuance upon the conversion of shares of Class D Common
      Stock pursuant to clauses (ii), (iii) or (vi) of this Section 2(e),
      such number of shares of such class as may at any time be issuable
      upon the conversion of all issued and outstanding shares of Class D
      Common Stock and (B) Class B Common Stock, solely for the purpose of
      issuance upon the conversion of Class A Common Stock by a holder
      thereof pursuant to clause (vii) of this Section 2(e), such number
      of shares of such class as may at any time be issuable upon the
      conversion of all issued and outstanding shares of Class A Common
      Stock.
 
  FIFTH: The Board of Directors of the Corporation shall consist of such
number of directors as may be determined from time to time by the Board of
Directors in its sole discretion in accordance with Section 2.1 of the By-Laws
of the Corporation, subject to the rights of the holders of any class or
series of preferred stock of the Corporation, as set forth in a Preferred
Stock Designation, to elect additional Directors under specified
circumstances, and shall be subject to the following provisions:
 
    SECTION 1. Election. The Board of Directors shall be elected as follows:
 
      (a) at any time no shares of Class D Common Stock are outstanding,
    holders of Class A Common Stock and Class B Common Stock, voting as a
    single class, shall elect all directors of the Corporation (other than
    directors, if any, which holders of any series of Preferred Stock are
    entitled to elect pursuant to the provisions of the certificate of
    designations establishing such series); or
 
      (b) at any time shares of Class D Common Stock are outstanding (i)
    holders of Class D Common Stock, if any, shall be entitled to elect
    one-third of the number of directors determined by the Board of
    Directors pursuant to the initial paragraph of Article Fifth, with
    fractional directors rounded to the nearest whole number, and (ii)
    holders of Class A Common Stock and, subject to Article Fourth, Section
    2(e)(iv), Class B Common Stock, voting together as a single class,
    shall be entitled to elect the remaining directors (other than
    directors, if any, which holders of any series of Preferred Stock are
    entitled to elect pursuant to the provisions of the certificate of
    designations establishing such series).
 
Except as otherwise consistent with applicable statutory, regulatory and
interpretive restrictions regarding foreign ownership or control of U.S. air
carriers, all directors shall be U.S. Citizens (as defined in Article Sixth,
Section 1 hereof). The election of directors need not be by written ballot
except as may otherwise be provided in the By-laws. In connection with each
annual election of directors of the Corporation, the Board of Directors shall
nominate the Chief Executive Officer of the Corporation for election as a
director.
 
  SIXTH:
 
    SECTION 1. Limitation of Voting Rights. Notwithstanding anything to the
  contrary contained in this Amended and Restated Certificate of
  Incorporation, at no time shall shares of capital stock of the Corporation
  be voted by, or at the direction of, Persons ("Aliens") who are not
  "Citizens of the United States" as defined in 49 U.S.C. 1301(16), as now in
  effect or as it may hereafter from time to time be amended ("U.S.
  Citizens"), unless such shares are registered on the separate stock record
  maintained by the Corporation for the registration of ownership of Voting
  Stock, as defined in the By-Laws, by Aliens. The By-Laws may contain
  provisions to implement this provision.
 
    SECTION 2. By-Laws, Etc.
 
      (a) The By-Laws of the Corporation may make appropriate provisions to
    effect the requirements of this Article Sixth.
 
      (b) All certificates representing Common Stock or any other Voting
    Stock of the Corporation are subject to the restrictions set forth in
    this Article Sixth.
 
                                      C-5

<PAGE>
 
      (c) A majority of the directors of the Corporation shall have the
    exclusive power to determine all matters necessary to determine
    compliance with this Article Sixth; and the good faith determination of
    a majority of the directors on such matters shall be conclusive and
    binding for all the purposes of this Article Sixth.
 
    SECTION 3. Beneficial Ownership Inquiry.
 
      (a) The Corporation may by notice in writing (which may be included
    in the form of proxy or ballot distributed to stockholders of the
    Corporation in connection with the annual meeting (or any special
    meeting) of the stockholders of the Corporation, or otherwise) require
    a Person that is a holder of record of equity securities of the
    Corporation or that the Corporation knows to have, or has reasonable
    cause to believe has, Beneficial Ownership of equity securities of the
    Corporation to certify in such manner as the Corporation shall deem
    appropriate (including by way of execution of any form of proxy or
    ballot by such Person) that, to the knowledge of such Person:
 
        (i) all equity securities of the Corporation as to which such
      Person has record ownership or Beneficial Ownership are owned and
      controlled only by U.S. Citizens; or
 
        (ii) the number and class or series of equity securities of the
      Corporation owned of record or Beneficially Owned by such Person
      that are owned or controlled by Aliens are as set forth in such
      certificate.
 
      As used herein, "Beneficial Ownership," "Beneficially Owned," or
    "Owned Beneficially" refers to beneficial ownership as defined in Rule
    13d-3 (without regard to the 60-day provision in paragraph (d)(l)(i)
    thereof) under the Securities Exchange Act of 1934, as amended.
 
      (b) With respect to any equity securities identified by such Person
    in response to Section 3(a)(ii) of this Article Sixth, the Corporation
    may require such Person to provide such further information as the
    Corporation may reasonably require in order to implement the provisions
    of this Article Sixth.
 
      (c) For purposes of applying the provisions of this Article Sixth
    with respect to any equity securities of the Corporation, in the event
    of the failure of any Person to provide the certificate or other
    information to which the Corporation is entitled pursuant to this
    Section 3, the Corporation shall presume that the equity securities in
    question are owned or controlled by Aliens.
 
  SEVENTH: Air Partners ("Investor") shall have the right to purchase Class B
Common Stock from the Corporation in order to maintain its percentage
ownership of the issued and outstanding shares of Class B Common Stock (its
"Relative Class B Position"). Class B Common Stock purchased from the
Corporation pursuant to this Article Seventh is hereinafter called "Additional
Shares."
 
    SECTION 1. Semi-Annual Adjustments for Minor Issuances. (a) The
  Corporation shall deliver to Investor a written notice (a "Dilution
  Notice") no later than January 15 and July 15 in each year indicating the
  calculation as of the preceding December 31 and June 30, respectively, of
  the number of Additional Shares, if any, that Investor may acquire in order
  to maintain its Relative Class B Position to the extent diluted as a result
  of increases in outstanding Class B Common Stock due to issuances of Class
  B Common Stock which, in any single transaction, did not have the effect of
  causing Investor's Relative Class B Position to be reduced by more than
  five percentage points. Such Dilution Notice shall also set forth the per
  share price for such Additional Shares which shall be the average of the
  "close" prices (the "Close Prices") of Class B Common Stock as reported in
  The Wall Street Journal (or as otherwise reasonably determined by the Board
  of Directors if such price is not so reported) on the last trading day of
  each week during the six-month period preceding the date as of which the
  calculation is made (the "Calculation Period"). If within 30 days of the
  delivery of such Dilution Notice, Investor advises the Corporation in
  writing of its desire to purchase such Additional Shares, the Corporation
  shall sell and Investor shall purchase such Additional Shares in accordance
  with Section 5 of this Article Seventh.
 
    (b) In the event that any stock split, reverse stock split, combination
  of shares, recapitalization, merger, consolidation or other reorganization
  (each of the foregoing, a "Transaction") occurs during the
 
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<PAGE>
 
  Calculation Period, the Close Prices utilized in the calculation of the per
  share price for Additional Shares shall be adjusted in an appropriate
  manner so as to give effect to the Transaction and maintain, mutatis
  mutandis, the rights granted Investor under Section 1(a) of this Article
  Seventh. The determination of any such adjustment shall be made by the
  Board of Directors of the Corporation, which determination shall be final.
 
    SECTION 2. Adjustment for Public Offerings. If the Corporation at any
  time shall propose to register under the Securities Act of 1933, as
  amended, shares of Class B Common Stock to be offered for sale by the
  Corporation in an underwritten public offering, the Corporation shall
  advise Investor by written notice of such proposal. Such notice shall set
  forth the estimated number of Additional Shares that Investor may purchase
  from, at the Corporation's sole discretion, either the Corporation or any
  underwriter in order to maintain its Relative Class B Position upon the
  closing of the offering. If within 15 days of the date such notice is
  delivered, Investor advises the Corporation by notice that it elects to
  maintain its Relative Class B Position on a post-offering basis, Investor
  shall purchase and the Corporation shall cause the number of Additional
  Shares necessary to maintain Investor's Relative Class B Position to be
  sold to Investor. Such purchase and sale shall occur as of the closing of
  the sale of the Class B Common Stock in the underwritten public offering at
  the public offering price. Prior to the closing of any offering, the
  Corporation may change the size or terms thereof, may accelerate or delay
  the closing thereof, may withdraw the offering entirely and may take all
  other actions which the Corporation, in its sole discretion, may consider
  necessary or appropriate in connection therewith; provided, however, that
  the Corporation shall use its best efforts to promptly advise Investor of
  any such actions.
 
    SECTION 3. Other Significant Issuances. If the Corporation issues shares
  of Class B Common Stock in any transaction other than an underwritten
  public offering which has the effect of causing Investor's Relative Class B
  Position to be reduced by more than five percentage points, the Corporation
  shall by notice advise Investor of such transaction. Such notice shall set
  forth (i) the number of Additional Shares that Investor may purchase in
  order to maintain its Relative Class B Position after giving effect to such
  proposed issuance, and (ii) the cash purchase price therefor. If such
  transaction involves the issuance of Class B Common Stock solely in
  consideration for cash, such purchase price shall be the cash price per
  share at which shares of Class B Common Stock were issued in such
  transaction. If such transaction involves the issuance of Class B Common
  Stock other than solely in consideration for cash, such purchase price
  shall be the fair market value of such consideration per share as
  determined by a United States headquartered investment banking firm
  designated by the Corporation and reasonably acceptable to Investor. Absent
  manifest error, such determination shall be final. If within 15 days of the
  date such notice is delivered, Investor advises the Corporation by notice
  of its desire to purchase such Additional Shares, the Corporation shall
  sell and Investor shall purchase such Additional Shares in accordance with
  Section 5 of this Article Seventh.
 
    SECTION 4. Failure to Maintain Minimum Holdings. If the total voting
  power of the Common Stock Beneficially Owned by Investor is less than 20%
  of the total voting power of all of the outstanding Common Stock,
  Investor's rights and the Corporation's obligations with respect to
  Investor under this Article Seventh shall terminate.
 
    SECTION 5. Sales; Payments. All sales of Additional Shares shall be
  concluded as promptly as practicable and all payments shall be in U.S.
  Dollars in immediately available funds.
 
    SECTION 6. Reservation of Shares. The Corporation at all times shall
  reserve an appropriate number of shares from its authorized but unissued
  Class B Common Stock for issuance as Additional Shares pursuant to this
  Article Seventh. Upon issuance, all Additional Shares issued pursuant to
  this Article Seventh shall be deemed duly authorized, validly issued, fully
  paid and non-assessable.
 
  EIGHTH: Except as otherwise expressly provided herein, the Board of
Directors is expressly authorized to adopt, amend or repeal the By-Laws of the
Corporation.
 
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<PAGE>
 
  NINTH: Effective as of the Consummation Date (as defined in the Investment
Agreement, dated November 9, 1992, among Air Canada, Air Partners, the
Corporation and Continental Airlines Holdings, Inc., as amended), the
Corporation elects not to be governed by Section 203 of the General
Corporation Law of the State of Delaware.
 
  TENTH: No Director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability (i) for any breach of the Director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the GCL, or (iv) for any
transaction from which the Director derived any improper personal benefit. If
the GCL is amended after the date of the filing of this Amended and Restated
Certificate of Incorporation to authorize corporate action further eliminating
or limiting the personal liability of directors, then the liability of a
Director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the GCL, as so amended. No amendment to or repeal of this
Article Tenth shall affect in a manner adverse to any such Director the
liability or alleged liability of such Director for or with respect to any
acts or omissions of such Director or member occurring prior to such amendment
or repeal.
 
  ELEVENTH: The corporation shall indemnify, to the full extent permitted by
the laws of the State of Delaware as from time to time in effect, each
Director and officer of the Corporation, and may indemnify each employee and
agent of the Corporation, and all other persons whom the Corporation is
authorized to indemnify under the provisions of the GCL.
 
  TWELFTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation, and any other provisions authorized by the laws of the State of
Delaware at the time in force may be added or inserted, in the manner now or
hereafter prescribed by law and this Amended and Restated Certificate of
Incorporation; and all rights, preferences and privileges of whatsoever nature
and conferred upon stockholders, directors or any other Persons whomsoever by
and pursuant to this Amended and Restated Certificate of Incorporation in its
present form or as hereafter amended are granted subject to the right reserved
in this Article Twelfth.
 
  IN WITNESS WHEREOF, the undersigned officers of the Corporation subscribe
this Amended and Restated Certificate of Incorporation and affirm that this
instrument is the act and deed of the Corporation and the facts stated herein

are true this  th day of June, 1996.
 
                                          CONTINENTAL AIRLINES, INC.
 
                                          By: _________________________________
                                            Name: Jeffery A. Smisek
                                            Title: Senior Vice President and
                                             General Counsel
 
ATTEST:
 
By: ______________________________________
 Name: Scott R. Peterson
 Title: Assistant Secretary
 
                                      C-8

<PAGE>
 
                                   P R O X Y 
COMMON STOCK

                           CONTINENTAL AIRLINES, INC.
                  ANNUAL MEETING OF STOCKHOLDERS JUNE 26, 1996
          THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby authorizes Gordon M. Bethune, Jeffery A. Smisek and
Scott R. Peterson, and each of them, with full power of substitution, to
represent and vote the shares of the undersigned in Continental Airlines, Inc.
as directed and, in their sole discretion, on all other matters that may
properly come before the Annual Meeting of Stockholders to be held on June 26,
1996, and at any adjournment or adjournments thereof, as if the undersigned
were present and voting thereat. The undersigned acknowledges receipt of the
notice of annual meeting and proxy statement with respect to such Annual
Meeting and certifies that, to the knowledge of the undersigned, all equity
securities of the Company owned of record or beneficially by the undersigned
are owned and controlled only by U.S. Citizens (as defined in the proxy
statement), except as indicated on the reverse side hereof.

WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE EXECUTE AND
RETURN THIS PROXY, WHICH MAY BE REVOKED AT ANY TIME PRIOR TO ITS USE.

Nominees for Director:             Alternative Nominees for Director:
 
Thomas J. Barrack, Jr., Gordon     Thomas J. Barrack, Jr., Gordon M. Bethune,
M. Bethune, David Bonderman,       David Bonderman, Gregory D. Brenneman, Joel
Gregory D. Brenneman, Patrick      H. Cowan, Patrick Foley, Rowland C. Frazee,
Foley, Douglas H.                  C.C., Hollis L. Harris, Dean C. Kehler,
McCorkindale, George G.C.          Robert L. Lumpkins, Douglas H.
Parker, Richard W. Pogue,          McCorkindale, David E. Mitchell, O.C.,
William S. Price III, Donald       Richard W. Pogue, William S. Price, Donald
L. Sturm, Karen Hastie             L. Sturm, Claude I. Taylor, O.C., Karen
Williams, Charles A. Yamarone      Hastie Williams, Charles A. Yamarone
                               
This proxy, when properly executed, will be voted in the manner directed by the
undersigned stockholder(s). IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
"FOR" THE ELECTION OF DIRECTORS NOMINATED BY THE BOARD OF DIRECTORS (PROPOSAL 1
and 1.A) AND "FOR" PROPOSALS 2, 3, 4 and 5.
 
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1, 1.A, 2, 3, 4 AND 5.

                                                                SEE
                                                              REVERSE
                                                               SIDE


<PAGE>
 
[X]  Please mark your                   SHARES IN YOUR NAME        |
     votes as in this example.                                     |
                                                                   ------
 

<TABLE> 
<S>                          <C>  <C>                                   <C>  <C>                            <C>   <C>       <C> 
                             FOR  WITHHELD                              FOR  WITHHELD                       FOR   AGAINST   ABSTAIN
 1. Election of Directors:   [ ]    [ ]    1. A Election of Alternative [ ]    [ ]    2. Approval of Second [ ]     [ ]       [ ] 
    See Reverse Side.                           Directors: See Reverse                   Amendment to the
                                                Side.                                    1994 Incentive
                                                                                         Equity Plan
  For, except vote withheld from the        For, except vote withheld from the
  following nominee(s):                     following nominee(s):                     3. Approval of        [ ]     [ ]       [ ] 
                                                                                         Executive Bonus 
 ------------------------------------       ----------------------------------           Program
 
                                                                                      4. Approval of        [ ]     [ ]       [ ] 
                                                                                         Amendment and   
                                                                                         Restatement of
                                                                                         Charter

                                                                                      5. Ratification of    [ ]     [ ]       [ ] 
                                                                                         Appointment of
                                                                                         Independent Auditors

                                           [ ]    Please mark this box ONLY if any Class A or Class B common stock owned of      
                                                  record or beneficially by you is owned or controlled by Foreigners (as defined 
                                                  in the proxy statement), and indicate the number and class so owned or         
                                                  controlled by Foreigners:                                                       
                                                                           Class A ______________________________
                                                                           Class B ______________________________ 
    SIGNATURE(S)                             DATE                   
            --------------------------------    ------
 
    SIGNATURE(S)                             DATE
            --------------------------------    ------
NOTE: Please sign exactly as name appears hereon. Joint owners should each sign.  THIS FORM OF PROXY RELATES TO BOTH CLASS A      
      When signing as  attorney, executor, administrator, trustee or guardian,    AND CLASS B COMMON STOCK. IF YOU RECEIVED       
      please give full title as such.                                             TWO PROXY CARDS, PLEASE EXECUTE AND RETURN EACH. 
</TABLE>