UNITED STATES

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002

OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF     

THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM __________ TO __________

Commission File Number 1-10323

CONTINENTAL AIRLINES, INC.

(Exact name of registrant as specified in its charter)

Delaware

74-2099724

(State or other jurisdiction

(I.R.S. Employer

of incorporation or organization)

Identification No.)

1600 Smith Street, Dept. HQSEO

Houston, Texas 77002

(Address of principal executive offices)

(Zip Code)

713-324-2950

(Registrant's telephone number, including area code)

Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _____

__________

As of July 12, 2002, 64,803,111 shares of Class B common stock were outstanding.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

CONTINENTAL AIRLINES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share data)

 

Three Months Ended June 30,

Six Months Ended June 30,

 

2002  

2001  

2002  

2001  

 

(Unaudited)          

(Unaudited)        

Operating Revenue:

       

Passenger

$2,062 

$2,420 

$3,934 

$4,726 

Cargo, mail and other

130 

136 

252 

282 

 

2,192 

2,556 

4,186 

5,008 

         

Operating Expenses:

       

Wages, salaries and related costs

746 

800 

1,478 

1,558 

Aircraft fuel

 254 

349 

 462 

694 

Aircraft rentals

231 

223 

459 

437 

Landing fees and other rentals

160 

153 

321 

294 

Maintenance, materials and repairs

119 

162 

232 

322 

Depreciation and amortization

112 

111 

225 

216 

Reservations and sales

101 

124 

203 

252 

Passenger servicing

73 

96 

150 

187 

Commissions

57 

106 

128 

220 

Fleet disposition/impairment losses

152

235

Stabilization Act grant adjustment

12

-

12

-

Other

    290

    295 

    582 

   615 

 

2,307 

2,419 

4,487 

4,795 

         

Operating Income (Loss)

(115)

137 

(301)

213 

         

Nonoperating Income (Expense):

       

Interest expense

(91)

(72)

(173)

(144)

Interest income

13 

11 

28 

Interest capitalized

15 

20 

30 

Other, net

  (3)

(13)

  (4)

(28)

 

(79)

(57)

(146)

(114)

         

Income (Loss) before Income Taxes

and Minority Interest

 (194)

 80 

 (447)

 99 

         

Income Tax Benefit (Provision)

   65

 (36)

 155

 (44)

         

Income (Loss) before Minority Interest

(129)

44

(292)

55

       

Minority Interest

(8)

-

(8)

-

         

Distributions on Preferred Securities of Trust,

net of applicable income taxes of $1,

$1, $3 and $2, respectively

 

     (2)

 

     (2)

 

     (5)

 

     (4)

         

Net Income (Loss)

$ (139

$   42 

$ (305

$   51 

         

Basic Earnings (Loss) per Share

$(2.18

$ 0.77 

$(4.79

$ 0.93 

         

Diluted Earnings (Loss) per Share

$(2.18)

$ 0.74 

$(4.79)

$ 0.91 

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

CONTINENTAL AIRLINES, INC.

CONSOLIDATED BALANCE SHEETS

(In millions, except for share data)

 

 

June 30,     

December 31,

June 30,     

ASSETS

  2002      

   2001    

  2001      

 

(Unaudited)   

 

(Unaudited)  

       

Current Assets:

     

   Cash and cash equivalents

$ 1,177

$1,132

$1,008

   Short-term investments

134

-

-

   Accounts receivable, net

512

404

570

   Spare parts and supplies, net

273

272

293

   Deferred income taxes

162

192

142

   Prepayments and other

     193

   144

   203

      Total current assets

  2,451

2,144

2,216

       

Property and Equipment:

     

   Owned property and equipment:

     

      Flight equipment

6,764

5,592

5,017

      Other

  1,175

 1,092

 1,018

 

7,939

6,684

6,035

         Less: Accumulated depreciation

  1,438

1,249

1,077

 

  6,501

5,435

4,958

       

   Purchase deposits for flight equipment

     286

   454

   540

       

   Capital leases:

     

      Flight equipment

136

223

226

      Other

    254

   234

   206

 

390

457

432

         Less: Accumulated amortization

    118

   193

   180

 

     272

   264

   252

            Total property and equipment

  7,059

6,153

5,750

       

Routes and airport operating rights, net

  1,019

1,033

1,056

       

Other Assets, net

     490

   461

   474

       

         Total Assets

$11,019

$9,791

$9,496

 

(continued on next page)

CONTINENTAL AIRLINES, INC.

CONSOLIDATED BALANCE SHEETS

(In millions, except for share data)

LIABILITIES AND

STOCKHOLDERS' EQUITY

June 30,     

December 31,  

June 30,      

  2002       

   2001      

  2001        

 

(Unaudited)   

 

(Unaudited)   

       

Current Liabilities:

     

   Current maturities of long-term debt and capital leases

$    429

$   355

$   372

   Accounts payable

931

1,008

946

   Air traffic liability

1,229

1,014

1,369

   Accrued payroll and pensions

310

278

288

   Accrued other liabilities

      342

    291

    242

      Total current liabilities

  3,241

2,946

3,217

       

Long-Term Debt and Capital Leases

  5,093

4,198

3,724

       

Deferred Income Taxes

     721

    710

    837

       

Other

     571

    533

    224

       

Commitments and Contingencies

     
       

Minority Interest

      (13)

            -

          -

       

Continental-Obligated Mandatorily Redeemable Preferred

   Securities of  Subsidiary Trust Holding Solely Convertible

   Subordinated Debentures issued by Continental

 

    243

 

    243

 

    243

       

Redeemable preferred stock of subsidiary

         5

            -

          -

       

Stockholders' Equity:

     

   Preferred Stock - $.01 par, 10,000,000 shares authorized; one

      share of Series B  issued and outstanding, stated at par value

 -

 -

 -

   Class B common stock - $.01 par, 200,000,000 shares

      authorized; 89,782,876, 88,617,001 and 80,125,882 shares

      issued as of June 30, 2002, December 31, 2001 and

      June 30, 2001, respectively

 

 

1

 

 

1

 

 

1

   Additional paid-in capital

1,376

1,069

868

   Retained earnings

1,056

1,361

1,507

   Accumulated other comprehensive income (loss)

(135)

(130)

15

   Treasury stock - 25,442,529 Class B shares as of  

      June 30, 2002, December 31, 2001 and June 30, 2001,

      at cost

 

(1,140)

 

(1,140)

 

(1,140)

      Total stockholders' equity

  1,158 

1,161

1,251 

         Total Liabilities and Stockholders' Equity

$11,019

$9,791

$9,496

 

 

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

CONTINENTAL AIRLINES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

 

 

        Six Months

        Ended June 30,

 

2002  

    2001    

 

(Unaudited)           

     

Net cash (used in) provided by operating activities

$ (26)   

$ 390   

     

Cash Flows from Investing Activities:

   

Purchase deposits paid in connection with future

aircraft deliveries

(43)  

(227)  

Purchase deposits refunded in connection with

aircraft delivered

172   

88   

Capital expenditures

(417)  

(289)  

(Purchase) sale of short-term investments

(134)   

24   

Other

   (6)  

(12)  

Net cash used in investing activities

(428)  

(416)  

     

Cash Flows from Financing Activities:

   

Proceeds from issuance of long-term debt, net

216   

200   

Proceeds from sale of ExpressJet stock, net

447

-

Payments on long-term debt and capital lease

obligations

(175)  

(128)  

Purchase of Class B common stock

(451)  

Proceeds from issuance of Class B common stock

13   

51   

Other

 (2)  

 (9)  

Net cash provided by (used in) financing activities

  499  

(337)  

     

Net Increase (Decrease) in Cash and Cash Equivalents

45 

(363) 

     

Cash and Cash Equivalents - Beginning of Period

1,132  

1,371  

     

Cash and Cash Equivalents - End of Period

$1,177  

$1,008  

     

Investing and Financing Activities Not Affecting Cash:

   

Property and equipment acquired through the

issuance of debt

$   908 

$   276 

Capital lease obligations incurred

$     18 

$     69 

 

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

CONTINENTAL AIRLINES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

In our opinion, the unaudited consolidated financial statements included herein contain all adjustments necessary to present fairly the financial position, results of operations and cash flows for the periods indicated. Such adjustments, except for nonrecurring adjustments, which have been separately disclosed, are of a normal, recurring nature. The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2001 (the "2001 10-K"). As used in these Notes to Consolidated Financial Statements, the terms "Continental", "we", "us", "our" and similar terms refer to Continental Airlines, Inc. and, unless the context indicates otherwise, its subsidiaries.

Certain reclassifications have been made in the prior year's financial statements to conform to the current year presentation.

 

NOTE 1 - EARNINGS (LOSS) PER SHARE

The following table sets forth the computations of basic and diluted earnings (loss) per share (in millions):

 

Three Months     

Six Months      

 

 Ended June 30,   

Ended June 30,   

 

2002 

2001 

2002 

2001 

 

(Unaudited)      

(Unaudited)      

         

Numerator for basic earnings (loss) per

share - net income (loss)

$(139)

$ 42 

$(305)

$ 51 

         

Effect of dilutive securities:

       

Distribution on Preferred Securities

  of Trust, net of income taxes

       -

     2 

       -

 

    4 

         

Numerator for diluted earnings (loss)

per share - net income (loss) after

assumed conversions

 

$(139)

 

$  44 

 

$(305)

 

$  55 

         

Denominator:

       

Denominator for basic earnings (loss)

per share - weighted-average shares

  63.8

54.2 

  63.7

54.6 

         

Effect of dilutive securities:

       

Employee stock options

-

0.8 

-

0.9 

Redeemable common stock from

   Northwest Repurchase

-

-

0.2 

Preferred Securities of Trust

       -

  4.2 

       -

  4.2 

Dilutive potential common shares

       -

  5.0 

       -

  5.3 

         

Denominator for diluted earnings (loss)

per share - adjusted weighted-average

and assumed conversions

 

 63.8

 

59.2 

 

 63.7

 

59.9 

NOTE 2 - COMPREHENSIVE INCOME (LOSS)

We include in other comprehensive income (loss) unrealized gains and losses on available-for-sale securities, changes in minimum pension liabilities and changes in the fair value of derivative financial instruments, which are used from time to time to reduce the risk in fluctuations of fuel prices and some foreign currencies, each of which qualify for hedge accounting. During the second quarter of 2002 and 2001, total comprehensive income (loss) amounted to $(154) million and $44 million, respectively. For the six months ended June 30, 2002 and 2001, total comprehensive income (loss) amounted to $(310) million and $53 million, respectively. During the first half of 2002, the significant difference between net income (loss) and total comprehensive income (loss) was attributable to changes in the fair value of derivative financial instruments.

NOTE 3 - EXPRESSJET INITIAL PUBLIC OFFERING AND CAPACITY BUY AGREEMENT

Initial Public Offering

In April 2002, ExpressJet Holdings, Inc. ("Holdings"), our then wholly owned subsidiary and the sole stockholder of ExpressJet Airlines, Inc. ("ExpressJet") which operates as "Continental Express", sold 10 million shares of its common stock in an initial public offering and used the net proceeds of $147 million to repay a portion of ExpressJet's indebtedness to us. In addition, we sold 20 million of our shares of Holdings common stock in the offering for net proceeds of $300 million. The sale of Holdings' shares and our shares in the offering was accounted for as a capital transaction resulting in a $291 million increase in additional paid-in capital and a $175 million increase in tax liabilities. We contributed $150 million of our proceeds to our defined benefit pension plan and used the remainder of our proceeds for general corporate purposes.

In connection with the offering, our ownership of Holdings fell to 53.1 percent. We do not currently intend to remain a stockholder of Holdings over the long term. Subject to market conditions, we may sell additional shares of Holdings common stock in the future. Under our lock-up agreement with the underwriters of the initial public offering, no such sale could occur prior to October 2002 without the consent of the underwriters. When our ownership of Holdings falls below 50%, we will deconsolidate Holdings from our financial statements.

Prior to the offering and in connection with an internal reorganization by Holdings, a subsidiary of Holdings issued preferred stock which is non-voting, has a liquidation preference of $5 million, is mandatorily redeemable after the tenth anniversary of its issuance date and is callable after the third anniversary of its issuance date. The preferred stock was sold to a non-affiliated third party for a note in the original principal amount of $5 million and is included on our balance sheet as redeemable preferred stock of subsidiary.

Capacity Purchase Agreement with ExpressJet

General. Effective January 1, 2001, we implemented a capacity purchase agreement with ExpressJet. Under the capacity purchase agreement, ExpressJet currently flies all of its aircraft on our behalf, and we handle scheduling, ticket prices and seat inventories for these flights. In exchange for ExpressJet's operation of the flights and performance of other obligations under the agreement, we pay them for each scheduled block hour based on an agreed formula. ExpressJet recognizes revenue based on the compensation it earns from us for providing capacity. Under the agreement, we recognize all passenger, cargo and other revenue associated with each flight, and are responsible for all revenue-related expenses, including commissions, reservations, catering and passenger ticket processing expenses consisting primarily of revenue accounting costs.

Compensation and Operational Responsibilities. Under the agreement, we pay ExpressJet a base fee for each scheduled block hour based on a formula that will remain in place through December 31, 2004. The formula is designed to provide ExpressJet with an operating margin of approximately 10% before taking into account variations in some costs and expenses that are generally controllable by them.

The initial block hour rates are based on estimates of future costs we developed jointly with ExpressJet. These estimates may differ from ExpressJet's actual costs. If they do, our costs will be adjusted for some of ExpressJet's costs under the capacity purchase agreement. The adjusted block hour rates provide ExpressJet with revenue from us that is based on the sum of the following three components, generally differentiated by the nature of the operating costs ExpressJet incurs:

    1. Fully-reconciled costs. Actual costs incurred plus a 10% margin on fuel (margin payment capped at 61.1 cents per gallon in 2002 and 66.0 cents per gallon thereafter), aircraft rent, terminal facility rent, depreciation and amortization, on-time bonuses, 401(k), taxes other than income taxes, passenger liability insurance, hull insurance, landing fees, administrative and ground handling services provided by us, and regional jet engine maintenance expenses under long-term third party contracts.
    2. Costs within the margin band. Forecasted costs plus a 10% margin on those costs implicit in the block hour rates (irrespective of actual costs incurred) on maintenance, materials, and repairs not included in (i) above, passenger facilities, other rentals, and other operating expenses. However, if ExpressJet's actual expenses in this category are sufficiently different from the forecasts implicit in the block hour rates so that its total operating margin -- excluding the effects of the costs in category (iii) below as well as unanticipated changes in its depreciation expense, any performance incentive payments, controllable cancellations, litigation costs and other costs that are not included in the block hour rates and are not reasonable and customary in the industry -- is either below 8.5% or above 11.5% calculated on a quarterly basis, then the overall revenue will be adjusted upward or downward to result in an 8.5% or 11.5% total operating margin as applicable.
    3. Unreconciled costs. Forecasted costs incurred plus a 10% margin on those costs implicit in the block hour rates (irrespective of actual costs incurred) on wages and salaries, and benefits not included in categories (i) and (ii).

Our payments to ExpressJet under the capacity purchase agreement totaled $980 million in 2001 and $535 million in the first six months of 2002. Our future payments under the capacity purchase agreement are dependent on numerous variables, and therefore difficult to predict. The most important of those variables is the number of scheduled block hours, which takes into account the number of ExpressJet aircraft and our utilization rates of such aircraft. However, if we changed the utilization of ExpressJet's aircraft, we would also change the number of available seat miles on ExpressJet's flights and the revenue that we generate by selling those seats. Any decision by us to change the utilization of ExpressJet's aircraft (or to remove aircraft from the capacity purchase agreement) would be made by determining the net effect of such change on our income and cash flow, taking into account not only our cash commitment to ExpressJet but also our expected revenue from ExpressJet's flights.

Set forth below are estimates of our future minimum noncancellable commitments under the capacity purchase agreement. These estimates of our future minimum noncancellable commitments under the capacity purchase agreement do not include the portion of the underlying obligations for aircraft and facility rent that are disclosed as part of our consolidated operating lease commitments. For purposes of calculating these estimates, we have assumed (i) that ExpressJet's aircraft deliveries continue as scheduled through July 2004, (ii) an annual inflation rate of 2% beginning in 2005 (contracted rates through 2004), (iii) a fuel rate of 66 cents per gallon, (iv) that we exercise our rights to terminate the capacity purchase agreement at the earliest possible date permitted under the contract, (v) that prior to termination we exercise our rights to remove as many aircraft as quickly as contractually permitted from the capacity purchase agreement, (vi) an average daily utilization rate of 8.4 hours, and (vii) controllable cancellations are at historical levels resulting in no incentive compensation payable to ExpressJet. As a result, our future minimum noncancellable commitments under the capacity purchase agreement are estimated as follows (in millions):

 

July 1, 2002 through December 31, 2002

$ 459

 
 

2003

1,104

 
 

2004

1,180

 
 

2005

1,049

 
 

2006

529

 
 

Total

$4,321

 

It is important to note that in making the assumptions used to develop these estimates, we are attempting to estimate our minimum noncancellable commitments and not the amounts that we currently expect to pay to ExpressJet (which amounts are expected to be higher as we do not currently expect to reduce capacity under the agreement to the extent assumed above or terminate the agreement at the earliest possible date). In addition, our actual minimum noncancellable commitments to ExpressJet could differ materially from the estimates discussed above, because actual events could differ materially from the assumptions described above. For example, a 10% change in scheduled block hours (whether a result of change in delivery dates of aircraft or average daily utilization) in 2003 would result in a change in cash obligations under the capacity purchase agreement of approximately 8% or $91 million.

ExpressJet's base fee includes compensation for scheduled block hours associated with some cancelled flights, based on historical cancellation rates constituting rolling five-year monthly averages. To the extent that ExpressJet's rate of controllable cancellations, such as those due to maintenance or crew shortages, is less than its historical controllable cancellation rate, ExpressJet will be entitled to additional payments. On the other hand, ExpressJet will generally not be entitled to any such additional payments if controllable cancellations are above historical rates of cancellations. ExpressJet is also entitled to receive a small per-passenger fee and incentive payments for headstarts and baggage handling performance.

If a change of control (as defined in the agreement) of ExpressJet occurs without our consent, the block hour rates that we will pay under the agreement will be substantially reduced.

Some marketing-related costs normally associated with operating an airline are borne directly by us, since we are responsible for marketing under the capacity purchase agreement. We will continue to provide operational support to ExpressJet under the capacity purchase agreement, such as ground handling, and will provide certain administrative services for a limited period of time.

ExpressJet has agreed to meet with us each year beginning in 2004 to review and set the block hour rates to be paid in the following year, in each case based on the formula used to set the original block hour rates (including a 10% targeted operating margin). If we and ExpressJet cannot come to an agreement on the annual adjustments, we have agreed to submit our disagreement to arbitration. In addition, the agreement gives each party the right to "meet and confer" with the other regarding any material change in the underlying assumptions regarding the cost of providing services under the agreement and whether the compensation provisions of the agreement should be changed as a result, but does not require any party to agree to any change in the compensation provisions.

Capacity and Fleet Matters. The agreement covers all of ExpressJet's existing fleet, as well as the 116 Embraer regional jets subject to firm orders at June 30, 2002. Under the capacity purchase agreement, beginning July 1, 2003, we have the right to reduce the number of ExpressJet's aircraft covered by the contract upon 12 months' notice, resulting in the earliest effective date for capacity reduction of July 1, 2004. Under the agreement, we are entitled to decline capacity with respect to (a) any regional jets subject to firm orders that have not been delivered before the effective date of the reduction in capacity and (b) up to 25% of ExpressJet's delivered regional jets over any rolling three-year period. If we remove aircraft from the terms of the agreement, ExpressJet will have the option to (i) fly the released aircraft for another airline (subject to its ability to obtain facilities, such as gates and slots, and subject to its exclusive arrangement with us that prohibits ExpressJet during the term of the agreement from flying under its or another carrier's code in or out of our hub airports), (ii) fly the aircraft under ExpressJet's own flight designator code subject to its ability to obtain facilities, such as gates and slots, and subject to ExpressJet's exclusive arrangement with us at our hubs or (iii) decline to fly the aircraft and cancel the related subleases with us. If ExpressJet elects not to terminate these subleases, the interest rate implicit in calculating the scheduled lease payments will automatically increase by 200 basis points to compensate us for our continued participation in ExpressJet's lease financing arrangements.

Term of Agreement. The agreement expires on December 31, 2010; however, we may terminate the agreement at any time after January 1, 2006 upon 12 months' notice, or at any time without notice for cause (as defined in the agreement). We may also terminate the agreement at any time upon a material breach by ExpressJet that does not constitute cause and continues for 90 days after notice of such breach, or without notice or opportunity to cure if we determine that there is a material safety concern with ExpressJet's flight operations. We have the option to extend the term of the agreement with 24 months' notice for up to four additional five-year terms through December 31, 2030.

Service Agreements. We provide various services to ExpressJet and charge them at rates in accordance with the capacity purchase agreement. The services provided to ExpressJet by us include certain customer services such as ground handling and centralized services and infrastructure costs, including insurance, technology, accounting, legal, treasury, human resources and risk management. For providing these services, we charged ExpressJet approximately $22 million, $18 million, $42 million and $33 million for the three months ended June 30, 2002 and 2001 and the six months ended June 30, 2002 and 2001, respectively.

Note Receivable from ExpressJet. At June 30, 2002 we had a $396 million note receivable from ExpressJet. Accrued interest on the note is payable quarterly by ExpressJet until March 31, 2003, at which time principal and interest will be payable in quarterly installments of $27.9 million through March 31, 2007. The interest rate is fixed for each quarter at a rate equal to the three-month London interbank offered rate on the second business day prior to such quarter plus 1.25% per annum, subject to an aggregate cap of 3.50% in 2002, 5.35% in 2003 and 6.72% in 2004.

Leases. As of June 30, 2002, ExpressJet leased or subleased 174 of its aircraft under long-term operating leases from us (excluding 28 aircraft removed from service as discussed in Note 4). ExpressJet's sublease agreements with us have substantially the same terms as the lease agreements between us and the third-party lessors, and expire between 2002 and 2017. ExpressJet leases or subleases, under various operating leases, ground equipment and substantially all of its ground facilities, including facilities at public airports, from us or the municipalities or agencies owning and controlling such airports. If ExpressJet defaults on its payment obligations under its aircraft subleases with us, we are entitled to reduce any payments required to be made by us to ExpressJet under the capacity purchase agreement by the amount of the defaulted payment.

ExpressJet's total rental expense for all non-aircraft operating leases with us was approximately $2 million, $2 million, $4 million and $4 million for the three months ended June 30, 2002 and 2001 and the six months ended June 30, 2002 and 2001, respectively. ExpressJet's total rental expense related to aircraft leases with us was approximately $49 million, $41 million, $96 million and $79 million for the three months ended June 30, 2002 and 2001 and the six months ended June 30, 2002 and 2001, respectively.

Deferred Taxes. In conjunction with Holdings' offering, our tax basis in the stock of Holdings and the tax basis of ExpressJet's tangible and intangible assets were increased to fair value. This increase in basis has resulted in the utilization of a substantial amount of ExpressJet's state net operating loss carryovers and our federal and state net operating losses. The increased tax basis should result in additional tax deductions available to ExpressJet over a period of 15 years. To the extent ExpressJet generates taxable income sufficient to realize the additional tax deductions, it will be required to pay us a percentage of the amount of tax savings actually realized, excluding the effect of any loss carrybacks. ExpressJet will be required to pay us 100% of the first third of the anticipated tax benefit, 90% of the second third, and 80% of the last third. However, if the anticipated benefits are not realized by the end of 2018, ExpressJet will be obligated to pay us 100% of any benefits realized after that date. We will not recognize for accounting purposes the benefit of the tax savings associated with ExpressJet's asset step-up until paid to us by ExpressJet due to the uncertainty of realization.

Other. So long as we are ExpressJet's largest customer, if it enters into an agreement with another major airline to provide regional airline services on a capacity purchase or other similar economic basis for 10 or more aircraft on terms and conditions that are in the aggregate less favorable to ExpressJet than the terms and conditions of the capacity purchase agreement, we will be entitled to amend our capacity purchase agreement to conform the terms and conditions of the capacity purchase agreement to the terms and conditions of the agreement with the other major airline.

NOTE 4 - AIRCRAFT PURCHASE COMMITMENTS

As shown in the following table at June 30, 2002, our aircraft fleet consisted of 374 mainline jets, 158 regional jets and 20 turboprop aircraft. Our purchase commitments (orders) and aircraft options as of June 30, 2002 are also included in the table.

Aircraft

Type   

Total  

Aircraft

(a)

Owned

Leased

Orders

Options

             

777-200ER

18

 

12 

3

767-400ER

16

 

14 

767-200ER

10

 

757-300

4

 

11 

11 

757-200

41

 

13 

28 

737-900

12

 

12

737-800

77

 

22 

55 

38 

35 

737-700

36

 

12 

24 

15 

24 

737-500

66

 

15 

51 

737-300

59

 

11 

48 

MD-80

35 

 

    8 

27 

Mainline Jets

374 

 

122 

252 

 67 

  87 

ERJ-145XR

 

104 

100 

ERJ-145

128 

 

18 

110 

12 

ERJ-135

  30 

 

    -

  30 

    - 

     - 

Regional Jets

158

 

  18 

140 

116 

100 

             

Total Jets

 532

 

 140

392

   

ATR-42-320

   20

 

     8

   12 

Total

552

 

148 

404 

183 

187 

  1. Excludes aircraft removed from service during any time period prior to June 30, 2002, but that continue to be owned by or under lease to us. These aircraft consist of 15 DC-10-30 aircraft, 18 MD-80 aircraft, six 737-300 aircraft, two 747-200 aircraft, two 727-200 aircraft, 18 EMB-120 turboprop aircraft and ten ATR-42 turboprop aircraft (42 of which are subject to leases).

In the first half of 2002, we took delivery of 20 Boeing jet aircraft, returned nine MD-80 aircraft to service and removed seven MD-80 aircraft from service. For the remainder of the year, we currently plan to return two MD-80 aircraft and three 737-300 aircraft to service and plan to remove from service five MD-80 aircraft, four 737-300 aircraft and one 737-500 aircraft (in conjunction with the expiration of their leases).

ExpressJet took delivery of 21 Embraer regional jet aircraft in the first half of 2002 and retired 13 turboprop aircraft. During the remainder of 2002, ExpressJet plans to take delivery of 30 additional Embraer regional jet aircraft (including the first Embraer long range aircraft) and retire from service 13 turboprop aircraft (eight of which are subject to leases). ExpressJet plans to retire all of its remaining turboprop aircraft by the first quarter of 2003.

As of June 30, 2002, the estimated aggregate cost of our firm commitments for 67 Boeing aircraft was approximately $2.6 billion. No additional deliveries of Boeing aircraft are planned until the fourth quarter of 2003. We do not have financing currently in place for these 67 aircraft, which are scheduled for delivery through 2008. In addition, at June 30, 2002, we had firm commitments for approximately $120 million to purchase 19 spare engines for these aircraft. These engines are deliverable through March 2005.

As of June 30, 2002, the estimated aggregate cost of ExpressJet's firm commitments for 116 Embraer regional jets was approximately $2.3 billion. In addition, as of June 30, 2002, ExpressJet expected to purchase 23 spare engines for approximately $68 million. These spare engines are deliverable through the first quarter of 2005. Neither we nor ExpressJet have any obligation to take any of these firm Embraer aircraft that are not financed by a third party and leased to us. Neither we nor ExpressJet have any financing currently in place for the 23 spare engines.

NOTE 5 - SPECIAL CHARGES

As a result of the continued weak revenue environment, we made a decision in the second quarter to permanently ground ExpressJet's leased turboprop aircraft and certain leased MD-80 aircraft. We accrued $37 million ($59 million before taxes) primarily related to lease payments past the dates the aircraft will be removed from service, which will occur in the next 12 months, as well as return condition and storage costs. We also performed an impairment assessment of our owned aircraft during the second quarter based on our revised cash flow forecasts that are reflective of the weak revenue environment. As a result of the impairment assessment, we concluded that the carrying values of our owned turboprop and MD-80 fleets were not recoverable and recorded an impairment charge of $59 million ($93 million before taxes) to reduce the carrying value of these aircraft to their estimated fair value.

In the first quarter of 2002, we recorded a fleet charge of $52 million ($83 million before taxes) in connection with the permanent grounding and retirement of our leased DC-10-30 fleet. The majority of the charge related to future commitments under noncancelable lease agreements past the dates the aircraft were permanently removed from service. The remainder of the accrual relates to costs expected to be incurred relating to the storage and return of these aircraft. Cash payments related to the accruals established under this charge totaled approximately $15 million during the first half of 2002.

As of June 30, 2002, 48 aircraft in our possession were permanently grounded, including 29 aircraft subject to leases. We plan to sell the 19 owned aircraft, which are being carried at an aggregate fair market value of $28 million and explore sublease opportunities for certain of the leased aircraft. The timing of the disposition of these aircraft is dependent upon the stabilization of the economic environment in the airline industry as well as our ability to find purchasers for the aircraft. We cannot predict when such stabilization will occur or if purchasers can be found, and it is possible that our assets could suffer additional impairment.

NOTE 6 - OTHER

In July 2001, the Financial Accounting Standards Board issued Financial Accounting Standard No. 142 - "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 142 includes requirements to test goodwill and indefinite-lived intangible assets for impairment rather than amortize them. Effective January 1, 2002, we adopted SFAS 142 and discontinued amortization of our goodwill recorded on equity investments and routes, which are indefinite-lived intangible assets. This change will result in reduced expense of approximately $23 million on an annualized basis. SFAS 142 requires us to test routes for impairment annually, beginning in the first quarter of 2002. We performed the first of these impairment tests as of January 1, 2002 and determined that we did not have any impairment of our routes upon adoption based on our assessment of fair values.

Pro forma results for the three and six months ended June 30, 2001, assuming the discontinuation of amortization of routes, are shown below (in millions, except per share data).

 

Three Months Ended

       June 30, 2001     

Six Months Ended

   June 30, 2001    

     

Reported net income

$   42

$   51

Route amortization, net of taxes

     3

     7

Adjusted net income

$  45

$   58

     

Basic earnings per share:

   

As reported

$0.77

$0.93

Route amortization, net of taxes

0.06 

0.13 

As adjusted

$0.83 

$1.06 

     

Diluted earnings per share:

   

As reported

$0.74

$0.91

Route amortization, net of taxes

0.05 

0.12 

As adjusted

$0.79 

$1.03 

In August 2001, the Financial Accounting Standards Board issued Financial Accounting Standard No. 144 - "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 supersedes SFAS 121 and the portion of the Accounting Principle Board Opinion No. 30 that deals with disposal of a business segment. Effective January 1, 2002, we adopted SFAS 144, which had no effect on our results of operations.

In the second quarter of 2002, we filed our final application for a grant under the Air Transportation Safety and System Stabilization Act (the "Stabilization Act"). We recorded a charge of $8 million ($12 million before taxes) to write down our receivable from the U.S. government based on this final application. We received a grant of $30 million in cash in the second quarter and expect to receive the balance of the grant, $20 million, by September 30, 2002.

During the second quarter of 2002, we awarded our officers an aggregate of 444,750 shares of restricted stock to incentivize them to remain with Continental and guide it through the industry's recovery period. The restricted stock was awarded pursuant to our equity incentive plans and had a fair value on the grant date of $12.5 million ($28.10 per share). The restricted stock is scheduled to vest in 25% increments on the first four anniversaries of the grant. Compensation expense of $1.5 million related to the restricted stock was recognized in the second quarter of 2002.

In addition, in June of 2002, we granted stock options with respect to approximately six million shares of our common stock to approximately 400 management employees (including our officers) pursuant to our equity incentive plans at an exercise price of $15.78, which was the fair market value on the date of grant. The options have a weighted average remaining contractual life of five years, and approximately 3 million shares are currently exercisable. These options were granted to incentivize management to remain with Continental and guide it through the industry's recovery period. The total of all stock options outstanding after this grant is approximately 9.7% of total shares outstanding, assuming all stock options were exercised.

The closing price of our common stock on July 15, 2002 was $11.56 per share.

 

 

 

I tem 2. Management's Discussion and Analysis of Financial Condition and

Results of Operations.

The following discussion contains forward-looking statements that are not limited to historical facts, but reflect our current beliefs, expectations or intentions regarding future events. In connection therewith, please see the risk factors set forth in our 2001 10-K, which identify important factors such as terrorist attacks and the resulting regulatory developments and costs, our recent operating losses and special charges, our high leverage and significant financing needs, our historical operating results, the significant cost of aircraft fuel, labor costs, certain tax matters, the Japanese economy and currency risk, competition and industry conditions, regulatory matters and the seasonal nature of the airline business (the second and third quarters are generally stronger than the first and fourth quarters), that could cause actual results to differ materially from those in the forward-looking statements.

RESULTS OF OPERATIONS

The following discussion provides an analysis of our results of operations and reasons for material changes therein for the three and six months ended June 30, 2002 as compared to the corresponding periods ended June 30, 2001.

Comparison of Three Months Ended June 30, 2002 to Three Months Ended June 30, 2001

Revenue passenger miles and available seat miles were down quarter over quarter due to traffic declines and our reduced flight schedule since the events of September 11, 2001. Despite improving load factors, industry fare discounting has negatively impacted both yield and breakeven load factor quarter over quarter.

We incurred a consolidated net loss of $139 million for the three months ended June 30, 2002 as compared to producing consolidated net income of $42 million for the three months ended June 30, 2001. Included in the net loss is a fleet charge of $96 million ($152 million before taxes) primarily related to the impairment (owned aircraft) and accrual of lease exist costs (leased aircraft) of our MD-80 and turboprop fleets and an $8 million charge ($12 million before taxes) related to the write down of our receivable from the U.S. government related to the finalization of the Stabilization Act grant.

Passenger revenue decreased 14.8%, $358 million, during the quarter ended June 30, 2002 as compared to the same period in 2001, which was principally due to traffic and capacity declines and fare discounting following the September 11, 2001 terrorist attacks and the continuing weak economy.

Cargo, mail and other revenue decreased 4.4%, $6 million, in the second quarter of 2002 compared to the second quarter of 2001 primarily due to lower freight volumes and yield and new security restrictions that reduced mail volumes, partially offset by higher contract revenue.

Wages, salaries and related costs decreased 6.8%, $54 million, during the quarter ended June 30, 2002 as compared to the same period in 2001 primarily due to a reduction in the number of employees as a result of reduced flying, partially offset by higher wage rates.

Aircraft fuel expense decreased 27.2%, $95 million, in the three months ended June 30, 2002 as compared to the same period in the prior year. The average jet fuel price per gallon decreased 16.2% from 81.49 cents in the second quarter of 2001 to 68.27 cents in the second quarter of 2002. Jet fuel consumption decreased 14.7% principally reflecting decreased flight operations and the fuel efficiency of our younger fleet. During the second quarter of 2002 and 2001, we also recognized gains of approximately $6 million and $4 million, respectively, relating to our fuel hedging program, which is reflected in fuel expense.

Aircraft rentals increased 3.6%, $8 million, in the second quarter of 2002 compared to the second quarter of 2001, due to the delivery of new aircraft.

Landing fees and other rentals increased 4.6%, $7 million, in the three months ended June 30, 2002 as compared to the same period in the prior year primarily due to higher landing fees resulting from rate increases.

Maintenance, materials and repairs decreased 26.5%, $43 million, during the quarter ended June 30, 2002 as compared to the same period in 2001 primarily due to the replacement of older aircraft with new aircraft.

Depreciation and amortization expense increased 0.9%, $1 million, in the second quarter of 2002 compared to the second quarter of 2001 due principally to the addition of new owned aircraft and related spare parts, partially offset by the discontinuation of amortization of routes.

Reservations and sales decreased 18.5%, $23 million, in the three months ended June 30, 2002 as compared to the same period in 2001 primarily due to lower computer reservation system booking fees and credit card discount fees as a result of lower revenue.

Passenger servicing decreased 24.0%, $23 million, in the second quarter of 2002 compared to the second quarter of 2001 primarily due to a decrease in food costs and aircraft supplies resulting from fewer passengers.

Commission expense decreased 46.2%, $49 million in the second quarter of 2002 compared to the second quarter of 2001 due to lower revenue and the elimination of domestic base commissions.

In the second quarter of 2002, we recorded a fleet charge of $96 million ($152 million before taxes) primarily related to the impairment (owned aircraft) and accrual of lease exit costs (leased aircraft) of our MD-80 and turboprop fleets. See Note 5.

We recorded an $8 million charge ($12 million before taxes) related to the write down of our receivable from the U.S. government related to the finalization of the Stabilization Act grant. See Note 6.

Other operating expense decreased 1.7%, $5 million, in the three months ended June 30, 2002 as compared to the same period in the prior year, primarily as a result of decreases in outsourced services and other miscellaneous expenses resulting from reduced capacity, which was partially offset by increased insurance and security costs.

Interest expense increased 26.4%, $19 million, in the second quarter of 2002 compared to the second quarter of 2001 due to an increase in long-term debt primarily resulting from the purchase of new aircraft.

Interest income decreased 53.8%, $7 million, in the second quarter of 2002 compared to the second quarter of 2001 due to lower interest rates.

Other nonoperating income (expense) in the three months ended June 30, 2001, included foreign currency losses of $4 million, as well as net losses of $4 million related to the interest component of premiums paid on fuel hedges.

We are required to accrue income tax expense on our share of ExpressJet's net income after the initial public offering in all periods where we either consolidate their operations or account for our investment under the equity method of accounting. The accrual of this income tax expense reduced our tax benefit by approximately $3 million for the quarter ended June 30, 2002.

Comparison of Six Months Ended June 30, 2002 to Six Months Ended June 30, 2001

Revenue passenger miles and available seat miles were down year over year due to traffic declines and our reduced flight schedule since the events of September 11, 2001. Despite improving load factors, industry fare discounting has negatively impacted both yield and breakeven load factor year over year.

We incurred a consolidated net loss of $305 million and produced consolidated net income of $51 million for the six months ended June 30, 2002 and 2001, respectively. Included in the net loss is a fleet charge of $96 million ($152 million before taxes) primarily related to the impairment (owned aircraft) and accrual of lease exit costs (leased aircraft) of our MD-80 and turboprop fleets, an $8 million charge ($12 million before taxes) related to the write down of our receivable from the U.S. government related to the finalization of the Stabilization Act grant, and a fleet charge of $52 million ($83 million before taxes) related to the permanent grounding and retirement of our leased DC-10-30 fleet.

Passenger revenue decreased 16.8%, $792 million, during the six months ended June 30, 2002 as compared to the same period in 2001. The decrease was principally due to traffic and capacity declines and fare discounting following the September 11, 2001 terrorist attacks and the continuing weak economy.

Cargo, mail and other revenue decreased 10.6%, $30 million, during the six months ended June 30, 2002 as compared to the same period in 2001 primarily due to lower freight volumes and yield and new security restrictions that reduced mail volumes, partially offset by higher contract revenue.

Wages, salaries and related costs decreased 5.1%, $80 million, during the six months ended June 30, 2002 as compared to the same period in 2001, primarily due to a reduction in the number of employees as a result of reduced flying, partially offset by higher wage rates.

Aircraft fuel expense decreased 33.4%, $232 million, in the six months ended June 30, 2002 as compared to the same period in the prior year. The average price per gallon decreased 23.0% from 83.61 cents in the first six months of 2001 to 64.37 cents in the first six months of 2002. Jet fuel consumption decreased 15.5%, principally reflecting decreased flight operations and the fuel efficiency of our younger fleet. During the first six months of 2002 and 2001, we also recognized gains of approximately $6 million and $2 million, respectively, related to our fuel hedging program, which is reflected in fuel expense.

Aircraft rentals increased 5.0%, $22 million, during the six months ended June 30, 2002 as compared to the same period in 2001, due to the delivery of new aircraft.

Landing fees and other rentals increased 9.2%, $27 million, in the six months ended June 30, 2002 as compared to the same period in the prior year primarily due to higher landing fees resulting from rate increases and higher facilities rent (partially attributable to the completion of a portion of the Global Gateway project at Newark International Airport).

Maintenance, materials and repairs decreased 28.0%, $90 million, during the six months ended June 30, 2002 as compared to the same period in the prior year primarily due to the replacement of older aircraft with new aircraft.

Depreciation and amortization expense increased 4.2%, $9 million, in the first six months of 2002 compared to the same period in 2001 primarily due to the addition of new owned aircraft and related spare parts, partially offset by the discontinuation of amortization of routes.

Reservations and sales expense decreased 19.4%, $49 million, in the first six months of 2002 compared to the same period in 2001 primarily due to lower computer reservation system booking fees and credit card discount fees as a result of lower revenue.

Passenger servicing decreased 19.8%, $37 million, during the six months ended June 30, 2002 as compared to the same period in 2001 primarily due to a decrease in food costs and aircraft supplies resulting from fewer passengers.

Commission expense decreased 41.8%, $92 million, during the six months ended June 30, 2002 as compared to the same period in 2001 due to lower revenue and the elimination of domestic base commissions.

In the second quarter of 2002, we recorded a fleet charge of $96 million ($152 million before taxes) primarily related to the impairment (owned aircraft) and accrual of lease exit costs (leased aircraft) of our MD-80 and turboprop fleets. In the first quarter of 2002, we recorded a fleet charge of $52 million ($83 million before taxes) in connection with the permanent grounding and retirement of our leased DC-10-30 fleet. See Note 5.

We recorded a $12 million charge related to the write down of our receivable from the U.S. government related to the finalization of the Stabilization Act grant. See Note 6.

Other operating expense decreased 5.4%, $33 million, in the six months ended June 30, 2002 as compared to the same period in the prior year, primarily as a result of decreases in outsourced services and other miscellaneous expenses resulting from reduced capacity, which was partially offset by increased insurance and security costs.

Interest expense increased 20.1%, $29 million, in the six months ended June 30, 2002 compared to the same period in the prior year due to an increase in long-term debt primarily resulting from the purchase of new aircraft.

Interest income decreased 60.7%, $17 million, in the first half of 2002 compared to the first half of 2001 due to lower interest rates.

Other nonoperating income (expense) in the six months ended June 30, 2001 included our equity in the net losses of certain investments of $6 million, foreign currency losses of $4 million and net losses of $9 million related to the interest component of premiums paid on fuel hedges.

Certain Statistical Information

An analysis of statistical information for Continental's jet operations, excluding regional jet operations except as otherwise noted, for the periods indicated is as follows:

 

Three Months Ended   

Net     

 

          June 30,            

Increase/ 

 

 2002   

   2001   

(Decrease)

       

Revenue passengers (thousands)

10,727

12,256

(12.5)%

Revenue passenger miles (millions) (1)

15,486

17,053

(9.2)%

Available seat miles (millions) (2)

20,573

22,813

(9.8)%

Cargo ton miles (millions)

224

245

(8.6)%

Passenger load factor (3)

75.3%

74.8%

0.5 pts.

Consolidated passenger load factor (4)

74.6%

74.3%

0.3 pts.

Consolidated breakeven passenger

  load factor (4)(5)(6)

76.9%

71.2%

5.7 pts.

Passenger revenue per available seat mile (cents)

8.82

9.52

(7.4)%

Total revenue per available seat mile (cents)

9.68

10.28

(5.8)%

Operating cost per available seat mile (cents) (6)

9.12

9.41

(3.1)%

Average yield per revenue passenger mile

(cents) (7)

11.71

12.73

(8.0)%

Average price per gallon of fuel, excluding

   fuel taxes (cents)

68.27

81.49

(16.2)%

Average price per gallon of fuel, including

   fuel taxes (cents)

72.34

85.71

(15.6)%

Fuel gallons consumed (millions)

332

389

(14.7)%

Average fare per revenue passenger

$169.11

$177.14

(4.5)%

Average daily utilization of each aircraft

(hours) (8)

9:41

10:53

(11.0)%

Actual aircraft in fleet at end of period (9)

374

377

(0.8)%

Average length of aircraft flight (miles)

1,230

1,193

3.1 %

(continued on next page)

 

 

 

Six Months Ended    

Net     

 

          June 30,            

Increase/ 

 

 2002   

   2001   

(Decrease)

Revenue passengers (thousands)

20,784

23,476

(11.5)%

Revenue passenger miles (millions) (1)

29,518

32,167

(8.2)%

Available seat miles (millions) (2)

39,525

44,271

(10.7)%

Cargo ton miles (millions)

432

498

(13.3)%

Passenger load factor (3)

74.7%

72.7%

2.0 pts.

Consolidated passenger load factor (4)

73.8%

72.0%

1.8 pts.

Consolidated breakeven passenger

  load factor (4)(5)(6)

79.7%

70.3%

9.4 pts.

Passenger revenue per available seat mile (cents)

8.79

9.63

(8.7)%

Total revenue per available seat mile (cents)

9.66

10.44

(7.5)%

Operating cost per available seat mile (cents) (6)

9.38

9.65

(2.8)%

Average yield per revenue passenger mile

(cents) (7)

11.77

13.26

(11.2)%

Average price per gallon of fuel, excluding

   fuel taxes (cents)

64.37

83.61

(23.0)%

Average price per gallon of fuel, including

   fuel taxes (cents)

68.51

88.09

(22.2)%

Fuel gallons consumed (millions)

640

757

(15.5)%

Average fare per revenue passenger

$167.22

$181.68

(8.0)%

Average daily utilization of each aircraft

(hours) (8)

9:36

10:49

(11.3)%

Actual aircraft in fleet at end of period (9)

374

377

(0.8)%

Average length of aircraft flight (miles)

1,203

1,179

2.0 %

We have entered into block-space arrangements with certain other carriers whereby one or both of us is obligated to purchase capacity on the other. The table above does not include the statistics for our capacity that has been purchased by another carrier.

__________________

  1. The number of scheduled miles flown by revenue passengers.
  2. The number of seats available for passengers multiplied by the number of scheduled miles those seats are flown.
  3. Revenue passenger miles divided by available seat miles.
  4. Includes aircraft operated by ExpressJet.
  5. The percentage of seats that must be occupied by revenue passengers in order for us to breakeven on a net income basis, excluding nonrecurring charges and other special items.
  6. Excludes fleet disposition/impairment losses of $152 million for the three months ended June 30, 2002 and $235 million for the six months ended June 30, 2002 and Stabilization Act grant adjustment of $12 million for the three and six months ended June 30, 2002.
  7. The average revenue received for each mile a revenue passenger is carried.
  8. The average number of hours per day that an aircraft flown in revenue service is operated (from gate departure to gate arrival).
  9. Excludes aircraft removed from service during any time prior to June 30, 2002 or 2001, as applicable, but that continue to be owned by or under lease to us. The June 30, 2002 fleet count excludes 15 DC-10-30 aircraft, 18 MD-80 aircraft, six 737-300 aircraft, two 747-200 aircraft and two 727-200 aircraft. The June 30, 2001 fleet count excludes six DC-10-30 aircraft, four DC-10-30 aircraft subleased to a third party, two 747-200 aircraft and two 727-200 aircraft.

LIQUIDITY AND CAPITAL COMMITMENTS

As of June 30, 2002, we had $1.3 billion in cash, cash equivalents and short-term investments, including $131 million of cash at ExpressJet. Cash flows used in operations for the six months ended June 30, 2002 were $26 million. Cash flows used in investing activities, primarily capital expenditures and purchase of short-term investments, were $428 million for the six months ended June 30, 2002. Cash flows provided by financing activities, primarily from the sale of Holdings stock and the issuance of long-term debt, partially offset by the payment of debt, were $499 million for the six months ended June 30, 2002.

Based on current information and trends (including currently anticipated unit costs), we expect to incur a significant loss for the full year 2002.

Together with our subsidiaries, we received $30 million in cash in the second quarter of 2002 and expect to receive the balance of the grant under the Stabilization Act, $20 million, by September 30, 2002.

We do not currently have any lines of credit, but have unencumbered assets, consisting primarily of spare parts, with a net book value in excess of $1.0 billion at June 30, 2002 which could be pledged in connection with future financings.

We expect to fund our future capital commitments through internally generated funds together with general company financings and aircraft financing transactions. However, there can be no assurance that sufficient financing will be available for all aircraft and other capital expenditures.

General Financing. In the first quarter of 2002, we issued $200 million of 4.5% convertible notes due February 1, 2007 for net proceeds of $195 million. The notes are convertible into our common stock at an initial conversion price of $40 per share. The notes are redeemable at our option on or after February 5, 2005, at specified redemption prices. The proceeds are being used for general corporate purposes.

In April 2002, we received net proceeds of $447 million from ExpressJet's initial public offering. The sale of Holdings' shares and our shares in the offering was accounted for as a capital transaction resulting in a $291 million increase in additional paid-in capital and a $175 million increase in tax liabilities. We contributed $150 million of our proceeds to our defined benefit pension plan and used the remainder of our proceeds for general corporate purposes.

In connection with the offering, our ownership of Holdings fell to 53.1 percent. We do not currently intend to remain a stockholder of Holdings over the long term. Subject to market conditions, we may sell additional shares of Holdings common stock in the future. Under our lock-up agreement with the underwriters of the initial public offering, no such sale could occur prior to October 2002 without the consent of the underwriters. Our capacity purchase agreement with ExpressJet provides that we purchase in advance all of its available seat miles for a negotiated price, and we are at risk for reselling the available seat miles at market prices. If we sold sufficient stock of Holdings to stop consolidating the results of ExpressJet for accounting purposes, we would expect diluted cash flows due to our payments under the capacity purchase agreement and lower earnings due to the targeted operating margin under the capacity purchase agreement with ExpressJet. For example, for the six months ended June 30, 2002, our pre-tax loss of approximately $447 million included pre-tax income for ExpressJet of approximately $67 million.

Aircraft and Facilities Financing. In March 2002, we completed the public offering of $329 million of pass-through certificates along with the private placement of $146 million of pass-through certificates to be funded upon the delivery of each aircraft. The proceeds were used to finance the acquisition cost of seven new aircraft delivered in the first half of 2002.

Purchase Commitments. We have substantial commitments for capital expenditures, including for the acquisition of new aircraft. See Note 4.

Our net capital expenditures during the six months ended June 30, 2002, including purchase deposits paid and refunded, were $288 million. For the remainder of the year, we expect capital expenditures for fleet (including purchase deposit activity) and non-fleet (primarily relating to software application and automation infrastructure projects, aircraft modifications, passenger terminal facility improvements and office, maintenance, telecommunications and ground equipment) to be $137 million.

Capacity Purchase Commitments.   Our payments to ExpressJet under the capacity purchase agreement totaled $980 million in 2001 and $535 million in the first six months of 2002. Our future payments under the capacity purchase agreement are dependent on numerous variables, and therefore difficult to predict. The most important of those variables is the number of scheduled block hours, which takes into account the number of ExpressJet aircraft and our utilization rates of such aircraft. However, if we changed the utilization of ExpressJet's aircraft, we would also change the number of available seat miles on ExpressJet's flights and the revenue that we generate by selling those seats. Any decision by us to change the utilization of ExpressJet's aircraft (or to remove aircraft from the capacity purchase agreement) would be made by determining the net effect of such change on our income and cash flow, taking into account not only our cash commitment to ExpressJet but also our expected revenue from ExpressJet's flights.

Set forth below are estimates of our future minimum noncancellable commitments under the capacity purchase agreement. These estimates of our future minimum noncancellable commitments under the capacity purchase agreement do not include the portion of the underlying obligations for aircraft and facility rent that are disclosed as part of our consolidated operating lease commitments. For purposes of calculating these estimates, we have assumed (i) that ExpressJet's aircraft deliveries continue as scheduled through July 2004, (ii) an annual inflation rate of 2% beginning in 2005 (contracted rates through 2004), (iii) a fuel rate of 66 cents per gallon, (iv) that we exercise our rights to terminate the capacity purchase agreement at the earliest possible date permitted under the contract, (v) that prior to termination we exercise our rights to remove as many aircraft as quickly as contractually permitted from the capacity purchase agreement, (vi) an average daily utilization rate of 8.4 hours, and (vii) controllable cancellations are at historical levels resulting in no incentive compensation payable to ExpressJet. As a result, our future minimum noncancellable commitments under the capacity purchase agreement are estimated as follows (in millions):

 

July 1, 2002 through December 31, 2002

$ 459

 
 

2003

1,104

 
 

2004

1,180

 
 

2005

1,049

 
 

2006

529

 
 

Total

$4,321

 

It is important to note that in making the assumptions used to develop these estimates, we are attempting to estimate our minimum noncancellable commitments and not the amounts that we currently expect to pay to ExpressJet (which amounts are expected to be higher as we do not currently expect to reduce capacity under the agreement to the extent assumed above or terminate the agreement at the earlier possible date). In addition, our actual minimum noncancellable commitments to ExpressJet could differ materially from the estimates discussed above, because actual events could differ materially from the assumptions described above. For example, a 10% change in scheduled block hours (whether a result of change in delivery dates of aircraft or average daily utilization) in 2003 would result in a change in cash obligations under the capacity purchase agreement of approximately 8% or $91 million.

Deferred Taxes. As of December 31, 2001, we had a net deferred tax liability of $518 million including gross deferred tax assets aggregating $976 million, $532 million related to net operating losses ("NOLs"), and a valuation allowance of $245 million.

Section 382 of the Internal Revenue Code ("Section 382") imposes limitations on a corporation's ability to utilize NOLs if it experiences an "ownership change." In general terms, an ownership change may result from transactions increasing the ownership of certain stockholders by more than 50 percentage points over a three-year period. If an ownership change occurred, utilization of our NOLs would be subject to an annual limitation under Section 382 determined by multiplying the value of our stock at the time of the ownership change by the applicable long-term tax exempt rate (which was 5.01% for June 2002). Any unused annual limitation may be carried over to later years, and the amount of the limitation may, under certain circumstances, be increased by any built-in gains in assets held at the time of the change that we recognize in the five-year period after the change. Under current conditions, if an ownership change occurred, our annual NOL utilization would be limited to approximately $49 million per year, excluding any future built-in gain transactions.

In conjunction with Holdings' offering, our tax basis in the stock of Holdings and the tax basis of ExpressJet's tangible and intangible assets were increased to fair value. This increase in basis has resulted in the utilization of a substantial amount of ExpressJet's state net operating loss carryovers and our federal and state net operating losses. The increased tax basis should result in additional tax deductions available to ExpressJet over a period of 15 years. To the extent ExpressJet generates taxable income sufficient to realize the additional tax deductions, it will be required to pay us a percentage of the amount of tax savings actually realized, excluding the effect of any loss carrybacks. ExpressJet will be required to pay us 100% of the first third of the anticipated tax benefit, 90% of the second third, and 80% of the last third. However, if the anticipated benefits are not realized by the end of 2018, ExpressJet will be obligated to pay us 100% of any benefits realized after that date. We will not recognize for accounting purposes the benefit of the tax savings associated with ExpressJet's asset step-up until paid to us by ExpressJet due to the uncertainty of realization.

Employees. A collective bargaining agreement between us and our mechanics (who are represented by the International Brotherhood of Teamsters ("Teamsters")) became amendable in January 2002, and additional agreements between each of us and ExpressJet and our respective pilots (who are represented by the Air Line Pilots Association International ("ALPA")) are amendable in October 2002. In addition, collective bargaining agreements between our wholly owned subsidiary, Continental Micronesia, Inc. ("CMI"), and its mechanics and fleet and passenger service employees (represented by the Teamsters) became amendable in March 2001. Negotiations were deferred due to the continuing economic uncertainty following the September 11, 2001 terrorist attacks. Negotiations recommenced with the Teamsters in the first quarter of 2002. The parties jointly requested mediation assistance from the National Mediation Board, and will resume negotiations with a mediator on July 19, 2002. Negotiations commenced with ALPA on July 16, 2002.

Outlook. Based on current information and trends (including currently anticipated unit costs), we expect to incur a significant loss for the full year 2002. Although load factors have improved, they have done so against significantly reduced capacity. The reduced capacity, coupled with the fact that many of our costs are fixed in the intermediate to long term, will continue to drive higher unit costs. Cost per available seat mile for 2002 is expected to increase 1%, holding fuel rate constant, as compared to 2001. We expect to reduce commission expense by approximately $100 million on an annual basis as a result of changes to our commission structure. Business traffic in most markets continues to be weak, and carriers continue to offer reduced fares to attract passengers, which lowers our passenger revenue and yields and raises our breakeven load factor. We cannot predict if or when business traffic or yields will increase.

We believe that our costs are likely to be affected in the future by (i) increased expenses as a result of the targeted operating margin under the capacity purchase agreement as well as capacity purchase payments if and when we deconsolidate (see Note 3), (ii) higher aircraft ownership costs as new aircraft are delivered, (iii) higher wages, salaries, benefits and related costs as we reach new union agreements, partially offset by savings realized through employee furloughs, company-offered leaves of absence, retirements and cancellation of open positions, (iv) changes in the costs of materials and services (in particular, the cost of fuel, which can fluctuate significantly in response to global market conditions, and insurance and security costs, which have already increased significantly since the September 11, 2001 terrorist attacks), (v) changes in distribution costs and structure, (vi) changes in governmental regulations and taxes affecting air transportation and the costs charged for airport access, including landing fees and new security requirements, (vii) changes in our fleet and related capacity and (viii) our continuing efforts to reduce costs throughout our operations, including reduced maintenance costs for new aircraft, reduced distribution expense from using electronic ticketing and the internet for bookings, reduced capital spending, and continuing to remove non-value added costs from the system. However, the precise impact of these items is not known at this time.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

There have been no material changes in market risk from the information provided in Item 7A. Quantitative and Qualitative Disclosures About Market Risk in our 2001 10-K except as follows:

Our results of operations are significantly impacted by changes in the price of aircraft fuel. Aircraft fuel accounted for 11.9%, 14.4%, 10.9%, and 14.5% of our operating expenses (excluding fleet disposition/impairment losses and Stabilization Act grant adjustment) for the three months ended June 30, 2002 and 2001 and the six months ended June 30, 2002 and 2001, respectively. From time to time, we enter into petroleum call options, petroleum swap contracts and jet fuel purchase commitments to provide short-term protection (generally three to nine months) against a sharp increase in jet fuel prices. Our fuel hedging strategy may limit our ability to benefit from certain fuel price declines. As of June 30, 2002, we had hedged approximately 50% of our remaining 2002 projected fuel requirements using petroleum call options. We had no fuel hedges in place as of June 30, 2001. We estimate that a 10% increase in the price per gallon of aircraft fuel would increase the fair value of petroleum call options existing at June 30, 2002 by $14.5 million.

 

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

 
   

None.

Item 2. Changes in Securities and Use of Proceeds.

 

None.

Item 3. Defaults Upon Senior Securities.

 

None.

Item 4. Submission of Matters to a Vote of Security Holders.

The Company's Annual Meeting of Stockholders was held on April 17, 2002. The following individuals were elected to the Company's Board of Directors to hold office for the ensuing year:

NOMINEE

VOTES FOR 

VOTES WITHHELD

     

Thomas J. Barrack, Jr.

51,953,497

37,642

Gordon M. Bethune

49,188,376

2,802,763

David Bonderman

51,680,983

310,156

Kirbyjon H. Caldwell

51,952,880

38,259

Patrick Foley

51,813,243

177,896

Lawrence W. Kellner

49,190,505

2,800,634

Douglas H. McCorkindale

51,956,528

34,611

George G. C. Parker

51,957,982

33,157

Richard W. Pogue

51,939,695

51,444

William S. Price III

51,825,274

165,865

Donald L. Sturm

51,814,637

176,502

Karen Hastie Williams

51,705,849

285,290

Charles A. Yamarone

51,954,490

36,649

A proposal to ratify the appointment of Ernst & Young LLP as the Company's independent auditors for the fiscal year ending December 31, 2002 was voted on by the stockholders as follows:

  Votes For  

Votes Against

Votes Abstaining

Broker Non-Votes

       

50,169,286

1,797,723

24,130

-

Item 5. Other Information.

 

None.

Item 6. Exhibits and Reports on Form 8-K.

 

(a) Exhibits:

10.1

Letter agreement dated April 9, 2002 between Continental Airlines, Inc. ("Continental") and Gordon M. Bethune.

10.2

Letter agreement dated April 9, 2002 between Continental and Lawrence W. Kellner.

10.3

Letter agreement dated April 9, 2002 between Continental and C.D. McLean.

10.4

Letter agreement dated April 9, 2002 between Continental and Jeffery A. Smisek.

10.5

Letter agreement dated April 9, 2002 between Continental and Michael H. Campbell.

10.6

Special Bonus Program for Key Management for the First Quarter of 2002.

10.7

Special Bonus Program for Key Management for the Second, Third and Fourth Quarters of 2002.

10.8

Continental Airlines, Inc. Long Term Incentive Performance Award Program, as amended and restated through April 9, 2002.

10.9

Form of Restricted Stock Agreement pursuant to the Continental Airlines, Inc. 1997 Stock Incentive Plan.

10.10

Form of Restricted Stock Agreement pursuant to the Continental Airlines, Inc. 1998 Stock Incentive Plan.

10.11

Amended and Restated Capacity Purchase Agreement among Continental, ExpressJet Holdings, Inc., XJT Holdings, Inc. and ExpressJet Airlines, Inc. dated April 17, 2002.

10.12

Supplemental Agreement No. 9 to Purchase Agreement No. 2061 between Continental and The Boeing Company ("Boeing") and relating to the purchase of Boeing 777 aircraft, dated June 25, 2002.

(b) Reports on Form 8-K:

    1. Report dated March 25, 2002, reporting Item 7. "Financial Statements and Exhibits". No financial statements were filed with the report, which included the incorporation of certain documents by reference as they relate to our offering of Class G-1 and Class G-2 Pass Through Certificates, Series 2002-1.
 

  • Report dated April 1, 2002, reporting Item 5. "Other Events". No financial statements were filed with the report, which included a press release reporting our March 2002 performance.
  •  

  • Report dated April 16, 2002, reporting Item 5. "Other Events". No financial statements were filed with the report, which included certain forward-looking information and certain statistical information.
  •  

  • Report dated May 1, 2002, reporting Item 5. "Other Events". No financial statements were filed with the report, which included a press release reporting our April 2002 performance.
  •  

  • Report dated May 22, 2002, reporting Item 9. "Regulation FD Disclosure". No financial statements were furnished with this report, which included exhibits related to data being presented by some of its executive officers at a conference, including certain forward-looking information.
  •  

  • Report dated June 3, 2002, reporting Item 5. "Other Events". No financial statements were filed with the report, which included a press release reporting our May 2002 performance and our estimated consolidated breakeven load factor for June 2002.
  •  

  • Report dated June 10, 2002, reporting Item 5. "Other Events". No financial statements were filed with the report, which included certain forward-looking information and certain statistical information.
  •  

  • Report dated June 11, 2002, reporting Item 9. "Regulation FD Disclosure". No financial statements were furnished with this report, which included exhibits related to data being presented by some of its executive officers at a conference, including certain forward-looking information.
  •  

     

    SIGNATURES

     

    Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

    CONTINENTAL AIRLINES, INC.

    (Registrant)

     

     

     

     

    Date: July 18, 2002

    by:  /s/ Jeffrey J. Misner                    

    Jeffrey J. Misner

    Senior Vice President and

    Chief Financial Officer

     

    (Principal Financial Officer)

     

    (On behalf of Registrant)

     

     

    Date: July 18, 2002

    by:  /s/ Chris Kenny                      

    Chris Kenny

    Staff Vice President and Controller

     

    (Principal Accounting Officer)

     

    INDEX TO EXHIBITS

    OF

    CONTINENTAL AIRLINES, INC.

     
     

    10.1

    Letter agreement dated April 9, 2002 between Continental Airlines, Inc. ("Continental") and Gordon M. Bethune.

    10.2

    Letter agreement dated April 9, 2002 between Continental and Lawrence W. Kellner.

    10.3

    Letter agreement dated April 9, 2002 between Continental and C.D. McLean.

    10.4

    Letter agreement dated April 9, 2002 between Continental and Jeffery A. Smisek.

    10.5

    Letter agreement dated April 9, 2002 between Continental and Michael H. Campbell.

    10.6

    Special Bonus Program for Key Management for the First Quarter of 2002.

    10.7

    Special Bonus Program for Key Management for the Second, Third and Fourth Quarters of 2002.

    10.8

    Continental Airlines, Inc. Long Term Incentive Performance Award Program, as amended and restated through April 9, 2002.

    10.9

    Form of Restricted Stock Agreement pursuant to the Continental Airlines, Inc. 1997 Stock Incentive Plan.

    10.10

    Form of Restricted Stock Agreement pursuant to the Continental Airlines, Inc. 1998 Stock Incentive Plan.

    10.11

    Amended and Restated Capacity Purchase Agreement among Continental, ExpressJet Holdings, Inc., XJT Holdings, Inc. and ExpressJet Airlines, Inc. dated April 17, 2002. (1)

    10.12

    Supplemental Agreement No. 9 to Purchase Agreement No. 2061 between Continental and The Boeing Company ("Boeing") and relating to the purchase of Boeing 777 aircraft, dated June 25, 2002. (1)

    __________________________

    (1) The Company has applied to the Commission for confidential treatment for a portion of this exhibit.

     

    February 20, 202

    EXHIBIT 10.1

    CONTINENTAL AIRLINES, INC.

    1600 SMITH

    HOUSTON, TX 77002

    April 9, 2002

    Dear Mr. Bethune:

    You currently have Flight Benefits and a supplemental executive retirement plan pursuant to your employment agreement with Continental Airlines, Inc. (the "Company") or a subsidiary of the Company.

    The Human Resources Committee of the Board of Directors has authorized the amendment of your Flight Benefits and your supplemental executive retirement plan as set forth in this letter agreement.

    Your Flight Benefits and your supplemental executive retirement benefits are modified as follows:

    1. The Company agrees that each of your spouse and your children will receive lifetime Platinum Elite OnePass Cards (or similar highest category successor frequent flyer cards) in their names for use on the CO system, and (subject to the terms and conditions of membership, including minimum age requirements) lifetime membership in the Company's President's Club (or any successor program maintained in the CO system).
    2. Upon your death, your surviving spouse and children will be permitted, in the aggregate, to continue to use (in the proportions specified in your last will and testament or, if not so specified or if you die intestate, in equal proportions) your Flight Benefits on the CO system (out of any amounts unused by you at the date of your death) for up to a total amount of $100,000 in value of flights (in any fare class) on the CO system, valued identically to the valuation of flights as currently contained in your Flight Benefits, which amount shall adjust automatically upon any change in the valuation methodology, from and after the date hereof, for imputed income from flights (as compared with the valuation methodology for imputed income from flights used by the Company as of the date hereof), so as to preserve the benefit of $100,000 of flights relative to the valuations resulting from the valuation methodology used by the Company as of the date hereof (e.g., if a change in the valuation methodology results, on average, in such flights being valued 10% higher than the valuation that would result using the valuation methodology used by the Company as of the date hereof, then such amount would be increased by 10% to $110,000). The Company will promptly notify you in writing of any adjustments to such amount.
    3. You agree that your Flight Benefits are intended to be used principally for personal reasons and may not be used for business purposes (other than business purposes on behalf of the Company, and other than business usage that is incidental or de minimus, defined as amounting to less than 10% of the total value (valued as described in paragraph 2 above) of flights on the CO System charged to your UATP card (or any Similar Card) during any year), and that credit availability on your UATP card (or any Similar Card) may be suspended if your UATP card (or any Similar Card) is used for business purposes other than as described above and, after receiving written notice from the Company to cease such usage, you continue to use your UATP card (or any Similar Card) for such business purposes.
    4. Section 3.5 of your employment agreement (your supplemental executive retirement plan) is hereby amended to read in its entirety as follows:

    "3.5 Supplemental Executive Retirement Plan.

    (i) Base Benefit. Company agrees to pay Executive the deferred compensation benefits set forth in this paragraph 3.5 as a supplemental retirement plan (the "Plan"). The base retirement benefit under the Plan (the "Base Benefit") shall be in the form of an annual straight life annuity in an amount equal to the product of (a) 2.5% times (b) the number of Executive's credited years of service (as defined below) under the Plan (but not in excess of 30 years) times (c) the Executive's final average compensation (as defined below). For purposes hereof, Executive's credited years of service under the Plan shall be equal to the sum of (1) the number of Executive's years of benefit service with Company, calculated as set forth in the Continental Retirement Plan (the "CARP") beginning at January 1, 1995 ("Actual Years of Service"), (2) an additional four years of service for each one year of service credited to Executive pursuant to clause (1) of this sentence for the period beginning on January 1, 2000 and ending on December 31, 2004, and (3) if the Termination Payment becomes payable to Executive under this Agreement or if Executive's employment is terminated for a reason encompassed by paragraphs 2.2(i) or 2.2(ii), that number of additional years of service as is equal to (X) 28 years minus (Y) three times the number of full calendar years which have occurred during the period beginning January 1, 2000 and ending on the earlier of (i) the date that the Termination Payment under this Agreement first becomes payable to Executive or (ii) December 31, 2004. For purposes hereof, Executive's final average compensation shall be equal to the greater of (A) $1,042,500.00 or (B) the average of the five highest annual cash compensation amounts (or, if Executive has been employed less than five years by Company, the average over the full years employed by Company) paid to Executive by Company during the consecutive ten calendar years immediately preceding Executive's termination of employment at retirement or otherwise. For purposes hereof, cash compensation shall include base salary plus cash bonuses (including any amounts deferred (other than Stay Bonus amounts described below) pursuant to any deferred compensation plan of the Company), but shall exclude (i) any cash bonus paid on or prior to March 31, 1995, (ii) any Stay Bonus paid to Executive pursuant to that certain Stay Bonus Agreement between Company and Executive dated as of April 14, 1998, (iii) any Termination Payment or Existing Severance paid to Executive under this Agreement, (iv) any payments received by Executive under Company's Officer Retention and Incentive Award Program, (v) any proceeds to Executive from any awards under any option, stock incentive or similar plan of Company, and (vi) any cash bonus paid under a long term incentive plan or program adopted by Company. Executive shall be vested immediately with respect to benefits due under the Plan.

    (ii) Offset for CARP or Other Benefit. Any provisions of the Plan to the contrary notwithstanding, the Base Benefit shall be reduced by the actuarial equivalent (as defined below) of the pension benefit, if any, paid or payable to Executive from the CARP or from any other defined benefit nonqualified supplemental retirement plan provided to Executive by Company. In making such reduction, the Base Benefit and the benefit paid or payable under the CARP or any such other defined benefit nonqualified supplemental retirement plan shall be determined under the provisions of each plan as if payable in the form of an annual straight life annuity beginning on the Retirement Date (as defined below). The net benefit payable under this Plan shall then be actuarially adjusted based on the actuarial assumptions set forth in paragraph 3.5(vii) for the actual time and form of payments.

    (iii) Normal and Early Retirement Benefits. Executive's benefit under the Plan shall be payable in equal monthly installments beginning on the first day of the month following the Retirement Date (the "Normal Retirement Benefit") or, at Executive's written election made not less than 15 days prior to the Retirement Date, in a lump-sum on the first day of such month in an amount equal to the Lump-Sum Payment less 10% of such sum (provided, however, that the HR Committee may, in its sole and absolute discretion, waive all or any part of such 10% reduction). For purposes hereof, "Retirement Date" is defined as the later of (a) the date on which Executive attains (or in the event of Executive's earlier death, would have attained) age 60 or (b) the date of Executive's retirement from employment with Company. Notwithstanding the foregoing, if Executive's employment with Company is terminated, for a reason other than death, on or after the date Executive attains age 55 or is credited with 10 Actual Years of Service and prior to the Retirement Date, then Executive shall be entitled to elect to receive the Lump-Sum Payment or commence to receive Executive's monthly installment benefit under the Plan, in either case as of the first day of any month coinciding with or next following Executive's termination of employment, or as the first day of any subsequent month preceding the Retirement Date (an "Early Retirement Benefit"); provided, however, that (1) written notice of such election must be received by Company not less than 15 days prior to the proposed date of commencement of the monthly installment benefit (or the date of payment, in the case of a Lump-Sum Payment), (2) each monthly installment payment under an Early Retirement Benefit, or the amount of the Lump-Sum Payment, as the case may be, shall be reduced to the extent necessary to cause the value of such Early Retirement Benefit (determined without regard to clause (3) of this proviso) to be the actuarial equivalent of the value of the Normal Retirement Benefit (in each case based on the actuarial assumptions set forth in paragraph 3.5(vii) and adjusted for the actual time and form of payments), and (3) each monthly installment payment under an Early Retirement Benefit that is made prior to the Retirement Date, or the Lump-Sum Payment, as the case may be, shall be reduced by an additional 10% of the amount of such payment as initially determined pursuant to clause (2) of this proviso. The HR Committee may, in its sole and absolute discretion, waive all or any part of the reductions contemplated in clauses (2) and/or (3) of the proviso of the preceding sentence. As used herein, "Lump-Sum Payment" shall mean the lump-sum actuarial equivalent of the value of the Normal Retirement Benefit, based on the actuarial assumptions set forth in paragraph 3.5(vii) and adjusted for the actual time of payment.

    (iv) Form of Retirement Benefit. If Executive is not married on the date Executive's benefit under paragraph 3.5(iii) commences, then benefits under the Plan will be paid to Executive in the form of a single life annuity for the life of Executive (unless Executive elects a Lump-Sum Payment, in which case benefits under the Plan will be paid in cash in a lump-sum). If Executive is married on the date Executive's benefit under paragraph 3.5(iii) commences, then benefits under the Plan will be paid to Executive (unless Executive has elected a Lump-Sum Payment), at the written election of Executive made at least 15 days prior to the first payment of benefits under the Plan, in either (1) the form of a single life annuity for the life of Executive, or (2) the form of a joint and survivor annuity that is actuarially equivalent to the benefit that would have been payable under the Plan to Executive if Executive was not married on such date, with Executive's spouse as of the date benefit payments commence being entitled during such spouse's lifetime after Executive's death to a benefit equal to 50% of the benefit payable to Executive during their joint lifetimes. If Executive fails to make such election and does not make an election to receive a Lump-Sum Payment, Executive will be deemed to have elected a joint and survivor annuity.

    (v) Death Benefit. Except as provided in this paragraph 3.5(v), no benefits shall be paid under the Plan if Executive dies prior to the date Executive's benefit commences pursuant to paragraph 3.5(iii). In the event of Executive's death prior to the commencement of Executive's benefit pursuant to paragraph 3.5(iii), Executive's surviving spouse, if Executive is married on the date of Executive's death, will receive, at such spouse's written election made within 90 days after Executive's death, either (A) a single life annuity consisting of monthly payments for the life of such surviving spouse determined as follows: (a) if Executive dies on or before reaching the Retirement Date, the death benefit such spouse would have received had Executive terminated employment on the earlier of Executive's actual date of termination of employment or Executive's date of death, survived until the Retirement Date, elected a joint and survivor annuity and began to receive Executive's Plan benefit beginning immediately at the Retirement Date, and died on the day after the Retirement Date; or (b) if Executive dies after reaching the Retirement Date, the death benefit such spouse would have received had Executive elected a joint and survivor annuity and begun to receive Executive's Plan benefit beginning on the day prior to Executive's death, or (B) a Spousal Lump-Sum Payment less 10% of such sum (provided, however, that the HR Committee may, in its sole and absolute discretion, waive all or any part of such 10% reduction), which shall be paid as a lump-sum in cash on the date that the first payment of the single life annuity described in clause (A) of this sentence would have been paid if the surviving spouse had elected to receive such single life annuity. As used herein, "Spousal Lump-Sum Payment" shall mean the lump-sum actuarial equivalent of the value of the single life annuity described in clause (A) of the foregoing sentence, based on the actuarial assumptions set forth in paragraph 3.5(vii) and adjusted for the actual time of payment. Payment of such survivor annuity, if so elected, shall begin on the first day of the month following the later of (1) Executive's date of death or (2) the Retirement Date; provided, however, that if Executive was eligible to elect an Early Retirement Benefit as of the date of Executive's death, then Executive's surviving spouse shall be entitled to elect to receive the Spousal Lump-Sum Payment or commence to receive such survivor annuity as of the first day of the month next following the date of Executive's death, or as the first day of any subsequent month preceding the Retirement Date. Notice of such election must be received by Company not less than 15 days prior to the proposed date of commencement of the benefit or payment of the Spousal Lump-Sum Payment, as the case may be, and each payment of such survivor annuity, or the amount of the Spousal Lump-Sum Payment, as the case may be, shall be reduced based on the principles used for the reductions described in clauses (2) and (3) of the proviso to the third sentence of paragraph 3.5(iii). If such surviving spouse fails to make an election to receive a Spousal Lump-Sum Payment, the surviving spouse will be deemed to have elected to receive the survivor annuity.

    (vi) Unfunded Benefit. The Plan is intended to constitute an unfunded, unsecured plan of deferred compensation. Further, it is the intention of Company that the Plan be unfunded for purposes of the Internal Revenue Code of 1986, as amended, and Title I of the Employee Retirement Income Security Act of 1974, as amended. The Plan constitutes a mere promise by Company to make benefit payments in the future. Plan benefits hereunder provided are to be paid out of Company's general assets, and Executive shall have the status of, and shall have no better status than, a general unsecured creditor of Company. Executive understands that he must rely upon the general credit of Company for payment of benefits under the Plan. Company shall establish a "rabbi" trust to assist Company in meeting its obligations under the Plan. The trustee of such trust shall be a nationally-recognized and solvent bank or trust company that is not affiliated with Company. Company shall transfer to the trustee money and/or other property determined in the sole discretion of the HR Committee based on the advice of the Actuary (as defined below) on an as-needed basis in order to assure that the benefit payable under the Plan is at all times fully funded. The trustee shall pay Plan benefits to Executive and/or Executive's spouse out of the trust assets if such benefits are not paid by Company. Company shall remain the owner of all assets in the trust, and the assets shall be subject to the claims of Company creditors in the event (and only in the event) Company ever becomes insolvent. Neither Executive nor any beneficiary of Executive shall have any preferred claim to, any security interest in, or any beneficial ownership interest in any assets of the trust. Company has not and will not in the future set aside assets for security or enter into any other arrangement which will cause the obligation created to be other than a general corporate obligation of Company or will cause Executive to be more than a general creditor of Company.

    (vii) Actuarial Equivalent. For purposes of the Plan, the terms "actuarial equivalent", or "actuarially equivalent" when used with respect to a specified benefit shall mean the amount of benefit of the referenced different type or payable at the referenced different age that can be provided at the same cost as such specified benefit, as computed by the Actuary and certified to Executive (or, in the case of Executive's death, to his spouse) by the Actuary. The actuarial assumptions used under the Plan to determine equivalencies between different forms and times of payment shall be the same as the actuarial assumptions then used in determining benefits payable under the CARP; provided, however, that with respect to the discount rate used to calculate a Lump-Sum Payment or a Spousal Lump-Sum Payment, the discount rate shall be the Aa Corporate Bond Rate. The term "Actuary" shall mean the individual actuary or actuarial firm selected by Company to service its pension plans generally or if no such individual or firm has been selected, an individual actuary or actuarial firm appointed by Company and reasonably satisfactory to Executive and/or Executive's spouse. The term "Aa Corporate Bond Rate" shall mean the average of the Moody's daily long-term corporate bond yield averages for Aa-rated corporate bonds published by Moody's Investors Service, for the three-month period ending on the last day of the second month preceding the date of the applicable election to receive a Lump-Sum Payment or a Spousal Lump-Sum Payment, as determined by the Actuary (or, if such yield information is no longer so published, then the average of the daily corporate bond yields for a comparable sample of Aa-rated corporate bonds of comparable tenor determined in good faith by the Actuary). Upon request, Company shall cause the Actuary to compute the Aa Corporate Bond Rate for a specified period and the amount of the applicable annuity, Lump-Sum Payment or Spousal Lump-Sum Payment for Executive (or, in the case of Executive's death, his spouse) and shall deliver such information to Executive or such spouse.

    (viii) Medicare Payroll Taxes. Company shall indemnify Executive on a fully grossed-up, after-tax basis for any Medicare payroll taxes (plus any income taxes on such indemnity payments) incurred by Executive in connection with the accrual and/or payment of benefits under the Plan."

    Capitalized terms (and the term "CO system") used in this letter agreement are used with the same meanings ascribed to them in your employment agreement.

    If you agree with the foregoing, please sign the enclosed copy of this letter agreement, whereby this letter agreement shall be a binding agreement between you and the Company and shall amend your employment agreement accordingly.

    Sincerely,

    CONTINENTAL AIRLINES, INC.

     

    By:________________________

    Michael H. Campbell

    Senior Vice President - Human Resources and Labor Relations

    Agreed:

    _____________________

    Gordon M. Bethune

    February 20, 202

    EXHIBIT 10.2

    CONTINENTAL AIRLINES, INC.

    1600 SMITH

    HOUSTON, TX 77002

    April 9, 2002

    Dear Mr. Kellner:

    You currently have Flight Benefits and a supplemental executive retirement plan pursuant to your employment agreement with Continental Airlines, Inc. (the "Company") or a subsidiary of the Company.

    The Human Resources Committee of the Board of Directors has authorized the amendment of your Flight Benefits and your supplemental executive retirement plan as set forth in this letter agreement.

    Your Flight Benefits and your supplemental executive retirement benefits are modified as follows:

    1. The Company agrees that each of your spouse and your children will receive lifetime Platinum Elite OnePass Cards (or similar highest category successor frequent flyer cards) in their names for use on the CO system, and (subject to the terms and conditions of membership, including minimum age requirements) lifetime membership in the Company's President's Club (or any successor program maintained in the CO system).
    2. Upon your death, your surviving spouse and children will be permitted, in the aggregate, to continue to use (in the proportions specified in your last will and testament or, if not so specified or if you die intestate, in equal proportions) your Flight Benefits on the CO system (out of any amounts unused by you at the date of your death) for up to a total amount of $100,000 in value of flights (in any fare class) on the CO system, valued identically to the valuation of flights as currently contained in your Flight Benefits, which amount shall adjust automatically upon any change in the valuation methodology, from and after the date hereof, for imputed income from flights (as compared with the valuation methodology for imputed income from flights used by the Company as of the date hereof), so as to preserve the benefit of $100,000 of flights relative to the valuations resulting from the valuation methodology used by the Company as of the date hereof (e.g., if a change in the valuation methodology results, on average, in such flights being valued 10% higher than the valuation that would result using the valuation methodology used by the Company as of the date hereof, then such amount would be increased by 10% to $110,000). The Company will promptly notify you in writing of any adjustments to such amount.
    3. You agree that your Flight Benefits are intended to be used principally for personal reasons and may not be used for business purposes (other than business purposes on behalf of the Company, and other than business usage that is incidental or de minimus, defined as amounting to less than 10% of the total value (valued as described in paragraph 2 above) of flights on the CO System charged to your UATP card (or any Similar Card) during any year), and that credit availability on your UATP card (or any Similar Card) may be suspended if your UATP card (or any Similar Card) is used for business purposes other than as described above and, after receiving written notice from the Company to cease such usage, you continue to use your UATP card (or any Similar Card) for such business purposes.
    4. Section 3.5 of your employment agreement (your supplemental executive retirement plan) is hereby amended to read in its entirety as follows:

    "3.5 Supplemental Executive Retirement Plan.

    (i) Base Benefit. Company agrees to pay Executive the deferred compensation benefits set forth in this paragraph 3.5 as a supplemental retirement plan (the "Plan"). The base retirement benefit under the Plan (the "Base Benefit") shall be in the form of an annual straight life annuity in an amount equal to the product of (a) 2.5% times (b) the number of Executive's credited years of service (as defined below) under the Plan (but not in excess of 26 years) times (c) the Executive's final average compensation (as defined below). For purposes hereof, Executive's credited years of service under the Plan shall be equal to the sum of (1) the number of Executive's years of benefit service with Company, calculated as set forth in the Continental Retirement Plan (the "CARP") beginning at January 1, 1995 ("Actual Years of Service"), (2) an additional two years of service for each one year of service credited to Executive pursuant to clause (1) of this sentence for the period beginning on January 1, 2000 and ending on December 31, 2004, and (3) if the Termination Payment becomes payable to Executive under this Agreement or if Executive's employment is terminated for a reason encompassed by paragraphs 2.2(i) or 2.2(ii), that number of additional years of service as is equal to (X) 18 years minus (Y) three times the number of full calendar years which have occurred during the period beginning January 1, 2000 and ending on the earlier of (i) the date that the Termination Payment under this Agreement first becomes payable to Executive or (ii) December 31, 2004. For purposes hereof, Executive's final average compensation shall be equal to the greater of (A) $693,500.00 or (B) the average of the five highest annual cash compensation amounts (or, if Executive has been employed less than five years by Company, the average over the full years employed by Company) paid to Executive by Company during the consecutive ten calendar years immediately preceding Executive's termination of employment at retirement or otherwise. For purposes hereof, cash compensation shall include base salary plus cash bonuses (including any amounts deferred (other than Stay Bonus amounts described below) pursuant to any deferred compensation plan of the Company), but shall exclude (i) any cash bonus paid on or prior to March 31, 1995, (ii) any Stay Bonus paid to Executive pursuant to that certain Stay Bonus Agreement between Company and Executive dated as of April 14, 1998, (iii) any Termination Payment paid to Executive under this Agreement, (iv) any payments received by Executive under Company's Officer Retention and Incentive Award Program, (v) any proceeds to Executive from any awards under any option, stock incentive or similar plan of Company, and (vi) any cash bonus paid under a long term incentive plan or program adopted by Company. Executive shall be vested immediately with respect to benefits due under the Plan.

    (ii) Offset for CARP or Other Benefit. Any provisions of the Plan to the contrary notwithstanding, the Base Benefit shall be reduced by the actuarial equivalent (as defined below) of the pension benefit, if any, paid or payable to Executive from the CARP or from any other defined benefit nonqualified supplemental retirement plan provided to Executive by Company. In making such reduction, the Base Benefit and the benefit paid or payable under the CARP or any such other defined benefit nonqualified supplemental retirement plan shall be determined under the provisions of each plan as if payable in the form of an annual straight life annuity beginning on the Retirement Date (as defined below). The net benefit payable under this Plan shall then be actuarially adjusted based on the actuarial assumptions set forth in paragraph 3.5(vii) for the actual time and form of payments.

    (iii) Normal and Early Retirement Benefits. Executive's benefit under the Plan shall be payable in equal monthly installments beginning on the first day of the month following the Retirement Date (the "Normal Retirement Benefit") or, at Executive's written election made not less than 15 days prior to the Retirement Date, in a lump-sum on the first day of such month in an amount equal to the Lump-Sum Payment less 10% of such sum (provided, however, that the HR Committee may, in its sole and absolute discretion, waive all or any part of such 10% reduction). For purposes hereof, "Retirement Date" is defined as the later of (a) the date on which Executive attains (or in the event of Executive's earlier death, would have attained) age 60 or (b) the date of Executive's retirement from employment with Company. Notwithstanding the foregoing, if Executive's employment with Company is terminated, for a reason other than death, on or after the date Executive attains age 55 or is credited with 10 Actual Years of Service and prior to the Retirement Date, then Executive shall be entitled to elect to receive the Lump-Sum Payment or commence to receive Executive's monthly installment benefit under the Plan, in either case as of the first day of any month coinciding with or next following Executive's termination of employment, or as the first day of any subsequent month preceding the Retirement Date (an "Early Retirement Benefit"); provided, however, that (1) written notice of such election must be received by Company not less than 15 days prior to the proposed date of commencement of the monthly installment benefit (or the date of payment, in the case of a Lump-Sum Payment), (2) each monthly installment payment under an Early Retirement Benefit, or the amount of the Lump-Sum Payment, as the case may be, shall be reduced to the extent necessary to cause the value of such Early Retirement Benefit (determined without regard to clause (3) of this proviso) to be the actuarial equivalent of the value of the Normal Retirement Benefit (in each case based on the actuarial assumptions set forth in paragraph 3.5(vii) and adjusted for the actual time and form of payments), and (3) each monthly installment payment under an Early Retirement Benefit that is made prior to the Retirement Date, or the Lump-Sum Payment, as the case may be, shall be reduced by an additional 10% of the amount of such payment as initially determined pursuant to clause (2) of this proviso. The HR Committee may, in its sole and absolute discretion, waive all or any part of the reductions contemplated in clauses (2) and/or (3) of the proviso of the preceding sentence. As used herein, "Lump-Sum Payment" shall mean the lump-sum actuarial equivalent of the value of the Normal Retirement Benefit, based on the actuarial assumptions set forth in paragraph 3.5(vii) and adjusted for the actual time of payment.

    (iv) Form of Retirement Benefit. If Executive is not married on the date Executive's benefit under paragraph 3.5(iii) commences, then benefits under the Plan will be paid to Executive in the form of a single life annuity for the life of Executive (unless Executive elects a Lump-Sum Payment, in which case benefits under the Plan will be paid in cash in a lump-sum). If Executive is married on the date Executive's benefit under paragraph 3.5(iii) commences, then benefits under the Plan will be paid to Executive (unless Executive has elected a Lump-Sum Payment), at the written election of Executive made at least 15 days prior to the first payment of benefits under the Plan, in either (1) the form of a single life annuity for the life of Executive, or (2) the form of a joint and survivor annuity that is actuarially equivalent to the benefit that would have been payable under the Plan to Executive if Executive was not married on such date, with Executive's spouse as of the date benefit payments commence being entitled during such spouse's lifetime after Executive's death to a benefit equal to 50% of the benefit payable to Executive during their joint lifetimes. If Executive fails to make such election and does not make an election to receive a Lump-Sum Payment, Executive will be deemed to have elected a joint and survivor annuity.

    (v) Death Benefit. Except as provided in this paragraph 3.5(v), no benefits shall be paid under the Plan if Executive dies prior to the date Executive's benefit commences pursuant to paragraph 3.5(iii). In the event of Executive's death prior to the commencement of Executive's benefit pursuant to paragraph 3.5(iii), Executive's surviving spouse, if Executive is married on the date of Executive's death, will receive, at such spouse's written election made within 90 days after Executive's death, either (A) a single life annuity consisting of monthly payments for the life of such surviving spouse determined as follows: (a) if Executive dies on or before reaching the Retirement Date, the death benefit such spouse would have received had Executive terminated employment on the earlier of Executive's actual date of termination of employment or Executive's date of death, survived until the Retirement Date, elected a joint and survivor annuity and began to receive Executive's Plan benefit beginning immediately at the Retirement Date, and died on the day after the Retirement Date; or (b) if Executive dies after reaching the Retirement Date, the death benefit such spouse would have received had Executive elected a joint and survivor annuity and begun to receive Executive's Plan benefit beginning on the day prior to Executive's death, or (B) a Spousal Lump-Sum Payment less 10% of such sum (provided, however, that the HR Committee may, in its sole and absolute discretion, waive all or any part of such 10% reduction), which shall be paid as a lump-sum in cash on the date that the first payment of the single life annuity described in clause (A) of this sentence would have been paid if the surviving spouse had elected to receive such single life annuity. As used herein, "Spousal Lump-Sum Payment" shall mean the lump-sum actuarial equivalent of the value of the single life annuity described in clause (A) of the foregoing sentence, based on the actuarial assumptions set forth in paragraph 3.5(vii) and adjusted for the actual time of payment. Payment of such survivor annuity, if so elected, shall begin on the first day of the month following the later of (1) Executive's date of death or (2) the Retirement Date; provided, however, that if Executive was eligible to elect an Early Retirement Benefit as of the date of Executive's death, then Executive's surviving spouse shall be entitled to elect to receive the Spousal Lump-Sum Payment or commence to receive such survivor annuity as of the first day of the month next following the date of Executive's death, or as the first day of any subsequent month preceding the Retirement Date. Notice of such election must be received by Company not less than 15 days prior to the proposed date of commencement of the benefit or payment of the Spousal Lump-Sum Payment, as the case may be, and each payment of such survivor annuity, or the amount of the Spousal Lump-Sum Payment, as the case may be, shall be reduced based on the principles used for the reductions described in clauses (2) and (3) of the proviso to the third sentence of paragraph 3.5(iii). If such surviving spouse fails to make an election to receive a Spousal Lump-Sum Payment, the surviving spouse will be deemed to have elected to receive the survivor annuity.

    (vi) Unfunded Benefit. The Plan is intended to constitute an unfunded, unsecured plan of deferred compensation. Further, it is the intention of Company that the Plan be unfunded for purposes of the Internal Revenue Code of 1986, as amended, and Title I of the Employee Retirement Income Security Act of 1974, as amended. The Plan constitutes a mere promise by Company to make benefit payments in the future. Plan benefits hereunder provided are to be paid out of Company's general assets, and Executive shall have the status of, and shall have no better status than, a general unsecured creditor of Company. Executive understands that he must rely upon the general credit of Company for payment of benefits under the Plan. Company shall establish a "rabbi" trust to assist Company in meeting its obligations under the Plan. The trustee of such trust shall be a nationally-recognized and solvent bank or trust company that is not affiliated with Company. Company shall transfer to the trustee money and/or other property determined in the sole discretion of the HR Committee based on the advice of the Actuary (as defined below) on an as-needed basis in order to assure that the benefit payable under the Plan is at all times fully funded. The trustee shall pay Plan benefits to Executive and/or Executive's spouse out of the trust assets if such benefits are not paid by Company. Company shall remain the owner of all assets in the trust, and the assets shall be subject to the claims of Company creditors in the event (and only in the event) Company ever becomes insolvent. Neither Executive nor any beneficiary of Executive shall have any preferred claim to, any security interest in, or any beneficial ownership interest in any assets of the trust. Company has not and will not in the future set aside assets for security or enter into any other arrangement which will cause the obligation created to be other than a general corporate obligation of Company or will cause Executive to be more than a general creditor of Company.

    (vii) Actuarial Equivalent. For purposes of the Plan, the terms "actuarial equivalent", or "actuarially equivalent" when used with respect to a specified benefit shall mean the amount of benefit of the referenced different type or payable at the referenced different age that can be provided at the same cost as such specified benefit, as computed by the Actuary and certified to Executive (or, in the case of Executive's death, to his spouse) by the Actuary. The actuarial assumptions used under the Plan to determine equivalencies between different forms and times of payment shall be the same as the actuarial assumptions then used in determining benefits payable under the CARP; provided, however, that with respect to the discount rate used to calculate a Lump-Sum Payment or a Spousal Lump-Sum Payment, the discount rate shall be the Aa Corporate Bond Rate. The term "Actuary" shall mean the individual actuary or actuarial firm selected by Company to service its pension plans generally or if no such individual or firm has been selected, an individual actuary or actuarial firm appointed by Company and reasonably satisfactory to Executive and/or Executive's spouse. The term "Aa Corporate Bond Rate" shall mean the average of the Moody's daily long-term corporate bond yield averages for Aa-rated corporate bonds published by Moody's Investors Service, for the three-month period ending on the last day of the second month preceding the date of the applicable election to receive a Lump-Sum Payment or a Spousal Lump-Sum Payment, as determined by the Actuary (or, if such yield information is no longer so published, then the average of the daily corporate bond yields for a comparable sample of Aa-rated corporate bonds of comparable tenor determined in good faith by the Actuary). Upon request, Company shall cause the Actuary to compute the Aa Corporate Bond Rate for a specified period and the amount of the applicable annuity, Lump-Sum Payment or Spousal Lump-Sum Payment for Executive (or, in the case of Executive's death, his spouse) and shall deliver such information to Executive or such spouse.

    (viii) Medicare Payroll Taxes. Company shall indemnify Executive on a fully grossed-up, after-tax basis for any Medicare payroll taxes (plus any income taxes on such indemnity payments) incurred by Executive in connection with the accrual and/or payment of benefits under the Plan."

    Capitalized terms (and the term "CO system") used in this letter agreement are used with the same meanings ascribed to them in your employment agreement.

    If you agree with the foregoing, please sign the enclosed copy of this letter agreement, whereby this letter agreement shall be a binding agreement between you and the Company and shall amend your employment agreement accordingly.

    Sincerely,

    CONTINENTAL AIRLINES, INC.

     

    By:________________________

    Michael H. Campbell

    Senior Vice President - Human Resources and Labor Relations

    Agreed:

    _____________________

    Lawrence W. Kellner

    February 20, 202

    EXHIBIT 10.3

    CONTINENTAL AIRLINES, INC.

    1600 SMITH

    HOUSTON, TX 77002

    April 9, 2002

    Dear Mr. McLean:

    You currently have Flight Benefits and a supplemental executive retirement plan pursuant to your employment agreement with Continental Airlines, Inc. (the "Company") or a subsidiary of the Company.

    The Human Resources Committee of the Board of Directors has authorized the amendment of your Flight Benefits and your supplemental executive retirement plan as set forth in this letter agreement.

    Your Flight Benefits and your supplemental executive retirement benefits are modified as follows:

    1. The Company agrees that each of your spouse and your children will receive lifetime Platinum Elite OnePass Cards (or similar highest category successor frequent flyer cards) in their names for use on the CO system, and (subject to the terms and conditions of membership, including minimum age requirements) lifetime membership in the Company's President's Club (or any successor program maintained in the CO system).
    2. Upon your death, your surviving spouse and children will be permitted, in the aggregate, to continue to use (in the proportions specified in your last will and testament or, if not so specified or if you die intestate, in equal proportions) your Flight Benefits on the CO system (out of any amounts unused by you at the date of your death) for up to a total amount of $100,000 in value of flights (in any fare class) on the CO system, valued identically to the valuation of flights as currently contained in your Flight Benefits, which amount shall adjust automatically upon any change in the valuation methodology, from and after the date hereof, for imputed income from flights (as compared with the valuation methodology for imputed income from flights used by the Company as of the date hereof), so as to preserve the benefit of $100,000 of flights relative to the valuations resulting from the valuation methodology used by the Company as of the date hereof (e.g., if a change in the valuation methodology results, on average, in such flights being valued 10% higher than the valuation that would result using the valuation methodology used by the Company as of the date hereof, then such amount would be increased by 10% to $110,000). The Company will promptly notify you in writing of any adjustments to such amount.
    3. You agree that your Flight Benefits are intended to be used principally for personal reasons and may not be used for business purposes (other than business purposes on behalf of the Company, and other than business usage that is incidental or de minimus, defined as amounting to less than 10% of the total value (valued as described in paragraph 2 above) of flights on the CO System charged to your UATP card (or any Similar Card) during any year), and that credit availability on your UATP card (or any Similar Card) may be suspended if your UATP card (or any Similar Card) is used for business purposes other than as described above and, after receiving written notice from the Company to cease such usage, you continue to use your UATP card (or any Similar Card) for such business purposes.
    4. Section 3.5 of your employment agreement (your supplemental executive retirement plan) is hereby amended to read in its entirety as follows:

    "3.5 Supplemental Executive Retirement Plan.

    (i) Base Benefit. Company agrees to pay Executive the deferred compensation benefits set forth in this paragraph 3.5 as a supplemental retirement plan (the "Plan"). The base retirement benefit under the Plan (the "Base Benefit") shall be in the form of an annual straight life annuity in an amount equal to the product of (a) 2.5% times (b) the number of Executive's credited years of service (as defined below) under the Plan (but not in excess of 26 years) times (c) the Executive's final average compensation (as defined below). For purposes hereof, Executive's credited years of service under the Plan shall be equal to the sum of (1) the number of Executive's years of benefit service with Company, calculated as set forth in the Continental Retirement Plan (the "CARP") beginning at January 1, 1995 ("Actual Years of Service"), (2) an additional two years of service for each one year of service credited to Executive pursuant to clause (1) of this sentence for the period beginning on January 1, 2000 and ending on December 31, 2004, and (3) if the Termination Payment becomes payable to Executive under this Agreement or if Executive's employment is terminated for a reason encompassed by paragraphs 2.2(i) or 2.2(ii), that number of additional years of service as is equal to (X) 18 years minus (Y) three times the number of full calendar years which have occurred during the period beginning January 1, 2000 and ending on the earlier of (i) the date that the Termination Payment under this Agreement first becomes payable to Executive or (ii) December 31, 2004. For purposes hereof, Executive's final average compensation shall be equal to the greater of (A) $451,500.00 or (B) the average of the five highest annual cash compensation amounts (or, if Executive has been employed less than five years by Company, the average over the full years employed by Company) paid to Executive by Company during the consecutive ten calendar years immediately preceding Executive's termination of employment at retirement or otherwise. For purposes hereof, cash compensation shall include base salary plus cash bonuses (including any amounts deferred (other than Stay Bonus amounts described below) pursuant to any deferred compensation plan of the Company), but shall exclude (i) any cash bonus paid on or prior to March 31, 1995, (ii) any Stay Bonus paid to Executive pursuant to that certain Stay Bonus Agreement between Company and Executive dated as of April 14, 1998, (iii) any Termination Payment paid to Executive under this Agreement, (iv) any payments received by Executive under Company's Officer Retention and Incentive Award Program, (v) any proceeds to Executive from any awards under any option, stock incentive or similar plan of Company, and (vi) any cash bonus paid under a long term incentive plan or program adopted by Company. Executive shall be vested immediately with respect to benefits due under the Plan.

    (ii) Offset for CARP or Other Benefit. Any provisions of the Plan to the contrary notwithstanding, the Base Benefit shall be reduced by the actuarial equivalent (as defined below) of the pension benefit, if any, paid or payable to Executive from the CARP or from any other defined benefit nonqualified supplemental retirement plan provided to Executive by Company. In making such reduction, the Base Benefit and the benefit paid or payable under the CARP or any such other defined benefit nonqualified supplemental retirement plan shall be determined under the provisions of each plan as if payable in the form of an annual straight life annuity beginning on the Retirement Date (as defined below). The net benefit payable under this Plan shall then be actuarially adjusted based on the actuarial assumptions set forth in paragraph 3.5(vii) for the actual time and form of payments.

    (iii) Normal and Early Retirement Benefits. Executive's benefit under the Plan shall be payable in equal monthly installments beginning on the first day of the month following the Retirement Date (the "Normal Retirement Benefit") or, at Executive's written election made not less than 15 days prior to the Retirement Date, in a lump-sum on the first day of such month in an amount equal to the Lump-Sum Payment less 10% of such sum (provided, however, that the HR Committee may, in its sole and absolute discretion, waive all or any part of such 10% reduction). For purposes hereof, "Retirement Date" is defined as the later of (a) the date on which Executive attains (or in the event of Executive's earlier death, would have attained) age 60 or (b) the date of Executive's retirement from employment with Company. Notwithstanding the foregoing, if Executive's employment with Company is terminated, for a reason other than death, on or after the date Executive attains age 55 or is credited with 10 Actual Years of Service and prior to the Retirement Date, then Executive shall be entitled to elect to receive the Lump-Sum Payment or commence to receive Executive's monthly installment benefit under the Plan, in either case as of the first day of any month coinciding with or next following Executive's termination of employment, or as the first day of any subsequent month preceding the Retirement Date (an "Early Retirement Benefit"); provided, however, that (1) written notice of such election must be received by Company not less than 15 days prior to the proposed date of commencement of the monthly installment benefit (or the date of payment, in the case of a Lump-Sum Payment), (2) each monthly installment payment under an Early Retirement Benefit, or the amount of the Lump-Sum Payment, as the case may be, shall be reduced to the extent necessary to cause the value of such Early Retirement Benefit (determined without regard to clause (3) of this proviso) to be the actuarial equivalent of the value of the Normal Retirement Benefit (in each case based on the actuarial assumptions set forth in paragraph 3.5(vii) and adjusted for the actual time and form of payments), and (3) each monthly installment payment under an Early Retirement Benefit that is made prior to the Retirement Date, or the Lump-Sum Payment, as the case may be, shall be reduced by an additional 10% of the amount of such payment as initially determined pursuant to clause (2) of this proviso. The HR Committee may, in its sole and absolute discretion, waive all or any part of the reductions contemplated in clauses (2) and/or (3) of the proviso of the preceding sentence. As used herein, "Lump-Sum Payment" shall mean the lump-sum actuarial equivalent of the value of the Normal Retirement Benefit, based on the actuarial assumptions set forth in paragraph 3.5(vii) and adjusted for the actual time of payment.

    (iv) Form of Retirement Benefit. If Executive is not married on the date Executive's benefit under paragraph 3.5(iii) commences, then benefits under the Plan will be paid to Executive in the form of a single life annuity for the life of Executive (unless Executive elects a Lump-Sum Payment, in which case benefits under the Plan will be paid in cash in a lump-sum). If Executive is married on the date Executive's benefit under paragraph 3.5(iii) commences, then benefits under the Plan will be paid to Executive (unless Executive has elected a Lump-Sum Payment), at the written election of Executive made at least 15 days prior to the first payment of benefits under the Plan, in either (1) the form of a single life annuity for the life of Executive, or (2) the form of a joint and survivor annuity that is actuarially equivalent to the benefit that would have been payable under the Plan to Executive if Executive was not married on such date, with Executive's spouse as of the date benefit payments commence being entitled during such spouse's lifetime after Executive's death to a benefit equal to 50% of the benefit payable to Executive during their joint lifetimes. If Executive fails to make such election and does not make an election to receive a Lump-Sum Payment, Executive will be deemed to have elected a joint and survivor annuity.

    (v) Death Benefit. Except as provided in this paragraph 3.5(v), no benefits shall be paid under the Plan if Executive dies prior to the date Executive's benefit commences pursuant to paragraph 3.5(iii). In the event of Executive's death prior to the commencement of Executive's benefit pursuant to paragraph 3.5(iii), Executive's surviving spouse, if Executive is married on the date of Executive's death, will receive, at such spouse's written election made within 90 days after Executive's death, either (A) a single life annuity consisting of monthly payments for the life of such surviving spouse determined as follows: (a) if Executive dies on or before reaching the Retirement Date, the death benefit such spouse would have received had Executive terminated employment on the earlier of Executive's actual date of termination of employment or Executive's date of death, survived until the Retirement Date, elected a joint and survivor annuity and began to receive Executive's Plan benefit beginning immediately at the Retirement Date, and died on the day after the Retirement Date; or (b) if Executive dies after reaching the Retirement Date, the death benefit such spouse would have received had Executive elected a joint and survivor annuity and begun to receive Executive's Plan benefit beginning on the day prior to Executive's death, or (B) a Spousal Lump-Sum Payment less 10% of such sum (provided, however, that the HR Committee may, in its sole and absolute discretion, waive all or any part of such 10% reduction), which shall be paid as a lump-sum in cash on the date that the first payment of the single life annuity described in clause (A) of this sentence would have been paid if the surviving spouse had elected to receive such single life annuity. As used herein, "Spousal Lump-Sum Payment" shall mean the lump-sum actuarial equivalent of the value of the single life annuity described in clause (A) of the foregoing sentence, based on the actuarial assumptions set forth in paragraph 3.5(vii) and adjusted for the actual time of payment. Payment of such survivor annuity, if so elected, shall begin on the first day of the month following the later of (1) Executive's date of death or (2) the Retirement Date; provided, however, that if Executive was eligible to elect an Early Retirement Benefit as of the date of Executive's death, then Executive's surviving spouse shall be entitled to elect to receive the Spousal Lump-Sum Payment or commence to receive such survivor annuity as of the first day of the month next following the date of Executive's death, or as the first day of any subsequent month preceding the Retirement Date. Notice of such election must be received by Company not less than 15 days prior to the proposed date of commencement of the benefit or payment of the Spousal Lump-Sum Payment, as the case may be, and each payment of such survivor annuity, or the amount of the Spousal Lump-Sum Payment, as the case may be, shall be reduced based on the principles used for the reductions described in clauses (2) and (3) of the proviso to the third sentence of paragraph 3.5(iii). If such surviving spouse fails to make an election to receive a Spousal Lump-Sum Payment, the surviving spouse will be deemed to have elected to receive the survivor annuity.

    (vi) Unfunded Benefit. The Plan is intended to constitute an unfunded, unsecured plan of deferred compensation. Further, it is the intention of Company that the Plan be unfunded for purposes of the Internal Revenue Code of 1986, as amended, and Title I of the Employee Retirement Income Security Act of 1974, as amended. The Plan constitutes a mere promise by Company to make benefit payments in the future. Plan benefits hereunder provided are to be paid out of Company's general assets, and Executive shall have the status of, and shall have no better status than, a general unsecured creditor of Company. Executive understands that he must rely upon the general credit of Company for payment of benefits under the Plan. Company shall establish a "rabbi" trust to assist Company in meeting its obligations under the Plan. The trustee of such trust shall be a nationally-recognized and solvent bank or trust company that is not affiliated with Company. Company shall transfer to the trustee money and/or other property determined in the sole discretion of the HR Committee based on the advice of the Actuary (as defined below) on an as-needed basis in order to assure that the benefit payable under the Plan is at all times fully funded. The trustee shall pay Plan benefits to Executive and/or Executive's spouse out of the trust assets if such benefits are not paid by Company. Company shall remain the owner of all assets in the trust, and the assets shall be subject to the claims of Company creditors in the event (and only in the event) Company ever becomes insolvent. Neither Executive nor any beneficiary of Executive shall have any preferred claim to, any security interest in, or any beneficial ownership interest in any assets of the trust. Company has not and will not in the future set aside assets for security or enter into any other arrangement which will cause the obligation created to be other than a general corporate obligation of Company or will cause Executive to be more than a general creditor of Company.

    (vii) Actuarial Equivalent. For purposes of the Plan, the terms "actuarial equivalent", or "actuarially equivalent" when used with respect to a specified benefit shall mean the amount of benefit of the referenced different type or payable at the referenced different age that can be provided at the same cost as such specified benefit, as computed by the Actuary and certified to Executive (or, in the case of Executive's death, to his spouse) by the Actuary. The actuarial assumptions used under the Plan to determine equivalencies between different forms and times of payment shall be the same as the actuarial assumptions then used in determining benefits payable under the CARP; provided, however, that with respect to the discount rate used to calculate a Lump-Sum Payment or a Spousal Lump-Sum Payment, the discount rate shall be the Aa Corporate Bond Rate. The term "Actuary" shall mean the individual actuary or actuarial firm selected by Company to service its pension plans generally or if no such individual or firm has been selected, an individual actuary or actuarial firm appointed by Company and reasonably satisfactory to Executive and/or Executive's spouse. The term "Aa Corporate Bond Rate" shall mean the average of the Moody's daily long-term corporate bond yield averages for Aa-rated corporate bonds published by Moody's Investors Service, for the three-month period ending on the last day of the second month preceding the date of the applicable election to receive a Lump-Sum Payment or a Spousal Lump-Sum Payment, as determined by the Actuary (or, if such yield information is no longer so published, then the average of the daily corporate bond yields for a comparable sample of Aa-rated corporate bonds of comparable tenor determined in good faith by the Actuary). Upon request, Company shall cause the Actuary to compute the Aa Corporate Bond Rate for a specified period and the amount of the applicable annuity, Lump-Sum Payment or Spousal Lump-Sum Payment for Executive (or, in the case of Executive's death, his spouse) and shall deliver such information to Executive or such spouse.

    (viii) Medicare Payroll Taxes. Company shall indemnify Executive on a fully grossed-up, after-tax basis for any Medicare payroll taxes (plus any income taxes on such indemnity payments) incurred by Executive in connection with the accrual and/or payment of benefits under the Plan."

    Capitalized terms (and the term "CO system") used in this letter agreement are used with the same meanings ascribed to them in your employment agreement.

    If you agree with the foregoing, please sign the enclosed copy of this letter agreement, whereby this letter agreement shall be a binding agreement between you and the Company and shall amend your employment agreement accordingly.

    Sincerely,

    CONTINENTAL AIRLINES, INC.

     

    By:________________________

    Michael H. Campbell

    Senior Vice President - Human Resources and Labor Relations

    Agreed:

    _____________________

    C. D. McLean

    February 20, 202

    EXHIBIT 10.4

    CONTINENTAL AIRLINES, INC.

    1600 SMITH

    HOUSTON, TX 77002

    April 9, 2002

    Dear Mr. Smisek:

    You currently have Flight Benefits and a supplemental executive retirement plan pursuant to your employment agreement with Continental Airlines, Inc. (the "Company") or a subsidiary of the Company.

    The Human Resources Committee of the Board of Directors has authorized the amendment of your Flight Benefits and your supplemental executive retirement plan as set forth in this letter agreement.

    Your Flight Benefits and your supplemental executive retirement benefits are modified as follows:

    1. The Company agrees that each of your spouse and your children will receive lifetime Platinum Elite OnePass Cards (or similar highest category successor frequent flyer cards) in their names for use on the CO system, and (subject to the terms and conditions of membership, including minimum age requirements) lifetime membership in the Company's President's Club (or any successor program maintained in the CO system).
    2. Upon your death, your surviving spouse and children will be permitted, in the aggregate, to continue to use (in the proportions specified in your last will and testament or, if not so specified or if you die intestate, in equal proportions) your Flight Benefits on the CO system (out of any amounts unused by you at the date of your death) for up to a total amount of $100,000 in value of flights (in any fare class) on the CO system, valued identically to the valuation of flights as currently contained in your Flight Benefits, which amount shall adjust automatically upon any change in the valuation methodology, from and after the date hereof, for imputed income from flights (as compared with the valuation methodology for imputed income from flights used by the Company as of the date hereof), so as to preserve the benefit of $100,000 of flights relative to the valuations resulting from the valuation methodology used by the Company as of the date hereof (e.g., if a change in the valuation methodology results, on average, in such flights being valued 10% higher than the valuation that would result using the valuation methodology used by the Company as of the date hereof, then such amount would be increased by 10% to $110,000). The Company will promptly notify you in writing of any adjustments to such amount.
    3. You agree that your Flight Benefits are intended to be used principally for personal reasons and may not be used for business purposes (other than business purposes on behalf of the Company, and other than business usage that is incidental or de minimus, defined as amounting to less than 10% of the total value (valued as described in paragraph 2 above) of flights on the CO System charged to your UATP card (or any Similar Card) during any year), and that credit availability on your UATP card (or any Similar Card) may be suspended if your UATP card (or any Similar Card) is used for business purposes other than as described above and, after receiving written notice from the Company to cease such usage, you continue to use your UATP card (or any Similar Card) for such business purposes.
    4. Section 3.5 of your employment agreement (your supplemental executive retirement plan) is hereby amended to read in its entirety as follows:

    "3.5 Supplemental Executive Retirement Plan.

    (i) Base Benefit. Company agrees to pay Executive the deferred compensation benefits set forth in this paragraph 3.5 as a supplemental retirement plan (the "Plan"). The base retirement benefit under the Plan (the "Base Benefit") shall be in the form of an annual straight life annuity in an amount equal to the product of (a) 2.5% times (b) the number of Executive's credited years of service (as defined below) under the Plan (but not in excess of 26 years) times (c) the Executive's final average compensation (as defined below). For purposes hereof, Executive's credited years of service under the Plan shall be equal to the sum of (1) the number of Executive's years of benefit service with Company, calculated as set forth in the Continental Retirement Plan (the "CARP") beginning at January 1, 1995 ("Actual Years of Service"), (2) an additional two years of service for each one year of service credited to Executive pursuant to clause (1) of this sentence for the period beginning on January 1, 2000 and ending on December 31, 2004, and (3) if the Termination Payment becomes payable to Executive under this Agreement or if Executive's employment is terminated for a reason encompassed by paragraphs 2.2(i) or 2.2(ii), that number of additional years of service as is equal to (X) 18 years minus (Y) three times the number of full calendar years which have occurred during the period beginning January 1, 2000 and ending on the earlier of (i) the date that the Termination Payment under this Agreement first becomes payable to Executive or (ii) December 31, 2004. For purposes hereof, Executive's final average compensation shall be equal to the greater of (A) $420,000.00 or (B) the average of the five highest annual cash compensation amounts (or, if Executive has been employed less than five years by Company, the average over the full years employed by Company) paid to Executive by Company during the consecutive ten calendar years immediately preceding Executive's termination of employment at retirement or otherwise. For purposes hereof, cash compensation shall include base salary plus cash bonuses (including any amounts deferred (other than Stay Bonus amounts described below) pursuant to any deferred compensation plan of the Company), but shall exclude (i) any cash bonus paid on or prior to March 31, 1995, (ii) any Stay Bonus paid to Executive pursuant to that certain Stay Bonus Agreement between Company and Executive dated as of April 14, 1998, (iii) any Termination Payment paid to Executive under this Agreement, (iv) any payments received by Executive under Company's Officer Retention and Incentive Award Program, (v) any proceeds to Executive from any awards under any option, stock incentive or similar plan of Company, and (vi) any cash bonus paid under a long term incentive plan or program adopted by Company. Executive shall be vested immediately with respect to benefits due under the Plan.

    (ii) Offset for CARP or Other Benefit. Any provisions of the Plan to the contrary notwithstanding, the Base Benefit shall be reduced by the actuarial equivalent (as defined below) of the pension benefit, if any, paid or payable to Executive from the CARP or from any other defined benefit nonqualified supplemental retirement plan provided to Executive by Company. In making such reduction, the Base Benefit and the benefit paid or payable under the CARP or any such other defined benefit nonqualified supplemental retirement plan shall be determined under the provisions of each plan as if payable in the form of an annual straight life annuity beginning on the Retirement Date (as defined below). The net benefit payable under this Plan shall then be actuarially adjusted based on the actuarial assumptions set forth in paragraph 3.5(vii) for the actual time and form of payments.

    (iii) Normal and Early Retirement Benefits. Executive's benefit under the Plan shall be payable in equal monthly installments beginning on the first day of the month following the Retirement Date (the "Normal Retirement Benefit") or, at Executive's written election made not less than 15 days prior to the Retirement Date, in a lump-sum on the first day of such month in an amount equal to the Lump-Sum Payment less 10% of such sum (provided, however, that the HR Committee may, in its sole and absolute discretion, waive all or any part of such 10% reduction). For purposes hereof, "Retirement Date" is defined as the later of (a) the date on which Executive attains (or in the event of Executive's earlier death, would have attained) age 60 or (b) the date of Executive's retirement from employment with Company. Notwithstanding the foregoing, if Executive's employment with Company is terminated, for a reason other than death, on or after the date Executive attains age 55 or is credited with 10 Actual Years of Service and prior to the Retirement Date, then Executive shall be entitled to elect to receive the Lump-Sum Payment or commence to receive Executive's monthly installment benefit under the Plan, in either case as of the first day of any month coinciding with or next following Executive's termination of employment, or as the first day of any subsequent month preceding the Retirement Date (an "Early Retirement Benefit"); provided, however, that (1) written notice of such election must be received by Company not less than 15 days prior to the proposed date of commencement of the monthly installment benefit (or the date of payment, in the case of a Lump-Sum Payment), (2) each monthly installment payment under an Early Retirement Benefit, or the amount of the Lump-Sum Payment, as the case may be, shall be reduced to the extent necessary to cause the value of such Early Retirement Benefit (determined without regard to clause (3) of this proviso) to be the actuarial equivalent of the value of the Normal Retirement Benefit (in each case based on the actuarial assumptions set forth in paragraph 3.5(vii) and adjusted for the actual time and form of payments), and (3) each monthly installment payment under an Early Retirement Benefit that is made prior to the Retirement Date, or the Lump-Sum Payment, as the case may be, shall be reduced by an additional 10% of the amount of such payment as initially determined pursuant to clause (2) of this proviso. The HR Committee may, in its sole and absolute discretion, waive all or any part of the reductions contemplated in clauses (2) and/or (3) of the proviso of the preceding sentence. As used herein, "Lump-Sum Payment" shall mean the lump-sum actuarial equivalent of the value of the Normal Retirement Benefit, based on the actuarial assumptions set forth in paragraph 3.5(vii) and adjusted for the actual time of payment.

    (iv) Form of Retirement Benefit. If Executive is not married on the date Executive's benefit under paragraph 3.5(iii) commences, then benefits under the Plan will be paid to Executive in the form of a single life annuity for the life of Executive (unless Executive elects a Lump-Sum Payment, in which case benefits under the Plan will be paid in cash in a lump-sum). If Executive is married on the date Executive's benefit under paragraph 3.5(iii) commences, then benefits under the Plan will be paid to Executive (unless Executive has elected a Lump-Sum Payment), at the written election of Executive made at least 15 days prior to the first payment of benefits under the Plan, in either (1) the form of a single life annuity for the life of Executive, or (2) the form of a joint and survivor annuity that is actuarially equivalent to the benefit that would have been payable under the Plan to Executive if Executive was not married on such date, with Executive's spouse as of the date benefit payments commence being entitled during such spouse's lifetime after Executive's death to a benefit equal to 50% of the benefit payable to Executive during their joint lifetimes. If Executive fails to make such election and does not make an election to receive a Lump-Sum Payment, Executive will be deemed to have elected a joint and survivor annuity.

    (v) Death Benefit. Except as provided in this paragraph 3.5(v), no benefits shall be paid under the Plan if Executive dies prior to the date Executive's benefit commences pursuant to paragraph 3.5(iii). In the event of Executive's death prior to the commencement of Executive's benefit pursuant to paragraph 3.5(iii), Executive's surviving spouse, if Executive is married on the date of Executive's death, will receive, at such spouse's written election made within 90 days after Executive's death, either (A) a single life annuity consisting of monthly payments for the life of such surviving spouse determined as follows: (a) if Executive dies on or before reaching the Retirement Date, the death benefit such spouse would have received had Executive terminated employment on the earlier of Executive's actual date of termination of employment or Executive's date of death, survived until the Retirement Date, elected a joint and survivor annuity and began to receive Executive's Plan benefit beginning immediately at the Retirement Date, and died on the day after the Retirement Date; or (b) if Executive dies after reaching the Retirement Date, the death benefit such spouse would have received had Executive elected a joint and survivor annuity and begun to receive Executive's Plan benefit beginning on the day prior to Executive's death, or (B) a Spousal Lump-Sum Payment less 10% of such sum (provided, however, that the HR Committee may, in its sole and absolute discretion, waive all or any part of such 10% reduction), which shall be paid as a lump-sum in cash on the date that the first payment of the single life annuity described in clause (A) of this sentence would have been paid if the surviving spouse had elected to receive such single life annuity. As used herein, "Spousal Lump-Sum Payment" shall mean the lump-sum actuarial equivalent of the value of the single life annuity described in clause (A) of the foregoing sentence, based on the actuarial assumptions set forth in paragraph 3.5(vii) and adjusted for the actual time of payment. Payment of such survivor annuity, if so elected, shall begin on the first day of the month following the later of (1) Executive's date of death or (2) the Retirement Date; provided, however, that if Executive was eligible to elect an Early Retirement Benefit as of the date of Executive's death, then Executive's surviving spouse shall be entitled to elect to receive the Spousal Lump-Sum Payment or commence to receive such survivor annuity as of the first day of the month next following the date of Executive's death, or as the first day of any subsequent month preceding the Retirement Date. Notice of such election must be received by Company not less than 15 days prior to the proposed date of commencement of the benefit or payment of the Spousal Lump-Sum Payment, as the case may be, and each payment of such survivor annuity, or the amount of the Spousal Lump-Sum Payment, as the case may be, shall be reduced based on the principles used for the reductions described in clauses (2) and (3) of the proviso to the third sentence of paragraph 3.5(iii). If such surviving spouse fails to make an election to receive a Spousal Lump-Sum Payment, the surviving spouse will be deemed to have elected to receive the survivor annuity.

    (vi) Unfunded Benefit. The Plan is intended to constitute an unfunded, unsecured plan of deferred compensation. Further, it is the intention of Company that the Plan be unfunded for purposes of the Internal Revenue Code of 1986, as amended, and Title I of the Employee Retirement Income Security Act of 1974, as amended. The Plan constitutes a mere promise by Company to make benefit payments in the future. Plan benefits hereunder provided are to be paid out of Company's general assets, and Executive shall have the status of, and shall have no better status than, a general unsecured creditor of Company. Executive understands that he must rely upon the general credit of Company for payment of benefits under the Plan. Company shall establish a "rabbi" trust to assist Company in meeting its obligations under the Plan. The trustee of such trust shall be a nationally-recognized and solvent bank or trust company that is not affiliated with Company. Company shall transfer to the trustee money and/or other property determined in the sole discretion of the HR Committee based on the advice of the Actuary (as defined below) on an as-needed basis in order to assure that the benefit payable under the Plan is at all times fully funded. The trustee shall pay Plan benefits to Executive and/or Executive's spouse out of the trust assets if such benefits are not paid by Company. Company shall remain the owner of all assets in the trust, and the assets shall be subject to the claims of Company creditors in the event (and only in the event) Company ever becomes insolvent. Neither Executive nor any beneficiary of Executive shall have any preferred claim to, any security interest in, or any beneficial ownership interest in any assets of the trust. Company has not and will not in the future set aside assets for security or enter into any other arrangement which will cause the obligation created to be other than a general corporate obligation of Company or will cause Executive to be more than a general creditor of Company.

    (vii) Actuarial Equivalent. For purposes of the Plan, the terms "actuarial equivalent", or "actuarially equivalent" when used with respect to a specified benefit shall mean the amount of benefit of the referenced different type or payable at the referenced different age that can be provided at the same cost as such specified benefit, as computed by the Actuary and certified to Executive (or, in the case of Executive's death, to his spouse) by the Actuary. The actuarial assumptions used under the Plan to determine equivalencies between different forms and times of payment shall be the same as the actuarial assumptions then used in determining benefits payable under the CARP; provided, however, that with respect to the discount rate used to calculate a Lump-Sum Payment or a Spousal Lump-Sum Payment, the discount rate shall be the Aa Corporate Bond Rate. The term "Actuary" shall mean the individual actuary or actuarial firm selected by Company to service its pension plans generally or if no such individual or firm has been selected, an individual actuary or actuarial firm appointed by Company and reasonably satisfactory to Executive and/or Executive's spouse. The term "Aa Corporate Bond Rate" shall mean the average of the Moody's daily long-term corporate bond yield averages for Aa-rated corporate bonds published by Moody's Investors Service, for the three-month period ending on the last day of the second month preceding the date of the applicable election to receive a Lump-Sum Payment or a Spousal Lump-Sum Payment, as determined by the Actuary (or, if such yield information is no longer so published, then the average of the daily corporate bond yields for a comparable sample of Aa-rated corporate bonds of comparable tenor determined in good faith by the Actuary). Upon request, Company shall cause the Actuary to compute the Aa Corporate Bond Rate for a specified period and the amount of the applicable annuity, Lump-Sum Payment or Spousal Lump-Sum Payment for Executive (or, in the case of Executive's death, his spouse) and shall deliver such information to Executive or such spouse.

    (viii) Medicare Payroll Taxes. Company shall indemnify Executive on a fully grossed-up, after-tax basis for any Medicare payroll taxes (plus any income taxes on such indemnity payments) incurred by Executive in connection with the accrual and/or payment of benefits under the Plan."

    Capitalized terms (and the term "CO system") used in this letter agreement are used with the same meanings ascribed to them in your employment agreement.

    If you agree with the foregoing, please sign the enclosed copy of this letter agreement, whereby this letter agreement shall be a binding agreement between you and the Company and shall amend your employment agreement accordingly.

    Sincerely,

    CONTINENTAL AIRLINES, INC.

     

    By:________________________

    Michael H. Campbell

    Senior Vice President - Human Resources and Labor Relations

    Agreed:

    _____________________

    Jeffery A. Smisek

    February 20, 202

    EXHIBIT 10.5

    CONTINENTAL AIRLINES, INC.

    1600 SMITH

    HOUSTON, TX 77002

    April 9, 2002

    Dear Mr. Campbell:

    You currently have Flight Benefits and a supplemental executive retirement plan pursuant to your employment agreement with Continental Airlines, Inc. (the "Company") or a subsidiary of the Company.

    The Human Resources Committee of the Board of Directors has authorized the amendment of your Flight Benefits and your supplemental executive retirement plan as set forth in this letter agreement.

    Your Flight Benefits and your supplemental executive retirement benefits are modified as follows:

    1. The Company agrees that each of your spouse and your children will receive lifetime Platinum Elite OnePass Cards (or similar highest category successor frequent flyer cards) in their names for use on the CO system, and (subject to the terms and conditions of membership, including minimum age requirements) lifetime membership in the Company's President's Club (or any successor program maintained in the CO system).
    2. Upon your death, your surviving spouse and children will be permitted, in the aggregate, to continue to use (in the proportions specified in your last will and testament or, if not so specified or if you die intestate, in equal proportions) your Flight Benefits on the CO system (out of any amounts unused by you at the date of your death) for up to a total amount of $50,000 in value of flights (in any fare class) on the CO system, valued identically to the valuation of flights as currently contained in your Flight Benefits, which amount shall adjust automatically upon any change in the valuation methodology, from and after the date hereof, for imputed income from flights (as compared with the valuation methodology for imputed income from flights used by the Company as of the date hereof), so as to preserve the benefit of $50,000 of flights relative to the valuations resulting from the valuation methodology used by the Company as of the date hereof (e.g., if a change in the valuation methodology results, on average, in such flights being valued 10% higher than the valuation that would result using the valuation methodology used by the Company as of the date hereof, then such amount would be increased by 10% to $55,000). The Company will promptly notify you in writing of any adjustments to such amount.
    3. You agree that your Flight Benefits are intended to be used principally for personal reasons and may not be used for business purposes (other than business purposes on behalf of the Company, and other than business usage that is incidental or de minimus, defined as amounting to less than 10% of the total value (valued as described in paragraph 2 above) of flights on the CO System charged to your UATP card (or any Similar Card) during any year), and that credit availability on your UATP card (or any Similar Card) may be suspended if your UATP card (or any Similar Card) is used for business purposes other than as described above and, after receiving written notice from the Company to cease such usage, you continue to use your UATP card (or any Similar Card) for such business purposes.
    4. Section 3.5 of your employment agreement (your supplemental executive retirement plan) is hereby amended to read in its entirety as follows:

    "3.5 Supplemental Executive Retirement Plan.

    (i) Base Benefit. Company agrees to pay Executive the deferred compensation benefits set forth in this paragraph 3.5 as a supplemental retirement plan (the "Plan"). The base retirement benefit under the Plan (the "Base Benefit") shall be in the form of an annual straight life annuity in an amount equal to the product of (a) 2.5% times (b) the number of Executive's credited years of service (as defined below) under the Plan (but not in excess of 24 years) times (c) the Executive's final average compensation (as defined below). For purposes hereof, Executive's credited years of service under the Plan shall be equal to the sum of (1) the number of Executive's years of benefit service with Company, calculated as set forth in the Continental Retirement Plan (the "CARP") beginning at January 1, 2000 ("Actual Years of Service"), (2) an additional one year of service for each one year of service credited to Executive pursuant to clause (1) of this sentence for the period beginning on January 1, 2000 and ending on December 31, 2004, and (3) three additional years of service if Executive is paid the Termination Payment under this Agreement. For purposes hereof, Executive's final average compensation shall be equal to the greater of (A) $399,000.00 or (B) the average of the five highest annual cash compensation amounts (or, if Executive has been employed less than five years by Company, the average over the full years employed by Company) paid to Executive by Company during the consecutive ten calendar years immediately preceding Executive's termination of employment at retirement or otherwise. For purposes hereof, cash compensation shall include base salary plus cash bonuses (including any amounts deferred (other than Stay Bonus amounts described below) pursuant to any deferred compensation plan of the Company), but shall exclude (i) any cash bonus paid on or prior to March 31, 1995, (ii) any Stay Bonus paid to Executive pursuant to that certain Stay Bonus Agreement between Company and Executive dated as of April 14, 1998, (iii) any Termination Payment paid to Executive under this Agreement, (iv) any payments received by Executive under Company's Officer Retention and Incentive Award Program, (v) any proceeds to Executive from any awards under any option, stock incentive or similar plan of Company, and (vi) any cash bonus paid under a long term incentive plan or program adopted by Company. Executive shall be vested immediately with respect to benefits due under the Plan.

    (ii) Offset for CARP or Other Benefit. Any provisions of the Plan to the contrary notwithstanding, the Base Benefit shall be reduced by the actuarial equivalent (as defined below) of the pension benefit, if any, paid or payable to Executive from the CARP or from any other defined benefit nonqualified supplemental retirement plan provided to Executive by Company. In making such reduction, the Base Benefit and the benefit paid or payable under the CARP or any such other defined benefit nonqualified supplemental retirement plan shall be determined under the provisions of each plan as if payable in the form of an annual straight life annuity beginning on the Retirement Date (as defined below). The net benefit payable under this Plan shall then be actuarially adjusted based on the actuarial assumptions set forth in paragraph 3.5(vii) for the actual time and form of payments.

    (iii) Normal and Early Retirement Benefits. Executive's benefit under the Plan shall be payable in equal monthly installments beginning on the first day of the month following the Retirement Date (the "Normal Retirement Benefit") or, at Executive's written election made not less than 15 days prior to the Retirement Date, in a lump-sum on the first day of such month in an amount equal to the Lump-Sum Payment less 10% of such sum (provided, however, that the HR Committee may, in its sole and absolute discretion, waive all or any part of such 10% reduction). For purposes hereof, "Retirement Date" is defined as the later of (a) the date on which Executive attains (or in the event of Executive's earlier death, would have attained) age 60 or (b) the date of Executive's retirement from employment with Company. Notwithstanding the foregoing, if Executive's employment with Company is terminated, for a reason other than death, on or after the date Executive attains age 55 or is credited with 10 Actual Years of Service and prior to the Retirement Date, then Executive shall be entitled to elect to receive the Lump-Sum Payment or commence to receive Executive's monthly installment benefit under the Plan, in either case as of the first day of any month coinciding with or next following Executive's termination of employment, or as the first day of any subsequent month preceding the Retirement Date (an "Early Retirement Benefit"); provided, however, that (1) written notice of such election must be received by Company not less than 15 days prior to the proposed date of commencement of the monthly installment benefit (or the date of payment, in the case of a Lump-Sum Payment), (2) each monthly installment payment under an Early Retirement Benefit, or the amount of the Lump-Sum Payment, as the case may be, shall be reduced to the extent necessary to cause the value of such Early Retirement Benefit (determined without regard to clause (3) of this proviso) to be the actuarial equivalent of the value of the Normal Retirement Benefit (in each case based on the actuarial assumptions set forth in paragraph 3.5(vii) and adjusted for the actual time and form of payments), and (3) each monthly installment payment under an Early Retirement Benefit that is made prior to the Retirement Date, or the Lump-Sum Payment, as the case may be, shall be reduced by an additional 10% of the amount of such payment as initially determined pursuant to clause (2) of this proviso. The HR Committee may, in its sole and absolute discretion, waive all or any part of the reductions contemplated in clauses (2) and/or (3) of the proviso of the preceding sentence. As used herein, "Lump-Sum Payment" shall mean the lump-sum actuarial equivalent of the value of the Normal Retirement Benefit, based on the actuarial assumptions set forth in paragraph 3.5(vii) and adjusted for the actual time of payment.

    (iv) Form of Retirement Benefit. If Executive is not married on the date Executive's benefit under paragraph 3.5(iii) commences, then benefits under the Plan will be paid to Executive in the form of a single life annuity for the life of Executive (unless Executive elects a Lump-Sum Payment, in which case benefits under the Plan will be paid in cash in a lump-sum). If Executive is married on the date Executive's benefit under paragraph 3.5(iii) commences, then benefits under the Plan will be paid to Executive (unless Executive has elected a Lump-Sum Payment), at the written election of Executive made at least 15 days prior to the first payment of benefits under the Plan, in either (1) the form of a single life annuity for the life of Executive, or (2) the form of a joint and survivor annuity that is actuarially equivalent to the benefit that would have been payable under the Plan to Executive if Executive was not married on such date, with Executive's spouse as of the date benefit payments commence being entitled during such spouse's lifetime after Executive's death to a benefit equal to 50% of the benefit payable to Executive during their joint lifetimes. If Executive fails to make such election and does not make an election to receive a Lump-Sum Payment, Executive will be deemed to have elected a joint and survivor annuity.

    (v) Death Benefit. Except as provided in this paragraph 3.5(v), no benefits shall be paid under the Plan if Executive dies prior to the date Executive's benefit commences pursuant to paragraph 3.5(iii). In the event of Executive's death prior to the commencement of Executive's benefit pursuant to paragraph 3.5(iii), Executive's surviving spouse, if Executive is married on the date of Executive's death, will receive, at such spouse's written election made within 90 days after Executive's death, either (A) a single life annuity consisting of monthly payments for the life of such surviving spouse determined as follows: (a) if Executive dies on or before reaching the Retirement Date, the death benefit such spouse would have received had Executive terminated employment on the earlier of Executive's actual date of termination of employment or Executive's date of death, survived until the Retirement Date, elected a joint and survivor annuity and began to receive Executive's Plan benefit beginning immediately at the Retirement Date, and died on the day after the Retirement Date; or (b) if Executive dies after reaching the Retirement Date, the death benefit such spouse would have received had Executive elected a joint and survivor annuity and begun to receive Executive's Plan benefit beginning on the day prior to Executive's death, or (B) a Spousal Lump-Sum Payment less 10% of such sum (provided, however, that the HR Committee may, in its sole and absolute discretion, waive all or any part of such 10% reduction), which shall be paid as a lump-sum in cash on the date that the first payment of the single life annuity described in clause (A) of this sentence would have been paid if the surviving spouse had elected to receive such single life annuity. As used herein, "Spousal Lump-Sum Payment" shall mean the lump-sum actuarial equivalent of the value of the single life annuity described in clause (A) of the foregoing sentence, based on the actuarial assumptions set forth in paragraph 3.5(vii) and adjusted for the actual time of payment. Payment of such survivor annuity, if so elected, shall begin on the first day of the month following the later of (1) Executive's date of death or (2) the Retirement Date; provided, however, that if Executive was eligible to elect an Early Retirement Benefit as of the date of Executive's death, then Executive's surviving spouse shall be entitled to elect to receive the Spousal Lump-Sum Payment or commence to receive such survivor annuity as of the first day of the month next following the date of Executive's death, or as the first day of any subsequent month preceding the Retirement Date. Notice of such election must be received by Company not less than 15 days prior to the proposed date of commencement of the benefit or payment of the Spousal Lump-Sum Payment, as the case may be, and each payment of such survivor annuity, or the amount of the Spousal Lump-Sum Payment, as the case may be, shall be reduced based on the principles used for the reductions described in clauses (2) and (3) of the proviso to the third sentence of paragraph 3.5(iii). If such surviving spouse fails to make an election to receive a Spousal Lump-Sum Payment, the surviving spouse will be deemed to have elected to receive the survivor annuity.

    (vi) Unfunded Benefit. The Plan is intended to constitute an unfunded, unsecured plan of deferred compensation. Further, it is the intention of Company that the Plan be unfunded for purposes of the Internal Revenue Code of 1986, as amended, and Title I of the Employee Retirement Income Security Act of 1974, as amended. The Plan constitutes a mere promise by Company to make benefit payments in the future. Plan benefits hereunder provided are to be paid out of Company's general assets, and Executive shall have the status of, and shall have no better status than, a general unsecured creditor of Company. Executive understands that he must rely upon the general credit of Company for payment of benefits under the Plan. Company shall establish a "rabbi" trust to assist Company in meeting its obligations under the Plan. The trustee of such trust shall be a nationally-recognized and solvent bank or trust company that is not affiliated with Company. Company shall transfer to the trustee money and/or other property determined in the sole discretion of the HR Committee based on the advice of the Actuary (as defined below) on an as-needed basis in order to assure that the benefit payable under the Plan is at all times fully funded. The trustee shall pay Plan benefits to Executive and/or Executive's spouse out of the trust assets if such benefits are not paid by Company. Company shall remain the owner of all assets in the trust, and the assets shall be subject to the claims of Company creditors in the event (and only in the event) Company ever becomes insolvent. Neither Executive nor any beneficiary of Executive shall have any preferred claim to, any security interest in, or any beneficial ownership interest in any assets of the trust. Company has not and will not in the future set aside assets for security or enter into any other arrangement which will cause the obligation created to be other than a general corporate obligation of Company or will cause Executive to be more than a general creditor of Company.

    (vii) Actuarial Equivalent. For purposes of the Plan, the terms "actuarial equivalent", or "actuarially equivalent" when used with respect to a specified benefit shall mean the amount of benefit of the referenced different type or payable at the referenced different age that can be provided at the same cost as such specified benefit, as computed by the Actuary and certified to Executive (or, in the case of Executive's death, to his spouse) by the Actuary. The actuarial assumptions used under the Plan to determine equivalencies between different forms and times of payment shall be the same as the actuarial assumptions then used in determining benefits payable under the CARP; provided, however, that with respect to the discount rate used to calculate a Lump-Sum Payment or a Spousal Lump-Sum Payment, the discount rate shall be the Aa Corporate Bond Rate. The term "Actuary" shall mean the individual actuary or actuarial firm selected by Company to service its pension plans generally or if no such individual or firm has been selected, an individual actuary or actuarial firm appointed by Company and reasonably satisfactory to Executive and/or Executive's spouse. The term "Aa Corporate Bond Rate" shall mean the average of the Moody's daily long-term corporate bond yield averages for Aa-rated corporate bonds published by Moody's Investors Service, for the three-month period ending on the last day of the second month preceding the date of the applicable election to receive a Lump-Sum Payment or a Spousal Lump-Sum Payment, as determined by the Actuary (or, if such yield information is no longer so published, then the average of the daily corporate bond yields for a comparable sample of Aa-rated corporate bonds of comparable tenor determined in good faith by the Actuary). Upon request, Company shall cause the Actuary to compute the Aa Corporate Bond Rate for a specified period and the amount of the applicable annuity, Lump-Sum Payment or Spousal Lump-Sum Payment for Executive (or, in the case of Executive's death, his spouse) and shall deliver such information to Executive or such spouse.

    (viii) Medicare Payroll Taxes. Company shall indemnify Executive on a fully grossed-up, after-tax basis for any Medicare payroll taxes (plus any income taxes on such indemnity payments) incurred by Executive in connection with the accrual and/or payment of benefits under the Plan."

    Capitalized terms (and the term "CO system") used in this letter agreement are used with the same meanings ascribed to them in your employment agreement.

    If you agree with the foregoing, please sign the enclosed copy of this letter agreement, whereby this letter agreement shall be a binding agreement between you and the Company and shall amend your employment agreement accordingly.

    Sincerely,

    CONTINENTAL AIRLINES, INC.

     

    By:________________________

    Jeffery A. Smisek

    Executive Vice President - Corporate

    Agreed:

    _____________________

    Michael H. Campbell

    Adoption of Special Bonus Program for Key Management for the First Quarter of 2002

    EXHIBIT 10.6

    Special Bonus Program for Key Management for the First Quarter of 2002

     

    BE IT RESOLVED, that this Committee hereby adopts a special bonus program for the first fiscal quarter of 2002 only, which this Committee shall administer, for participants in the Executive Bonus Performance Award Program, which special program will provide each such participant an opportunity to receive a cash bonus payment with respect to the first fiscal quarter of 2002, in the amount of 62.5% of the participant's base salary earned during the period from January 1, 2002 through March 31, 2002, if the Company achieves an operating loss of $126 million or better with respect to the first fiscal quarter of 2002 (adjusted as appropriate to reflect one-time, unusual or extraordinary losses or gains, dispositions of operations or investments, or similar matters, such as write-offs of assets, aircraft leases and similar fleet charges); that amounts, if any, payable under the Executive Bonus Performance Award Program with respect to the first fiscal quarter in 2002 will be netted against any amounts otherwise payable under such special bonus program, and that this Committee reserves the right to amend or terminate such special bonus program at any time by notifying the Chief Executive Officer thereof; and

    RESOLVED, that the payment of bonuses under the special bonus program for the first fiscal quarter of 2002 will require the advanced approval of this Committee, which may be effected at a meeting of this Committee or by an approval form signed by each member of this Committee, and no such bonuses will be paid or payable (or they will be subject to reduction or repayment if paid, as determined by the Committee) if the Company applies for a federal credit instrument under the Air Transportation Safety and System Stabilization Act and the Committee determines that such payment could reasonably be expected to jeopardize the Company's ability to obtain or maintain federal credit instruments under the Air Transportation Safety and System Stabilization Act, as amended from time to time, and applicable rules and regulations thereunder; and

    RESOLVED, that the interpretation and construction by the Committee of any provision of the special bonus program, and any determination or action by the Committee in connection therewith, will be final and conclusive for all purposes, and each participant's participation in the program will be expressly subject to the foregoing; that no member of the Committee shall be liable in connection with the program 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; and that if a participant disagrees with any decision, determination, or action made or taken by the Committee, then the dispute will be limited to whether the Committee has satisfied its duty to make such decision or determination or take such action in good faith; and

    RESOLVED, that participation in the program by a participant shall terminate upon such participant's termination of employment with the Company and its subsidiaries, and no participant shall have any right to continue to participate in the program or have any vested right to any bonus thereunder (except if the end of the first fiscal quarter of 2002 has already passed prior to an amendment or termination of the program or prior to such participant's termination of employment with the Company and its subsidiaries); and

    RESOLVED, that participation in the program will not confer any right of future employment; that 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; and that 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; and

    RESOLVED, that no liability whatsoever shall attach to or be incurred by any past, present or future stockholders, officers or directors, as such, of the Company or any of its subsidiaries, under or by reason of the program or the administration thereof, and each participant, in consideration of receiving benefits and participating thereunder, shall be deemed to agree to all the terms and conditions of the program and to expressly waive and release any and all claims relating to any such liability; and

    RESOLVED, that no bonus or other right, title, interest, or benefit under the program shall ever be assignable or transferable, or liable for, or charged with any of the torts or obligations of a participant or any person claiming under a participant, or be subject to seizure by any creditor of a participant or any person claiming under a participant; that no participant or any person claiming under a participant shall have the power to anticipate or dispose of any bonus or other right, title, interest, or benefit under the program in any manner until the same shall have actually been distributed free and clear of the terms of the program; that payments with respect to bonuses under the program shall be payable only to the participant (or in the event of the death of a participant, any payment due under the program to such participant shall be made to his or her estate), and that the provisions of the 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; and

    RESOLVED, that the program shall be construed in accordance with the laws of Texas, and that 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; and

    RESOLVED, that the Chief Executive Officer is authorized to notify each person who is a participant in the special bonus program of the existence and structure of the special bonus program and the fact that such person is a participant.

    Special Bonus Program for Key Management for the Second, Third and Fourth Quarters of 2002

    EXHIBIT 10.7

    Special Bonus Program for Key Management for the Second, Third and Fourth Quarters of 2002

     

    BE IT RESOLVED, that this Committee hereby adopts a special bonus program for the second, third and fourth fiscal quarters of 2002 only, which this Committee shall administer, for participants in the Executive Bonus Performance Award Program, which special bonus program will provide each such participant an opportunity to receive a quarterly cash bonus payment with respect to each of the second, third and fourth fiscal quarters in 2002, in the amount of 62.5% of the participant's base salary earned beginning January 1, 2002 through the end of the relevant quarter (less any amounts paid with respect to prior fiscal quarters in 2002 under the special bonus program or the Company's Executive Bonus Performance Award Program, and less any amounts paid with respect to the first fiscal quarter of 2002 under the special bonus program adopted by this Committee on February 20, 2002 applicable to the first fiscal quarter of 2002) if the Company either (1) achieves the cumulative operating income amounts through the end of such quarter contained in the quarterly results that are part of the Annual Financial Plan of the Company adopted by the Board of Directors (adjusted as appropriate to reflect one-time, unusual or extraordinary losses or gains, dispositions of operations or investments, or similar matters, such as write-offs of assets or aircraft leases or similar fleet charges), or (2) ranks first when comparing the Cumulative EBITDAR Margins with respect to the applicable quarter for all companies comprising the Industry Group as of the last day of such quarter (as such terms are defined in the Company's Executive Bonus Performance Award Program); that such special bonus program will also provide each such participant an opportunity to receive a year-end cash bonus, payable promptly after publication of the Company's consolidated financial statements for 2002, in the amount of 62.5% of the participant's base salary earned for the full-year 2002, if the Company achieves a break-even net income or greater for 2002, including accruals for the special bonus program, and that this Committee reserves the right to amend or terminate such special bonus program at any time by notifying the Chief Executive Officer thereof; and

    RESOLVED, that the payment of bonuses under the special bonus program for any of the second, third and fourth fiscal quarters of 2002 and payment of any year-end bonus under such program will require the advanced approval of this Committee, which may be effected at a meeting of this Committee or by an approval form signed by each member of this Committee, and no such bonuses will be paid or payable (or they will be subject to reduction or repayment if paid, as determined by the Committee) if the Company applies for a federal credit instrument under the Air Transportation Safety and System Stabilization Act and the Committee determines that such payment could reasonably be expected to jeopardize the Company's ability to obtain or maintain federal credit instruments under the Air Transportation Safety and System Stabilization Act, as amended from time to time, and applicable rules and regulations thereunder; and

    RESOLVED, that the interpretation and construction by the Committee of any provision of the special bonus program, and any determination or action by the Committee in connection therewith, will be final and conclusive for all purposes, and each participant's participation in the program will be expressly subject to the foregoing; that no member of the Committee shall be liable in connection with the program 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; and that if a participant disagrees with any decision, determination, or action made or taken by the Committee, then the dispute will be limited to whether the Committee has satisfied its duty to make such decision or determination or take such action in good faith; and

    RESOLVED, that participation in the program by a participant shall terminate upon such participant's termination of employment with the Company and its subsidiaries, and no participant shall have any right to continue to participate in the program or have any vested right to any bonus thereunder (except for vested rights to bonuses with respect to any fiscal quarter (or year-end) of 2002 that has already passed prior to an amendment or termination of the program or prior to such participant's termination of employment with the Company and its subsidiaries); and

    RESOLVED, that participation in the program will not confer any right of future employment; that 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; and that 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; and

    RESOLVED, that no liability whatsoever shall attach to or be incurred by any past, present or future stockholders, officers or directors, as such, of the Company or any of its subsidiaries, under or by reason of the program or the administration thereof, and each participant, in consideration of receiving benefits and participating thereunder, shall be deemed to agree to all the terms and conditions of the program and to expressly waive and release any and all claims relating to any such liability; and

    RESOLVED, that no bonus or other right, title, interest, or benefit under the program shall ever be assignable or transferable, or liable for, or charged with any of the torts or obligations of a participant or any person claiming under a participant, or be subject to seizure by any creditor of a participant or any person claiming under a participant; that no participant or any person claiming under a participant shall have the power to anticipate or dispose of any bonus or other right, title, interest, or benefit under the program in any manner until the same shall have actually been distributed free and clear of the terms of the program; that payments with respect to bonuses under the program shall be payable only to the participant (or in the event of the death of a participant, any payment due under the program to such participant shall be made to his or her estate), and that the provisions of the 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; and

    RESOLVED, that the program shall be construed in accordance with the laws of Texas, and that 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; and

    RESOLVED, that the Chief Executive Officer is authorized to notify each person who is a participant in the special bonus program of the existence and structure of the special bonus program and the fact that such person is a participant.

     

    EXHIBIT 10

    EXHIBIT 10.8

    CONTINENTAL AIRLINES, INC.

    LONG TERM INCENTIVE PERFORMANCE AWARD PROGRAM

    (as amended and restated through April 9, 2002)

    I. PURPOSE OF PROGRAM

    This Continental Airlines, Inc. Long Term Incentive Performance Award Program (the "Program") has been adopted by the Human Resources Committee of the Board of Directors of Continental Airlines, Inc., a Delaware corporation (the "Company"), to implement in part the Performance Award provisions of the Continental Airlines, Inc. Incentive Plan 2000 (as amended from time to time, the "Incentive Plan 2000") adopted by the Board of Directors of the Company, and is intended to provide a method for attracting, motivating, and retaining key employees to assist in the development and growth of the Company and its Subsidiaries. The Program and Awards hereunder shall be subject to the terms of the Incentive Plan 2000, including the limitations on the maximum value of Awards contained therein.

    II. DEFINITIONS AND CONSTRUCTION

      1. Definitions. Where the following words and phrases are used in the Program, they shall have the respective meanings set forth below, unless the context clearly indicates to the contrary:

    (a) "Administrator" means (i) in the context of Awards made to, or the administration (or interpretation of any provision) of the Program as it relates to, any person who is subject to Section 16 of the Securities Exchange Act of 1934, as amended (including any successor section to the same or similar effect, "Section 16"), the Committee, or (ii) in the context of Awards made to, or the administration (or interpretation of any provision) of the Program as it relates to, any person who is not subject to Section 16, the Chief Executive Officer of the Company (or, if the Chief Executive Officer is not a director of the Company, the Committee), unless the Program specifies that the Committee shall take specific action (in which case such action may only be taken by the Committee) or the Committee (as to any Award described in this clause (ii) or the administration or interpretation of any specific provision of the Program) specifies that it shall serve as Administrator.

    (b) "Award" means, with respect to each Participant for a Performance Period, such Participant's opportunity to earn a Payment Amount for such Performance Period upon the satisfaction of the terms and conditions of the Program. Awards hereunder constitute Performance Awards (as such term is defined in the Incentive Plan 2000) under the Incentive Plan 2000.

    (c) "Award Notice" means a written notice issued by the Company to a Participant evidencing such Participant's receipt of an Award with respect to a Performance Period.

    (d) "Base Amount" means the sum of (i) the annual base rate of pay paid or payable in cash by the Company and the Subsidiaries to or for the benefit of a Participant for services rendered or labor performed, plus (ii) an additional amount equal to (1) for all Participants other than those described in Section 2.1(z)(vi), 2.1(z)(vii) or 2.1(z)(viii) below, 125% of the amount described in clause (i), and (2) for all Participants described in Section 2.1(z)(vi), 2.1(z)(vii) or 2.1(z)(viii) below, 37.5% of the amount described in clause (i). Base Amount shall be determined without reduction for amounts a Participant could have received in cash in lieu of (A) elective deferrals under the Company's Deferred Compensation Plan or (B) elective contributions made on such Participant's behalf by the Company or a Subsidiary pursuant to a qualified cash or deferred arrangement (as defined in section 401(k) of the Code) or pursuant to a plan maintained under section 125 of the Code.

    (e) "Board" means the Board of Directors of the Company.

    (f) "Cause" means (i) in the case of a Participant with an employment agreement with the Company or a Subsidiary, the involuntary termination of such Participant's employment by the Company (or, if applicable, a Subsidiary) under circumstances that do not require the Company (or such Subsidiary) to pay to such Participant a "Termination Payment" or "Monthly Severance Amount," as such terms are defined in such Participant's employment agreement, and (ii) in the case of a Participant who does not have an employment agreement with the Company or a Subsidiary, the involuntary termination of such Participant's employment by the Company (or, if applicable, a Subsidiary) based upon a determination by the Administrator or an authorized officer of the Company (or such Subsidiary) that such Participant has engaged in gross negligence or willful misconduct in the performance of, or such Participant has abused alcohol or drugs rendering him or her unable to perform, the material duties and services required of him or her in his or her employment.

    (g) "Change in Control" shall have the same meaning as is assigned to such term under the Incentive Plan 2000, as in effect on May 15, 2001.

    (h) "Change Year" means the calendar year during which a Change in Control occurs.

    (i) "Code" means the Internal Revenue Code of 1986, as amended.

    (j) "Committee" means a committee of the Board comprised solely of two or more outside directors (within the meaning of the term "outside directors" as used in section 162(m) of the Code). Such committee shall be the Human Resources Committee of the Board unless and until the Board designates another committee of the Board to serve as the Committee.

    (k) "Company" means Continental Airlines, Inc., a Delaware corporation.

    (l) "Company Stock" means the Class B common stock, par value $0.01 per share, of the Company.

    (m) "Disability" or "Disabled" means, with respect to a Participant, such Participant's disability entitling him or her to benefits under the Company's group long-term disability plan; provided, however, that if such Participant is not eligible to participate in such plan, then such Participant shall be considered to have incurred a "Disability" if and when the Administrator determines in its discretion that such Participant has become incapacitated for a period of at least 180 days by accident, sickness, or other circumstance which renders such Participant mentally or physically incapable of performing the material duties and services required of him or her in his or her employment on a full-time basis during such period.

    (n) "EBITDAR" means, with respect to each company in the Industry Group and each Performance Period, the aggregate earnings of such company and its consolidated subsidiaries during the Performance Period, determined prior to the charges, costs, and expenses associated with interest, income taxes, depreciation, amortization, and aircraft rent. EBITDAR shall be determined based on the regularly prepared and publicly available statements of operations of each company in the Industry Group prepared in accordance with GAAP (and if necessary to determine certain items, based on Form 41 data filed by such company with the Department of Transportation); provided, however, that EBITDAR shall be adjusted to exclude (i) non-operating income or expense, (ii) write-offs of assets (including aircraft and associated parts), (iii) one-time gains or losses from the disposal of assets, and (iv) any other item of gain, loss, or expense determined to be extraordinary or unusual in nature or infrequent in occurrence, in each case under clauses (i), (ii), (iii) and (iv) as determined by the Committee in accordance with GAAP. If the fiscal year of a company in the Industry Group is not the calendar year, then such company's EBITDAR for a Performance Period shall be determined based upon the fiscal quarters of such company that coincide with the fiscal quarters contained in such Performance Period. Further, if a company in the Industry Group provides publicly available statements of operations with respect to its airline business that are separate from the statements of operations provided with respect to its other businesses, then such company's EBITDAR shall be determined based solely upon the separately provided statements of operations pertaining to its airline business.

    (o) "EBITDAR Margin" means, with respect to each company in the Industry Group and each Performance Period, the cumulative EBITDAR for such company for such Performance Period divided by such company's cumulative revenues (determined on a consolidated basis based on the regularly prepared and publicly available statements of operations of such company prepared in accordance with GAAP) over such Performance Period. If the fiscal year of a company in the Industry Group is not the calendar year, then such company's EBITDAR Margin for a Performance Period shall be determined based upon the fiscal quarters of such company that coincide with the fiscal quarters contained in such Performance Period. Further, if a company in the Industry Group provides publicly available statements of operations with respect to its airline business that are separate from the statements of operations provided with respect to its other businesses, then such company's EBITDAR Margin shall be determined based solely upon the separately provided statements of operations pertaining to its airline business.

    (p) "Effective Date" means January 1, 2000.

    (q) "Eligible Employee" means any individual who is (i) a staff vice president or more senior officer of the Company or (ii) a vice president or more senior officer of a Subsidiary, or (iii) any other officer of the Company or any Subsidiary designated by the Administrator as an Eligible Employee for purposes of the Program.

    (r) "GAAP" means United States generally accepted accounting principles, consistently applied.

    (s) "Incentive Plan 2000" means the Continental Airlines, Inc. Incentive Plan 2000, as amended from time to time.

    (t) "Industry Group" means, with respect to each Performance Period, the companies determined in accordance with the provisions of Article V for such Performance Period.

    (u) "Market Value per Share" means, as of any specified date, the closing sales price of Company Stock on that date (or, if there are no sales on that date, the last preceding date on which there was a sale) in the principal securities market in which the Company Stock is then traded.

    (v) "Number 1 Ranking," "Number 2 Ranking," and "Number 3 Ranking" shall have the meanings assigned to such terms in Section 2.1(bb).

      1. "Operating Income Hurdle" with respect to a Performance Period means the achievement by the Company, during such Performance Period, of an average annual operating income of $300 million ($250 million with respect to the Performance Period commencing on the Effective Date and ending on December 31, 2002 or, with respect to any Performance Period beginning after the Effective Date, such other amount as may be established by the Committee prior to the commencement of the applicable Performance Period) or more, as reflected on the regularly prepared and publicly available statements of operations of the Company and its consolidated subsidiaries prepared in accordance with GAAP, adjusted to exclude (i) accruals with respect to the Program, (ii) write-offs of assets (including aircraft and associated parts), (iii) one-time gains or losses from the disposal of assets, and the effect on annual operating income of the disposition of all or a significant portion of a business, and (iv) any other item of gain, loss, or expense determined to be extraordinary or unusual in nature or infrequent in occurrence, in each case under clauses (i), (ii), (iii) and (iv) as determined by the Committee in accordance with GAAP. The effect on annual operating income of the disposition of all or a significant portion of a business shall be determined by comparing (A) the operating income of the Company and its consolidated subsidiaries for the most recently completed fiscal year immediately preceding the date that such business is deconsolidated, in accordance with GAAP, from the Company's consolidated financial statements, with (B) the pro-forma annual operating income of the Company and its consolidated subsidiaries for such fiscal year, as set forth in a pro-forma condensed income statement of the Company and its consolidated subsidiaries covering such fiscal year and reflecting such disposition as if it had occurred at the beginning of such fiscal year, prepared in accordance with Rules 11-01 and 11-02 of Regulation S-X under the Securities Exchange Act of 1934, as amended (irrespective of whether such rules would require the preparation thereof). The annual operating income of the year in which the disposition and deconsolidation occurs (pro-rated for the date of occurrence), and each following year in Performance Periods for then-outstanding Awards, shall be adjusted for such effect.

    (x) "Participant" means an Eligible Employee who has received an Award under the Program with respect to a Performance Period pursuant to Section 4.1.

    (y) "Payment Amount" means, with respect to each Participant and each Performance Period for which the Performance Target is satisfied, an amount equal to (i) such Participant's Base Amount in effect as of the earlier of (1) the last day of such Performance Period, (2) the date of such Participant's death or Disability, or (3) the day immediately preceding the date upon which such Participant suffers a Qualifying Event in connection with, after, or in contemplation of a Change in Control, multiplied by (ii) the Payout Percentage applicable to such Participant for such Performance Period; provided, however, that the Payment Amount with respect to each Participant with respect to the Performance Period commencing on January 1, 2000 and ending on December 31, 2000 shall be one-third of the amount calculated in accordance with the foregoing formula, and the Payment Amount with respect to each Participant with respect to the Performance Period commencing on January 1, 2000 and ending on December 31, 2001 shall be two-thirds of the amount calculated in accordance with the foregoing formula. Notwithstanding the foregoing, in no event shall the aggregate Payment Amounts with respect to any Performance Period exceed 5% of the actual average annual operating income of the Company and its consolidated subsidiaries with respect to such Performance Period (the "Program Cap"), as reflected on the regularly prepared and publicly available statements of operations of the Company and its consolidated subsidiaries prepared in accordance with GAAP, adjusted to exclude (i) accruals with respect to the Program, (ii) write-offs of assets (including aircraft and associated parts), (iii) one-time gains or losses from the disposal of assets, and (iv) any other item of gain, loss, or expense determined to be extraordinary or unusual in nature or infrequent in occurrence, in each case under clauses (i), (ii), (iii) and (iv) as determined by the Committee in accordance with GAAP; provided, however, that the Program Cap shall be $25 million with respect to the Performance Period beginning on January 1, 2000 and ending on December 31, 2002. All Payment Amounts with respect to any Performance Period in which the Program Cap would, but for the foregoing limitation, be exceeded shall be reduced pro-rata so that the aggregate Payment Amounts equal the Program Cap.

    (z) "Payout Percentage" means, with respect to each Performance Period for which the Performance Target is satisfied:

    (i) In the case of a Participant who is the Company's Chief Executive Officer as of the earlier of (1) the last day of such Performance Period, (2) the date of such Participant's death or Disability, or (3) the day immediately preceding the date upon which such Participant suffers a Qualifying Event in connection with, after, or in contemplation of a Change in Control, (A) 150% if the Company achieves a Number 1 Ranking for such Performance Period, (B) 100% if the Company achieves a Number 2 Ranking for such Performance Period, and (C) 75% if the Company achieves a Number 3 Ranking for such Performance Period;

    (ii) In the case of a Participant who is the Company's President as of the earlier of (1) the last day of such Performance Period, (2) the date of such Participant's death or Disability, or (3) the day immediately preceding the date upon which such Participant suffers a Qualifying Event in connection with, after, or in contemplation of a Change in Control, (A) 135% if the Company achieves a Number 1 Ranking for such Performance Period, (B) 90% if the Company achieves a Number 2 Ranking for such Performance Period, and (C) 70% if the Company achieves a Number 3 Ranking for such Performance Period;

    (iii) In the case of a Participant who is an Executive Vice President of the Company as of the earlier of (1) the last day of such Performance Period, (2) the date of such Participant's death or Disability, or (3) the day immediately preceding the date upon which such Participant suffers a Qualifying Event in connection with, after, or in contemplation of a Change in Control, (A) 100% if the Company achieves a Number 1 Ranking for such Performance Period, (B) 75% if the Company achieves a Number 2 Ranking for such Performance Period, and (C) 50% if the Company achieves a Number 3 Ranking for such Performance Period;

    (iv) In the case of a Participant who is a Senior Vice President of the Company (or who is the President of Continental Express, Inc.) as of the earlier of (1) the last day of such Performance Period, (2) the date of such Participant's death or Disability, or (3) the day immediately preceding the date upon which such Participant suffers a Qualifying Event in connection with, after, or in contemplation of a Change in Control, (A) 70% if the Company achieves a Number 1 Ranking for such Performance Period, (B) 50% if the Company achieves a Number 2 Ranking for such Performance Period, and (C) 30% if the Company achieves a Number 3 Ranking for such Performance Period;

    (v) In the case of a Participant (other than a Participant described in any of clauses (i), (ii), (iii) or (iv) above) who is a participant in the Company's Executive Bonus Program as of the earlier of (1) the last day of such Performance Period, (2) the date of such Participant's death or Disability, or (3) the day immediately preceding the date upon which such Participant suffers a Qualifying Event in connection with, after, or in contemplation of a Change in Control, (A) 55% if the Company achieves a Number 1 Ranking for such Performance Period, (B) 40% if the Company achieves a Number 2 Ranking for such Performance Period, and (C) 25% if the Company achieves a Number 3 Ranking for such Performance Period;

      1. In the case of a Participant who is designated as a Category 1 officer by the Administrator and is not described in any of clauses (i), (ii), (iii), (iv) or (v) above as of the earlier of (1) the last day of such Performance Period, (2) the date of such Participant's death or Disability, or (3) the day immediately preceding the date upon which such Participant suffers a Qualifying Event in connection with, after, or in contemplation of a Change in Control, (A) 85% if the Company achieves a Number 1 Ranking for such Performance Period, (B) 55% if the Company achieves a Number 2 Ranking for such Performance Period, and (C) 40% if the Company achieves a Number 3 Ranking for such Performance Period;
      2. In the case of a Participant who is designated as a Category 2 officer by the Administrator and is not described in any of clauses (i), (ii), (iii), (iv), (v) or (vi) above as of the earlier of (1) the last day of such Performance Period, (2) the date of such Participant's death or Disability, or (3) the day immediately preceding the date upon which such Participant suffers a Qualifying Event in connection with, after, or in contemplation of a Change in Control, (A) 65% if the Company achieves a Number 1 Ranking for such Performance Period, (B) 40% if the Company achieves a Number 2 Ranking for such Performance Period, and (C) 30% if the Company achieves a Number 3 Ranking for such Performance Period; and
      3. In the case of a Participant who is designated as a Category 3 officer by the Administrator and is not described in any of clauses (i), (ii), (iii), (iv), (v), (vi) or (vii) above as of the earlier of (1) the last day of such Performance Period, (2) the date of such Participant's death or Disability, or (3) the day immediately preceding the date upon which such Participant suffers a Qualifying Event in connection with, after, or in contemplation of a Change in Control, (A) 30% if the Company achieves a Number 1 Ranking for such Performance Period, (B) 20% if the Company achieves a Number 2 Ranking for such Performance Period, and (C) 15% if the Company achieves a Number 3 Ranking for such Performance Period.

    Notwithstanding the foregoing, if an Eligible Employee becomes a Participant and receives an Award with respect to a Performance Period after the first day of such Performance Period, the Administrator may, in its sole discretion, reduce the percentages set forth in this Section 2.1(z) as they shall apply to such Participant for such Performance Period.

    (aa) "Performance Period" means: (i) as to the first Performance Period under the Program, the period commencing on the Effective Date and ending on December 31, 2000, (ii) as to the second Performance Period under the Program, the period commencing on the Effective Date and ending on December 31, 2001, (iii) as to the third Performance Period under the Program, the period commencing on the Effective Date and ending on December 31, 2002, and (iv) each three-year period commencing on the first day of a calendar year that begins after the Effective Date. Notwithstanding the foregoing, no new Performance Period shall commence on or after the date upon which a Change in Control occurs, unless otherwise determined by the Committee.

    (bb) "Performance Target" means, with respect to a Performance Period, that (1) the EBITDAR Margin for the Company for such Performance Period ranks first (a "Number 1 Ranking"), second (a "Number 2 Ranking"), or third (a "Number 3 Ranking") when comparing the EBITDAR Margins for such Performance Period for all companies comprising the Industry Group as of the last day of such Performance Period, and (2) the Operating Income Hurdle with respect to such Performance Period has been achieved.

    (cc) "Program" means this Continental Airlines, Inc. 1999 Long Term Incentive Performance Award Program, as amended from time to time.

    (dd) "Qualifying Event" means, with respect to a Participant, (i) the termination of such Participant's employment with the Company, (ii) the assignment to such Participant by the Board or the Administrator or other officers or representatives of the Company (or, if applicable, a Subsidiary) of duties materially inconsistent with the duties associated with his or her position as such duties are constituted as of the first day of the Change Year, (iii) a material diminution in the nature or scope of such Participant's authority, responsibilities, or title from those applicable to him or her as of the first day of the Change Year, (iv) the occurrence of material acts or conduct on the part of the Company (or, if applicable, a Subsidiary) or its officers or representatives which prevent such Participant from performing his or her duties and responsibilities as they existed on the first day of the Change Year, (v) the Company (or, if applicable, a Subsidiary) requiring such Participant to be permanently based anywhere outside a major urban center in the state (or, if applicable, foreign country, U.S. territory or other applicable sovereign entity) in which he or she was based as of the first day of the Change Year, or (vi) the taking of any action by the Company (or, if applicable, a Subsidiary) that would materially adversely affect the corporate amenities enjoyed by such Participant on the first day of the Change Year, except in each case if such Participant's employment with the Company is terminated (1) for Cause, (2) upon such Participant's death or Disability, or (3) upon the voluntary resignation of such Participant (other than in connection with circumstances which would permit such Participant to receive severance benefits (including a "Termination Payment" or "Monthly Severance Amount," as such terms are defined in such Participant's employment agreement) pursuant to any contract of employment between such Participant and the Company or any Subsidiary).

    (ee) "Stock Options" means options to acquire shares of Company Stock, awarded under a stock incentive plan established and maintained by the Company. Stock Options shall not constitute incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended. Each Stock Option shall (i) have a purchase price per share equal to the fair market value (determined under the stock incentive plan under which such Stock Option is granted) of a share of Company Stock as of the date of grant of such Stock Option (which shall be the date of the Cancellation Notice described in Section 6.6), (ii) become exercisable on each anniversary of the date of grant thereof (until such Stock Option is exercisable in full), in an amount equal to that percentage of the shares covered thereby as is equal to (A) 100% divided by (B) the number of full years (rounded up to the next highest number of full years, and in no event less than one year) between the date of grant of such Stock Option and the last day of the Performance Period for the Award (or portion thereof) which has been cancelled and replaced by the Stock Option, (iii) have a term of at least five years from the date of grant, and (iv) except as described in clauses (ii) and (iii) above, have the same terms as other non-qualified stock options granted by the Company to employees under the relevant stock incentive plan established and maintained by the Company.

    (ff) "Subsidiary" means any entity (other than the Company) with respect to which the Company, directly or indirectly through one or more other entities, owns equity interests possessing 50 percent or more of the total combined voting power of all equity interests of such entity (excluding voting power that arises only upon the occurrence of one or more specified events).

    (gg) "Trading Day" means a day during which trading in securities generally occurs in the principal securities market in which Company Stock is traded.

    2.2 Number, Gender, Headings, and Periods of Time. Wherever appropriate herein, words used in the singular shall be considered to include the plural, and words used in the plural shall be considered to include the singular. The masculine gender, where appearing in the Program, shall be deemed to include the feminine gender. The headings of Articles, Sections, and Paragraphs herein are included solely for convenience. If there is any conflict between such headings and the text of the Program, the text shall control. All references to Articles, Sections, and Paragraphs are to this Program unless otherwise indicated. Any reference in the Program to a period or number of days, weeks, months, or years shall mean, respectively, calendar days, calendar weeks, calendar months, or calendar years unless expressly provided otherwise.

     

    III. ADMINISTRATION

    3.1 Administration by the Administrator. The Program shall be administered by the Administrator, so that (i) Awards made to, and the administration (or interpretation of any provision) of the Plan as it relates to, any person who is subject to Section 16, shall be made or effected by the Committee, and (ii) Awards made to, and the administration (or interpretation of any provision) of the Program as it relates to, any person who is not subject to Section 16, shall be made or effected by the Chief Executive Officer of the Company (or, if the Chief Executive Officer is not a director of the Company, the Committee), unless the Program specifies that the Committee shall take specific action (in which case such action may only be taken by the Committee) or the Committee (as to any Award described in this clause (ii) or the administration or interpretation of any specific provision of the Program) specifies that it shall serve as Administrator. The action of a majority of the members of the Committee will be the act of the Committee.

    3.2 Powers of the Administrator. The Administrator shall supervise the administration and enforcement of the Program according to the terms and provisions hereof and shall have the sole discretionary authority and all of the powers necessary to accomplish these purposes. The Administrator (which shall be limited solely to the Committee with respect to clauses (e), (f), (g), (h), (i) and (j) below) shall have all of the powers specified for it under the Program, including, without limitation, the power, right, or authority: (a) to designate an Eligible Employee as a Participant with respect to a Performance Period at any time prior to the last day of such period, (b) from time to time to establish rules and procedures for the administration of the Program, which are not inconsistent with the provisions of the Program or the Incentive Plan 2000, and any such rules and procedures shall be effective as if included in the Program, (c) to construe in its discretion all terms, provisions, conditions, and limitations of the Program and any Award, (d) to correct any defect or to supply any omission or to reconcile any inconsistency that may appear in the Program in such manner and to such extent as the Administrator shall deem appropriate, (e) to designate the companies that will comprise the Industry Group with respect to each Performance Period that begins after January 1, 2000, as described in Article V, (f) to make determinations as to EBITDAR and EBITDAR Margin with respect to each company in the Industry Group for each Performance Period, (g) to make determinations as to the Operating Income Hurdle for each Performance Period, (h) to make determinations as to whether the Performance Targets for the various Performance Periods were satisfied, (i) to certify in writing, prior to the payment of any amount under the Program with respect to a Performance Period, whether the Performance Target relating to such Performance Period and any other material terms of the Program have in fact been satisfied, (j) to determine whether to cancel and replace Awards, and make all related determinations and valuations, under Section 6.6, and (k) to make all other determinations necessary or advisable for the administration of the Program. The Administrator may correct any defect or supply any omission or reconcile any inconsistency in the Program or in any Award or Award Notice in the manner and to the extent it shall deem expedient to carry it into effect.

    3.3 Administrator Decisions Conclusive; Standard of Care. The Administrator shall, in its sole discretion exercised in good faith (which, for purposes of this Section 3.3, shall mean the application of reasonable business judgment), make all decisions and determinations and take all actions necessary in connection with the administration of the Program. All such decisions, determinations, and actions by the Administrator shall be final, binding, and conclusive upon all persons. However, in the event of any conflict in any such determination as between the Committee and the Chief Executive Officer of the Company, each acting in capacity as Administrator of the Plan, the determination of the Committee shall be conclusive. The Administrator shall not be liable for any action or determination taken or made in good faith or upon reliance in good faith on the records of the Company or information presented to the Administrator by the Company's officers, employees, or other persons (including the Company's outside auditors) as to matters the Administrator reasonably believes are within such other person's professional or expert competence. If a Participant disagrees with any decision, determination, or action made or taken by the Administrator, then the dispute will be limited to whether the Administrator has satisfied its duty to make such decision or determination or take such action in good faith. No liability whatsoever shall attach to or be incurred by any past, present or future stockholders, officers or directors, as such, of the Company or any of its Subsidiaries, under or by reason of the Program or the administration thereof, and each Participant, in consideration of receiving benefits and participating hereunder, expressly waives and releases any and all claims relating to any such liability.

     

    IV. PARTICIPATION AND AWARD NOTICES

    4.1 Participation. Each individual who is an Eligible Employee on the first day of a Performance Period shall automatically be a Participant and receive an Award with respect to such Performance Period, unless otherwise determined by the Administrator prior to the first day of the relevant Performance Period. Each individual who becomes an Eligible Employee after the first day of a Performance Period shall become a Participant and receive an Award with respect to such Performance Period only if such individual is selected prior to the last day of such Performance Period by the Administrator in its sole discretion for participation in the Program with respect to such Performance Period.

    4.2 Award Notices. The Company shall provide an Award Notice to each Eligible Employee who becomes a Participant with respect to a Performance Period within 30 days after such Eligible Employee becomes such a Participant; provided, however, that Award Notices for the Performance Periods that begin on the Effective Date shall be provided on or before March 31, 2000. Each Award Notice shall specify (a) the Performance Period to which the Award relates and (b) the potential Payout Percentages applicable to such Award based on the Participant's position as of the date of issuance of the Award Notice.

    V. INDUSTRY GROUP

    5.1 Initial Designation. The Industry Group shall consist of the Company, AMR Corporation, Delta Air Lines, Inc., Northwest Airlines Corporation, Trans World Airlines, Inc., UAL Corporation, and US Airways Group, Inc.; provided, however, that (a) within 90 days after the first day of each Performance Period that begins after January 1, 2000, the Committee may in its discretion add any United States certificated scheduled mainline air carrier to, or remove any such company (other than the Company) from, the Industry Group for such Performance Period and (b) the Industry Group for each Performance Period shall be subject to adjustment as provided in Section 5.2.

    5.2 Adjustments to the Industry Group During a Performance Period. Except as provided in clause (a) of the proviso to Section 5.1, no company shall be added to, or removed from, the Industry Group for a Performance Period during such period; provided, however, that a company (other than the Company) shall be removed from the Industry Group for a Performance Period if (a) during such period, (i) such company ceases to maintain publicly available statements of operations prepared in accordance with GAAP, (ii) such company is not the surviving entity in any merger, consolidation, or other reorganization (or survives only as a subsidiary of an entity other than a previously wholly owned subsidiary of such company), (iii) such company sells, leases, or exchanges all or substantially all of its assets to any other person or entity (other than a previously wholly owned subsidiary of such company), or (iv) such company is dissolved and liquidated, or (b) more than 20% of such company's revenues (determined on a consolidated basis based on the regularly prepared and publicly available statements of operations of such company prepared in accordance with GAAP) for any fiscal year of such company that ends during such Performance Period are attributable to the operation of businesses other than such company's airline business and such company does not provide publicly available statements of operations with respect to its airline business that are separate from the statements of operations provided with respect to its other businesses.

     

    VI. AWARD PAYMENTS

    6.1 Determinations and Certification by the Committee. As soon as administratively feasible after the end of each Performance Period, the Committee shall determine (a) with respect to each company comprising the Industry Group as of the last day of such Performance Period, the EBITDAR and EBITDAR Margin for such company for such Performance Period, (b) whether the Performance Target for such Performance Period and whether any other material terms relating to the payment of an Award have been satisfied, and (c) if the Performance Target for such Performance Period and any other material terms relating to the payment of an Award have been satisfied, whether the Company achieved a Number 1 Ranking, a Number 2 Ranking, or a Number 3 Ranking for such Performance Period. The Committee's determination as to whether the Performance Target for a Performance Period and any other material terms relating to the payment of an Award have been satisfied and, if so, whether the Company achieved a Number 1 Ranking, a Number 2 Ranking, or a Number 3 Ranking for such Performance Period shall be certified by the Committee in writing and delivered to the Secretary of the Company. For purposes of the preceding sentence, approved minutes of the Committee meeting in which the certification is made shall be treated as a written certification.

      1. Eligibility for Payment of Awards. Upon the Committee's written certification in accordance with Section 6.1 that a Performance Target for a Performance Period and any other material terms relating to the payment of an Award have been satisfied, each Participant who has received an Award with respect to such Performance Period and who has remained continuously employed by the Company from the date he or she received such Award until the last day of such Performance Period shall be entitled to the Payment Amount applicable to such Participant's Award for such Performance Period. Except as provided in Section 6.3 and Section 6.4, if a Participant's employment with the Company terminates for any reason whatsoever prior to the last day of a Performance Period, then such Participant shall not be entitled to receive any payment under the Program with respect to his or her Award for such Performance Period, unless otherwise determined by the Administrator. Payment of the amount to which a Participant becomes entitled pursuant to this Section 6.2 shall be made by the Company within five business days after the Committee's written certification of the satisfaction of the applicable Performance Target.

    6.3 Death or Disability. Except as provided in Section 6.4, if during a Performance Period with respect to which a Participant has received an Award, such Participant dies or becomes Disabled, then as to such Participant only (a) the Administrator, based on publicly available data with respect to each Performance Period that began prior to the date of such Participant's death or Disability and which has not ended as of such date, shall as promptly as practicable determine the actual EBITDAR Margin and operating income performance of the Company and its consolidated subsidiaries through the most recent practicable date, and shall determine, based on such data and publicly available data with respect to the companies contained in the Industry Group (and, if deemed appropriate by the Administrator, annualizing or otherwise making assumptions with respect to any relevant data), whether the Company has achieved the Performance Target through such most recent practicable date, and if so whether the Company has achieved a Number 1 Ranking, Number 2 Ranking or Number 3 Ranking through such most recent practicable date, and (b) the provisions of Sections 6.1 and 6.2 shall cease to apply with respect to each such Performance Period. With respect to each such Performance Period that the Performance Target has been satisfied in the manner described in clause (a) of the preceding sentence, such Participant (or, in the case of death, such Participant's estate) shall (i) receive a payment from the Company, within five business days after the determination by the Administrator referred to in clause (a) of the foregoing sentence, equal to the Payment Amount applicable to such Participant's Award for such Performance Period multiplied by a fraction, the numerator of which is the number of days during the period beginning on the first day of such Performance Period and ending on the date such Participant died or became Disabled, and the denominator of which is the number of days in the entire Performance Period, and (ii) not be entitled to any additional payment under the Program with respect to such Performance Period.

    6.4 Change in Control. Upon the occurrence of a Change in Control, (a) the Performance Target for each Performance Period that began prior to the date of such Change in Control and which has not ended as of such date shall be deemed to have been satisfied, (b) the Company shall be deemed to have achieved a Number 1 Ranking for each such Performance Period, and (c) the provisions of Sections 6.1, 6.2 and 6.3 shall cease to apply with respect to each such Performance Period. If a Change in Control occurs and thereafter (or in connection therewith or in contemplation thereof) during a Performance Period described in the preceding sentence a Participant who has received an Award with respect to such Performance Period dies, becomes Disabled or suffers a Qualifying Event, then, with respect to each such Performance Period, such Participant (or, in the case of death, such Participant's estate) shall (i) upon the occurrence of the death, Disability or Qualifying Event, receive a payment from the Company equal to the Payment Amount applicable to such Participant's Award for such Performance Period multiplied by a fraction, the numerator of which is the number of days during the period beginning on the first day of such Performance Period and ending on the date such Participant died, became Disabled or suffered the Qualifying Event, and the denominator of which is the number of days in the entire Performance Period, and (ii) not be entitled to any additional payment under the Program with respect to such Performance Period. If a Change in Control occurs and a Participant who has received an Award with respect to a Performance Period described in the first sentence of this Section 6.4 did not die, become Disabled or suffer a Qualifying Event during such Performance Period as described in the preceding sentence and such Participant remained continuously employed by the Company from the date he or she received such Award until the last day of such Performance Period, then, with respect to each such Performance Period, such Participant shall receive a payment from the Company on the last day of such Performance Period in an amount equal to the Payment Amount applicable to such Participant's Award for such Performance Period.

    6.5 Form of Payment of Awards. All payments to be made under the Program to a Participant with respect to an Award shall be paid in a single lump sum payment (unless otherwise specified in an Award Notice), which payment shall be in cash, unless in the sole discretion of the Committee such payment is made either (a) in shares of Company Stock (subject to any limitations contained in the Incentive Plan 2000), but if and only if at the time of payment the Company has an effective registration statement under the Securities Act of 1933, as amended, covering the issuance of Company Stock under the Program, or (b) in a combination of cash and/or shares of Company Stock. If the Committee elects to direct the Company to pay all or a portion of a payment due under the Program in shares of Company Stock, then the number of shares of Company Stock shall be determined by dividing the amount of such payment to be paid in shares of Company Stock by the Market Value per Share on the Trading Day immediately preceding the date of such payment, and rounding such number down to the nearest whole share.

    6.6 Cancellation and Replacement of Awards by the Committee. The Committee may at any time prior to the last day of a Performance Period (other than after, or in contemplation of, a Change in Control, or as to any Award, after the death or Disability of the Participant), in its sole discretion, with or without cause, for any reason that in the opinion of the Committee is in the best interests of the Company, direct the Company to cancel all or any portion of a Participant's Award for such Performance Period, and simultaneously replace such Award (or portion thereof) so cancelled with Stock Options. In determining whether the decision to cancel all or a portion of a Participant's Award is in the best interests of the Company, the Committee shall make its determination in good faith (which, for this purpose, shall mean that the Committee shall exercise reasonable business judgment). This contractual duty to make such decision in good faith is in lieu of, and subsumes, any and all other express or implied duties, in contract, tort, or otherwise, that might otherwise be imposed upon the Committee or the Company with respect to such decision. A decision by the Committee to cause such a cancellation may vary among Participants and may vary among the Awards held by an individual Participant. To effect such a cancellation, the Committee shall cause the Company to deliver to the Participant a written notice (the "Cancellation Notice") specifying the Participant's Award (or portion thereof) to be cancelled, accompanied by a grant document for the Stock Options replacing the cancelled Award (or portion thereof). Upon delivery of the Cancellation Notice accompanied by such grant document for the Stock Options replacing the cancelled Award (or portion thereof), the Award (or portion thereof) that is to be cancelled as specified in such notice shall be canceled. Any portion of such Award not so cancelled shall remain outstanding. The Stock Options to be granted to a Participant upon cancellation of all or any portion of such Participant's Award shall have a Black-Scholes value (determined by the Committee in good faith and using assumptions consistent with those used by the Company in calculating Black-Scholes values for proxy statement purposes) at least as great as the value of the Award (or portion thereof) being cancelled, with the value of an Award (or portion thereof) being cancelled to be equal to the payment a Participant who satisfied all conditions to payment would have received with respect thereto (based on the Participant's position and Base Amount in effect on the date of cancellation of such Participant's Award) if the Company had satisfied the Performance Target and achieved a Number 2 Ranking during the relevant Performance Period.

     

    VII. STOCKHOLDER APPROVAL, TERMINATION,

    AND AMENDMENT OF PROGRAM

    7.1 Stockholder Approval. The Program shall be effective as of the Effective Date; provided that the Incentive Plan 2000 is approved by the Company's stockholders in the manner required under section 162(m) of the Code at the Company's 2000 annual meeting of stockholders. Notwithstanding any provision herein to the contrary, no payment under the Program shall be made to or on behalf of any Participant unless the Incentive Plan 2000 is so approved by the Company's stockholders. If the Company's stockholders do not so approve the Incentive Plan 2000, then (a) all Awards under the Program shall be void ab initio and of no further effect and (b) the Program shall terminate.

    7.2 Termination and Amendment. The Committee may amend the Program at any time and from time to time, and the Committee may at any time terminate the Program (in its entirety or as it applies to one or more specified Subsidiaries) with respect to Performance Periods that have not commenced as of the date of such Committee action; provided, however, that the Program may not be amended in a manner that would impair the rights of any Participant with respect to any outstanding Award without the consent of such Participant, or without the further approval of the stockholders of the Company if such amendment would result in the Program no longer satisfying the requirements of section 162(m) of the Code, and this Program may not be amended or terminated in contemplation of or in connection with a Change in Control, nor may any Participant's participation herein be terminated in contemplation of or in connection with a Change in Control, unless adequate and effective provision for the making of all payments otherwise payable (based on Participants' Base Amounts as in effect immediately prior to such Change in Control) pursuant to Section 6.4 of this Program (as in effect on the date of stockholder approval described in Section 7.1) with respect to such Change in Control shall be made in connection with any such amendment or termination. The Committee shall remain in existence after the termination of the Program for the period determined necessary by the Committee to facilitate the termination of the Program, and all provisions of the Program that are necessary, in the opinion of the Committee, for equitable operation of the Program during such period shall remain in force.

    VIII. MISCELLANEOUS PROVISIONS

    8.1 No Effect on Employment Relationship. For all purposes of the Program, a Participant shall be considered to be in the employment of the Company as long as he or she remains employed on a full-time basis by the Company or any Subsidiary. Nothing in the adoption of the Program, the grant of Awards, or the payment of amounts under the Program shall confer on any person the right to continued employment by the Company or any Subsidiary or affect in any way the right of the Company (or a Subsidiary, if applicable) to terminate such employment at any time. Unless otherwise provided in a written employment agreement, the employment of each Participant shall be on an at-will basis, and the employment relationship may be terminated at any time by either the Participant or the Participant's employer for any reason whatsoever, with or without cause. Any question as to whether and when there has been a termination of a Participant's employment for purposes of the Program, and the reason for such termination, shall be determined solely by and in the discretion of the Administrator, and its determination shall be final, binding, and conclusive on all parties.

    8.2 Prohibition Against Assignment or Encumbrance. No Award or other right, title, interest, or benefit hereunder shall ever be assignable or transferable, or liable for, or charged with any of the torts or obligations of a Participant or any person claiming under a Participant, or be subject to seizure by any creditor of a Participant or any person claiming under a Participant. No Participant or any person claiming under a Participant shall have the power to anticipate or dispose of any Award or other right, title, interest, or benefit hereunder in any manner until the same shall have actually been distributed free and clear of the terms of the Program. Payments with respect to an Award shall be payable only to the Participant (or (a) in the event of a Disability that renders such Participant incapable of conducting his or her own affairs, any payment due under the Program to such Participant shall be made to his or her duly appointed legal representative and (b) in the event of the death of a Participant, any payment due under the Program to such Participant shall be made to his or her estate). The provisions of the Program shall be binding on all successors and permitted assigns of a Participant, including without limitation the estate of such Participant and the executor, administrator or trustee of such estate, or any receiver or trustee in bankruptcy or representative of the Participant's creditors.

    8.3 Unfunded, Unsecured Program. The Program shall constitute an unfunded, unsecured obligation of the Company to make payments of incentive compensation to certain individuals from its general assets in accordance with the Program. Each Award granted under the Program merely constitutes a mechanism for measuring such incentive compensation and does not constitute a property right or interest in the Company, any Subsidiary, or any of their assets. Neither the establishment of the Program, the granting of Awards, nor any other action taken in connection with the Program shall be deemed to create an escrow or trust fund of any kind.

    8.4 No Rights of Participant. No Participant shall have any security or other interest in any assets of the Company or any Subsidiary or in Company Stock as a result of participation in the Program. Participants and all persons claiming under Participants shall rely solely on the unsecured promise of the Company set forth herein, and nothing in the Program, an Award or an Award Notice shall be construed to give a Participant or anyone claiming under a Participant any right, title, interest, or claim in or to any specific asset, fund, entity, reserve, account, or property of any kind whatsoever owned by the Company or any Subsidiary or in which the Company or any Subsidiary may have an interest now or in the future; but each Participant shall have the right to enforce any claim hereunder in the same manner as a general creditor. Neither the establishment of the Program nor participation hereunder shall create any right in any Participant to make any decision, or provide input with respect to any decision, relating to the business of the Company or any Subsidiary.

    8.5 Tax Withholding. The Company and the Subsidiaries shall deduct and withhold, or cause to be withheld, from a Participant's payment, including the delivery of shares, made under the Program, or from any other payment to such Participant, an amount necessary to satisfy any and all tax withholding obligations arising under applicable local, state, federal, or foreign laws associated with such payment. The Company and the Subsidiaries may take any other action as may in their opinion be necessary to satisfy all obligations for the payment and withholding of such taxes.

    8.6 No Effect on Other Compensation Arrangements. Nothing contained in the Program or any Participant's Award or Award Notice shall prevent the Company or any Subsidiary from adopting or continuing in effect other or additional compensation arrangements affecting any Participant. Nothing in the Program shall be construed to affect the provisions of any other compensation plan or program maintained by the Company or any Subsidiary.

    8.7 Subsidiaries. The Company may require any Subsidiary employing a Participant to assume and guarantee the Company's obligations hereunder to such Participant, either at all times or solely in the event that such Subsidiary ceases to be a Subsidiary.

    8.8 Governing Law. The Program shall be construed in accordance with the laws of the State of Texas.

    IN WITNESS WHEREOF, the undersigned officer of the Company acting pursuant to authority granted to him by the Committee has executed this instrument effective as of April 9, 2002.

    CONTINENTAL AIRLINES, INC.

     

    By:

    Jeffery A. Smisek

    Executive Vice President

    RESTRICTED STOCK AGREEMENT

    EXHIBIT 10.9

    RESTRICTED STOCK AGREEMENT

    (PURSUANT TO THE TERMS OF THE

    CONTINENTAL AIRLINES, INC.

    1997 STOCK INCENTIVE PLAN)

    This RESTRICTED STOCK AGREEMENT (this "Restricted Stock Agreement") is between Continental Airlines, Inc., a Delaware corporation ("Company"), and ____________________ ("Recipient"), and is dated as of the date set forth immediately above the signatures below.

        1. Grant of Restricted Stock. The Company hereby grants to Recipient all rights, title and interest in the record and beneficial ownership of _______________(###,###) shares (the "Restricted Stock") of Class B common stock, $.01 par value per share, of Company ("Common Stock") subject to the conditions described in Paragraphs 4 and 5 as well as the other provisions of this Restricted Stock Agreement. The Restricted Stock is granted pursuant to and to implement in part the Continental Airlines, Inc. 1997 Stock Incentive Plan (as amended and in effect from time to time, the "Plan") and is subject to the provisions of the Plan, which is hereby incorporated herein and is made a part hereof, as well as the provisions of this Restricted Stock Agreement. Recipient agrees to be bound by all of the terms, provisions, conditions and limitations of the Plan and this Restricted Stock Agreement. All capitalized terms have the meanings set forth in the Plan unless otherwise specifically provided. All references to specified paragraphs pertain to paragraphs of this Restricted Stock Agreement unless otherwise specifically provided.
        2. Custody of Restricted Stock. Upon satisfaction of the vesting conditions set forth in Paragraph 4 or the occurrence of any of the events contemplated by Paragraph 5(b) or 5(c), Company shall issue and deliver to Recipient a certificate or certificates for such number of shares of Restricted Stock as are required to be issued and delivered under this Restricted Stock Agreement. Prior to the satisfaction of such vesting conditions or the occurrence of such events, the Restricted Stock is not transferable and shall be held in trust or in escrow pursuant to an agreement satisfactory to the Administrator until such time as the applicable restrictions on the transfer thereof have expired or otherwise lapsed.
        3. Risk of Forfeiture. Subject to Paragraphs 5(b) and 5(c), should Recipient's employment (defined below) with Company and each subsidiary (as the term "subsidiary" is defined in the Plan) terminate prior to any of the vesting dates set forth in Paragraph 4, Recipient shall forfeit the right to receive the Restricted Stock that would otherwise have vested on such dates.
        4. Vesting Dates. Subject to Paragraph 5, the shares of Restricted Stock subject to this Restricted Stock Agreement shall vest in _____ percent (___%) increments on each of ____________________.
        5. Termination of Employment; Change in Control. Voluntary or involuntary termination of employment, retirement, death or Disability of Recipient, or occurrence of a Change in Control, shall affect Recipient's rights under this Restricted Stock Agreement as follows:
              1. Voluntary or Involuntary Termination. If, other than as specified below, Recipient voluntarily terminates employment (defined below) or if Recipient's employment is terminated involuntarily, then Recipient shall forfeit the right to receive all shares of Restricted Stock that have not theretofore vested pursuant to Paragraph 4.
              2. Change in Control. If a Change in Control shall occur, then immediately all nonvested Restricted Stock shall fully vest, all restrictions (other than those described in Paragraph 9) applicable to such Restricted Stock shall terminate and Company shall release from escrow or trust and shall issue and deliver to Recipient a certificate or certificates for all shares of Restricted Stock.
              3. Retirement, Death or Disability. If Recipient's employment is terminated by retirement, death or Disability, then immediately all nonvested Restricted Stock shall fully vest, all restrictions (other than described in Paragraph 9) applicable to Restricted Stock shall terminate and Company shall release from escrow or trust and shall issue and deliver to Recipient, or in the case of death, to the person or persons to whom Recipient's rights under this Restricted Stock Agreement shall pass by will or by the applicable laws of descent and distribution, or in the case of Disability, to Recipient's personal representative, a certificate or certificates for all Restricted Stock.
              4. Definition of Employment. For purposes of this Restricted Stock Agreement, "employment" means employment by Company or a subsidiary. In this regard, neither the transfer of Recipient from employment by Company to employment by a subsidiary nor the transfer of Recipient from employment by a subsidiary to employment by Company shall be deemed to be a termination of employment of Recipient. Moreover, the employment of Recipient shall not be deemed to have been terminated because of absence from active employment on account of temporary illness or during authorized vacation or during temporary leaves of absence from active employment granted by Company or a subsidiary for reasons of professional advancement, education, health, or government service, or during military leave for any period if Recipient returns to active employment within 90 days after the termination of military leave, or during any period required to be treated as a leave of absence by virtue of any valid law or agreement. The Administrator's determination in good faith regarding whether a termination of employment of any type or Disability has occurred shall be conclusive and determinative.

        6. Ownership Rights. Subject to the restrictions set forth herein and subject to Paragraph 8, Recipient is entitled to all voting and ownership rights applicable to the Restricted Stock, including the right to receive any dividends that may be paid on Restricted Stock, whether or not vested.
        7. Reorganization of Company and Subsidiaries. The existence of this Restricted Stock Agreement shall not affect in any way the right or power of Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in Company's capital structure or its business, or any merger or consolidation of Company or any issue of bonds, debentures, preferred or prior preference stock ahead of or affecting the Restricted Stock or the rights thereof, or the dissolution or liquidation of Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.
        8. Adjustment of Shares. In the event of stock dividends, spin-offs of assets or other extraordinary dividends, stock splits, combinations of shares, recapitalizations, mergers, consolidations, reorganizations, liquidations, issuances of rights or warrants and similar transactions or events involving Company ("Recapitalization Events"), then for all purposes references herein to Common Stock or to Restricted Stock shall mean and include all securities or other property (other than cash) that holders of Common Stock of Company are entitled to receive in respect of Common Stock by reason of each successive Recapitalization Event, which securities or other property (other than cash) shall be treated in the same manner and shall be subject to the same restrictions as the underlying Restricted Stock.

    9. Certain Restrictions. By accepting the Restricted Stock, Recipient agrees that if at the time of delivery of certificates for shares of Restricted Stock issued hereunder any sale of such shares is not covered by an effective registration statement filed under the Securities Act of 1933 (the "Act"), Recipient will acquire the Restricted Stock for Recipient's own account and without a view to resale or distribution in violation of the Act or any other securities law, and upon any such acquisition Recipient will enter into such written representations, warranties and agreements as Company may reasonably request in order to comply with the Act or any other securities law or with this Restricted Stock Agreement.

    10. Nontransferability of Award. This Award is not transferable other than by will, the laws of descent and distribution or by qualified domestic relations order. No right or benefit hereunder shall in any manner be liable for or subject to any debts, contracts, liabilities, or torts of Recipient.

    11. Amendment and Termination. No amendment or termination of this Restricted Stock Agreement which would impair the rights of Recipient shall be made by the Board or the Administrator at any time without the written consent of Recipient. No amendment or termination of the Plan will adversely affect the right, title and interest of Recipient under this Restricted Stock Agreement or to Restricted Stock granted hereunder without the written consent of Recipient.

    12. No Guarantee of Employment. This Restricted Stock Agreement shall not confer upon Recipient any right with respect to continuance of employment or other service with Company or any subsidiary, nor shall it interfere in any way with any right Company or any subsidiary would otherwise have to terminate such Recipient's employment or other service at any time.

    13. Withholding of Taxes. Company shall have the right to (i) make deductions from the number of shares of Restricted Stock otherwise deliverable upon satisfaction of the conditions precedent under this Restricted Stock Agreement (and other amounts payable under this Restricted Stock Agreement) in an amount sufficient to satisfy withholding of any federal, state or local taxes required by law, or (ii) take such other action as may be necessary or appropriate to satisfy any such tax withholding obligations.

    14. No Guarantee of Tax Consequences. Neither Company nor any subsidiary nor the Administrator makes any commitment or guarantee that any federal or state tax treatment will apply or be available to any person eligible for benefits under this Restricted Stock Agreement.

    15. Severability. In the event that any provision of this Restricted Stock Agreement shall be held illegal, invalid, or unenforceable for any reason, such provision shall be fully severable, but shall not affect the remaining provisions of this Restricted Stock Agreement and this Restricted Stock Agreement shall be construed and enforced as if the illegal, invalid, or unenforceable provision had never been included herein.

    16. Governing Law. The Restricted Stock Agreement shall be construed in accordance with the laws of the State of Texas to the extent federal law does not supersede and preempt Texas law.

    17. Miscellaneous Provisions.

    (a) Not a Contract of Employment; No Acquired Rights. The adoption and maintenance of the Plan shall not be deemed to be a contract of employment between the Company or any of its subsidiaries and any person. Receipt of an Award under the Plan at any given time shall not be deemed to create the right to receive in the future an Award under the Plan, or any other incentive awards granted to an employee of the Company or any of its subsidiaries, and shall not constitute an acquired labor right for purposes of any foreign law. The Plan shall not afford any recipient of an Award any additional right to severance payments or other termination awards or compensation under any foreign law as a result of the termination of such recipient's employment for any reason whatsoever.

    (b) Not a Part of Salary. The grant of an Award under the Plan is not intended to be a part of the salary of Recipient.

    (c) Foreign Indemnity. Recipient agrees to indemnify Company for the Recipient's portion of any social insurance obligations or taxes arising under any foreign law with respect to the grant of this Restricted Stock Award, the vesting of the Restricted Stock or the sale or other disposition of the Restricted Stock.

    (d) Conflicts With Any Employment Agreement. If Recipient has an employment agreement with Company or any of its subsidiaries which contains different or additional provisions relating to vesting of restricted stock awards, or otherwise conflicts with the terms of this Restricted Stock Agreement, the provisions of the employment agreement shall govern.

    (e) Electronic Delivery and Signatures. Recipient hereby consents and agrees to electronic delivery of any Plan documents, proxy materials, annual reports and other related documents. If the Company establishes procedures for an electronic signature system for delivery and acceptance of Plan documents (including documents relating to any programs adopted under the Plan), Recipient hereby consents to such procedures and agrees that his or her electronic signature is the same as, and shall have the same force and effect as, his or her manual signature. Recipient consents and agrees that any such procedures and delivery may be effected by a third party engaged by the Company to provide administrative services related to the Plan, including any program adopted under the Plan.

    (f) Stabilization Act. This Restricted Stock Agreement will be void (or the grant of Restricted Stock hereunder shall be subject to reduction in any amount, in each case as determined by the Committee in its sole discretion) if the Company applies for a federal credit instrument under the Air Transportation Safety and System Stabilization Act and the Committee determines that this Agreement or such grant of Restricted Stock could reasonably be expected to jeopardize the Company's ability to obtain or maintain federal credit instruments under the Air Transportation Safety and System Stabilization Act, as amended from time to time, and applicable rules and regulations thereunder.

     

    IN WITNESS WHEREOF, the parties have entered into this Restricted Stock Agreement as of the ___ day of ____________,_______.

     

    "COMPANY"

    CONTINENTAL AIRLINES, INC.

    By Order of the Administrator

    By:

    Name:

    Title:

     

    "Recipient"

     

     

    Name:

    RESTRICTED STOCK AGREEMENT

    EXHIBIT 10.10

    RESTRICTED STOCK AGREEMENT

    (PURSUANT TO THE TERMS OF THE

    CONTINENTAL AIRLINES, INC.

    1998 STOCK INCENTIVE PLAN)

    This RESTRICTED STOCK AGREEMENT (this "Restricted Stock Agreement") is between Continental Airlines, Inc., a Delaware corporation ("Company"), and ____________________ ("Recipient"), and is dated as of the date set forth immediately above the signatures below.

        1. Grant of Restricted Stock. The Company hereby grants to Recipient all rights, title and interest in the record and beneficial ownership of _______________(###,###) shares (the "Restricted Stock") of Class B common stock, $.01 par value per share, of Company ("Common Stock") subject to the conditions described in Paragraphs 4 and 5 as well as the other provisions of this Restricted Stock Agreement. The Restricted Stock is granted pursuant to and to implement in part the Continental Airlines, Inc. 1998 Stock Incentive Plan (as amended and in effect from time to time, the "Plan") and is subject to the provisions of the Plan, which is hereby incorporated herein and is made a part hereof, as well as the provisions of this Restricted Stock Agreement. Recipient agrees to be bound by all of the terms, provisions, conditions and limitations of the Plan and this Restricted Stock Agreement. All capitalized terms have the meanings set forth in the Plan unless otherwise specifically provided. All references to specified paragraphs pertain to paragraphs of this Restricted Stock Agreement unless otherwise specifically provided.
        2. Custody of Restricted Stock. Upon satisfaction of the vesting conditions set forth in Paragraph 4 or the occurrence of any of the events contemplated by Paragraph 5(b) or 5(c), Company shall issue and deliver to Recipient a certificate or certificates for such number of shares of Restricted Stock as are required to be issued and delivered under this Restricted Stock Agreement. Prior to the satisfaction of such vesting conditions or the occurrence of such events, the Restricted Stock is not transferable and shall be held in trust or in escrow pursuant to an agreement satisfactory to the Administrator until such time as the applicable restrictions on the transfer thereof have expired or otherwise lapsed.
        3. Risk of Forfeiture. Subject to Paragraphs 5(b) and 5(c), should Recipient's employment (defined below) with Company and each subsidiary (as the term "subsidiary" is defined in the Plan) terminate prior to any of the vesting dates set forth in Paragraph 4, Recipient shall forfeit the right to receive the Restricted Stock that would otherwise have vested on such dates.
        4. Vesting Dates. Subject to Paragraph 5, the shares of Restricted Stock subject to this Restricted Stock Agreement shall vest in _____ percent (___%) increments on each of ____________________.
        5. Termination of Employment; Change in Control. Voluntary or involuntary termination of employment, retirement, death or Disability of Recipient, or occurrence of a Change in Control, shall affect Recipient's rights under this Restricted Stock Agreement as follows:
              1. Voluntary or Involuntary Termination. If, other than as specified below, Recipient voluntarily terminates employment (defined below) or if Recipient's employment is terminated involuntarily, then Recipient shall forfeit the right to receive all shares of Restricted Stock that have not theretofore vested pursuant to Paragraph 4.
              2. Change in Control. If a Change in Control shall occur, then immediately all nonvested Restricted Stock shall fully vest, all restrictions (other than those described in Paragraph 9) applicable to such Restricted Stock shall terminate and Company shall release from escrow or trust and shall issue and deliver to Recipient a certificate or certificates for all shares of Restricted Stock.
              3. Retirement, Death or Disability. If Recipient's employment is terminated by retirement, death or Disability, then immediately all nonvested Restricted Stock shall fully vest, all restrictions (other than described in Paragraph 9) applicable to Restricted Stock shall terminate and Company shall release from escrow or trust and shall issue and deliver to Recipient, or in the case of death, to the person or persons to whom Recipient's rights under this Restricted Stock Agreement shall pass by will or by the applicable laws of descent and distribution, or in the case of Disability, to Recipient's personal representative, a certificate or certificates for all Restricted Stock.
              4. Definition of Employment. For purposes of this Restricted Stock Agreement, "employment" means employment by Company or a subsidiary. In this regard, neither the transfer of Recipient from employment by Company to employment by a subsidiary nor the transfer of Recipient from employment by a subsidiary to employment by Company shall be deemed to be a termination of employment of Recipient. Moreover, the employment of Recipient shall not be deemed to have been terminated because of absence from active employment on account of temporary illness or during authorized vacation or during temporary leaves of absence from active employment granted by Company or a subsidiary for reasons of professional advancement, education, health, or government service, or during military leave for any period if Recipient returns to active employment within 90 days after the termination of military leave, or during any period required to be treated as a leave of absence by virtue of any valid law or agreement. The Administrator's determination in good faith regarding whether a termination of employment of any type or Disability has occurred shall be conclusive and determinative.

        6. Ownership Rights. Subject to the restrictions set forth herein and subject to Paragraph 8, Recipient is entitled to all voting and ownership rights applicable to the Restricted Stock, including the right to receive any dividends that may be paid on Restricted Stock, whether or not vested.
        7. Reorganization of Company and Subsidiaries. The existence of this Restricted Stock Agreement shall not affect in any way the right or power of Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in Company's capital structure or its business, or any merger or consolidation of Company or any issue of bonds, debentures, preferred or prior preference stock ahead of or affecting the Restricted Stock or the rights thereof, or the dissolution or liquidation of Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.
        8. Adjustment of Shares. In the event of stock dividends, spin-offs of assets or other extraordinary dividends, stock splits, combinations of shares, recapitalizations, mergers, consolidations, reorganizations, liquidations, issuances of rights or warrants and similar transactions or events involving Company ("Recapitalization Events"), then for all purposes references herein to Common Stock or to Restricted Stock shall mean and include all securities or other property (other than cash) that holders of Common Stock of Company are entitled to receive in respect of Common Stock by reason of each successive Recapitalization Event, which securities or other property (other than cash) shall be treated in the same manner and shall be subject to the same restrictions as the underlying Restricted Stock.

    9. Certain Restrictions. By accepting the Restricted Stock, Recipient agrees that if at the time of delivery of certificates for shares of Restricted Stock issued hereunder any sale of such shares is not covered by an effective registration statement filed under the Securities Act of 1933 (the "Act"), Recipient will acquire the Restricted Stock for Recipient's own account and without a view to resale or distribution in violation of the Act or any other securities law, and upon any such acquisition Recipient will enter into such written representations, warranties and agreements as Company may reasonably request in order to comply with the Act or any other securities law or with this Restricted Stock Agreement.

    10. Nontransferability of Award. This Award is not transferable other than by will, the laws of descent and distribution or by qualified domestic relations order. No right or benefit hereunder shall in any manner be liable for or subject to any debts, contracts, liabilities, or torts of Recipient.

    11. Amendment and Termination. No amendment or termination of this Restricted Stock Agreement which would impair the rights of Recipient shall be made by the Board or the Administrator at any time without the written consent of Recipient. No amendment or termination of the Plan will adversely affect the right, title and interest of Recipient under this Restricted Stock Agreement or to Restricted Stock granted hereunder without the written consent of Recipient.

    12. No Guarantee of Employment. This Restricted Stock Agreement shall not confer upon Recipient any right with respect to continuance of employment or other service with Company or any subsidiary, nor shall it interfere in any way with any right Company or any subsidiary would otherwise have to terminate such Recipient's employment or other service at any time.

    13. Withholding of Taxes. Company shall have the right to (i) make deductions from the number of shares of Restricted Stock otherwise deliverable upon satisfaction of the conditions precedent under this Restricted Stock Agreement (and other amounts payable under this Restricted Stock Agreement) in an amount sufficient to satisfy withholding of any federal, state or local taxes required by law, or (ii) take such other action as may be necessary or appropriate to satisfy any such tax withholding obligations.

    14. No Guarantee of Tax Consequences. Neither Company nor any subsidiary nor the Administrator makes any commitment or guarantee that any federal or state tax treatment will apply or be available to any person eligible for benefits under this Restricted Stock Agreement.

    15. Severability. In the event that any provision of this Restricted Stock Agreement shall be held illegal, invalid, or unenforceable for any reason, such provision shall be fully severable, but shall not affect the remaining provisions of this Restricted Stock Agreement and this Restricted Stock Agreement shall be construed and enforced as if the illegal, invalid, or unenforceable provision had never been included herein.

    16. Governing Law. The Restricted Stock Agreement shall be construed in accordance with the laws of the State of Texas to the extent federal law does not supersede and preempt Texas law.

    17. Miscellaneous Provisions.

    (a) Not a Contract of Employment; No Acquired Rights. The adoption and maintenance of the Plan shall not be deemed to be a contract of employment between the Company or any of its subsidiaries and any person. Receipt of an Award under the Plan at any given time shall not be deemed to create the right to receive in the future an Award under the Plan, or any other incentive awards granted to an employee of the Company or any of its subsidiaries, and shall not constitute an acquired labor right for purposes of any foreign law. The Plan shall not afford any recipient of an Award any additional right to severance payments or other termination awards or compensation under any foreign law as a result of the termination of such recipient's employment for any reason whatsoever.

    (b) Not a Part of Salary. The grant of an Award under the Plan is not intended to be a part of the salary of Recipient.

    (c) Foreign Indemnity. Recipient agrees to indemnify Company for the Recipient's portion of any social insurance obligations or taxes arising under any foreign law with respect to the grant of this Restricted Stock Award, the vesting of the Restricted Stock or the sale or other disposition of the Restricted Stock.

    (d) Conflicts With Any Employment Agreement. If Recipient has an employment agreement with Company or any of its subsidiaries which contains different or additional provisions relating to vesting of restricted stock awards, or otherwise conflicts with the terms of this Restricted Stock Agreement, the provisions of the employment agreement shall govern.

    (e) Electronic Delivery and Signatures. Recipient hereby consents and agrees to electronic delivery of any Plan documents, proxy materials, annual reports and other related documents. If the Company establishes procedures for an electronic signature system for delivery and acceptance of Plan documents (including documents relating to any programs adopted under the Plan), Recipient hereby consents to such procedures and agrees that his or her electronic signature is the same as, and shall have the same force and effect as, his or her manual signature. Recipient consents and agrees that any such procedures and delivery may be effected by a third party engaged by the Company to provide administrative services related to the Plan, including any program adopted under the Plan.

    (f) Stabilization Act. This Restricted Stock Agreement will be void (or the grant of Restricted Stock hereunder shall be subject to reduction in any amount, in each case as determined by the Committee in its sole discretion) if the Company applies for a federal credit instrument under the Air Transportation Safety and System Stabilization Act and the Committee determines that this Agreement or such grant of Restricted Stock could reasonably be expected to jeopardize the Company's ability to obtain or maintain federal credit instruments under the Air Transportation Safety and System Stabilization Act, as amended from time to time, and applicable rules and regulations thereunder.

     

     

    IN WITNESS WHEREOF, the parties have entered into this Restricted Stock Agreement as of the ___ day of ____________,_______.

     

    "COMPANY"

    CONTINENTAL AIRLINES, INC.

    By Order of the Administrator

    By:

    Name:

    Title:

     

    "Recipient"

     

     

    Name:

    EXHIBIT 10

    EXHIBIT 10.11

     

     

     

     

     

     

     

     

    AMENDED AND RESTATED

    CAPACITY PURCHASE AGREEMENT

    AMONG

    CONTINENTAL AIRLINES, INC.,

    EXPRESSJET HOLDINGS, INC.,

    XJT HOLDINGS, INC.

    AND

    EXPRESSJET AIRLINES, INC.

     

     

     

     

     

    DATED AS OF APRIL 17, 2002

     

     

     

     

     

     

    TABLE OF CONTENTS

     

    ARTICLE I

    DEFINITIONS

     

    ARTICLE II

    CAPACITY PURCHASE, SCHEDULES AND FARES

    Section 2.01 Capacity Purchase...............................................................................1

    Section 2.02 Withdrawal of Regional Jet Aircraft from this Agreement.........................................2

    Section 2.03 Withdrawal of Turboprop Aircraft from this Agreement............................................5

    Section 2.04 Withdrawal of Engines...........................................................................6

    Section 2.05 Embraer Option Aircraft.........................................................................7

    Section 2.06 Flight-Related Revenues.........................................................................7

    ARTICLE III

    CONTRACTOR COMPENSATION

    Section 3.01 Base and Incentive Compensation.................................................................7

    Section 3.02 Periodic Adjustment of Base and Incentive Compensation..........................................7

    Section 3.03 Contractor Expenses.............................................................................8

    Section 3.04 Continental Expenses............................................................................8

    Section 3.05 Accounting Provisions and Audit.................................................................8

    Section 3.06 Billing and Payment; Reconciliation.............................................................9

    ARTICLE IV

    CONTRACTOR OPERATIONS AND AGREEMENTS WITH CONTINENTAL

    Section 4.01 Crews; Resource Allocation.....................................................................10

    Section 4.02 Governmental Regulations.......................................................................11

    Section 4.03 Quality of Service.............................................................................11

    Section 4.04 Safety Matters.................................................................................12

    Section 4.05 Turboprops.....................................................................................12

    Section 4.06 Master Facility and Ground Handling Agreement..................................................13

    Section 4.07 Codeshare Terms................................................................................13

    Section 4.08 Administrative Support and Information Services Provisioning Agreement.........................13

    Section 4.09 Fuel Purchasing Agreement......................................................................13

    Section 4.10 Slots and Route Authorities....................................................................13

    Section 4.11 Use of Continental Marks.......................................................................13

    Section 4.12 Use of Contractor Marks........................................................................14

    Section 4.13 Catering Standards.............................................................................14

    Section 4.14 Ticket Handling Terms..........................................................................14

     

     

    i

     

     

     

     

     

    ARTICLE V

    FINANCING OF AIRCRAFT

    Section 5.01 Financing of Firm and Option Aircraft..........................................................14

    Section 5.02 No Financing of Other Aircraft.................................................................15

    Section 5.03 Refinancing or Replacement of Uncovered Aircraft...............................................15

    Section 5.04 Pre-Delivery Deposits..........................................................................16

    Section 5.05 Lease of Owned Aircraft........................................................................16

    ARTICLE VI

    EXCLUSIVITY AND CERTAIN RIGHTS OF CONTINENTAL

    Section 6.01 Exclusivity; Use of Covered Aircraft...........................................................17

    Section 6.02 Exclusive Arrangements at Hub Airports.........................................................17

    Section 6.03 Most Favored Nations...........................................................................17

    Section 6.04 Change of Control..............................................................................18

    ARTICLE VII

    INSURANCE

    Section 7.01 Minimum Insurance Coverages....................................................................18

    Section 7.02 Endorsements...................................................................................19

    Section 7.03 Evidence of Insurance Coverage.................................................................19

    Section 7.04 Insurance Through Combined Placement...........................................................20

    ARTICLE VIII

    INDEMNIFICATION

    Section 8.01 Contractor Indemnification of Continental......................................................20

    Section 8.02 Continental Indemnification of Contractor......................................................21

    Section 8.03 Indemnification Claims.........................................................................21

    Section 8.04 Employer's Liability; Independent Contractors; Waiver of Control...............................22

    Section 8.05 Survival.......................................................................................23

    ARTICLE IX

    TERM, TERMINATION AND DISPOSITION OF AIRCRAFT

    Section 9.01 Base Term......................................................................................23

    Section 9.02 Extension Terms................................................................................23

    Section 9.03 Early Termination..............................................................................24

    Section 9.04 Disposition of Aircraft during Wind-Down Period................................................25

    Section 9.05 Other Remedies for Breach......................................................................32

     

     

    ii

     

     

    ARTICLE X

    REPRESENTATIONS, WARRANTIES AND COVENANTS

    Section 10.01 Representations, Warranties and Covenants of Holdings, XJT and ExpressJet......................34

    Section 10.02 Representations and Warranties of Continental..................................................35

    ARTICLE XI

    MISCELLANEOUS

    Section 11.01 Amendment of Certain Contracts.................................................................36

    Section 11.02 Notices........................................................................................37

    Section 11.03 Binding Effect; Assignment.....................................................................37

    Section 11.04 Amendment and Modification.....................................................................37

    Section 11.05 Waiver.........................................................................................37

    Section 11.06 Interpretation.................................................................................38

    Section 11.07 Confidentiality................................................................................38

    Section 11.08 Arbitration....................................................................................39

    Section 11.09 Counterparts...................................................................................41

    Section 11.10 Severability...................................................................................41

    Section 11.11 Equitable Remedies.............................................................................41

    Section 11.12 Relationship of Parties........................................................................41

    Section 11.13 Entire Agreement...............................................................................41

    Section 11.14 Governing Law..................................................................................42

    Section 11.15 Guarantees.....................................................................................42

    Section 11.16 Right of Set-Off...............................................................................42

    Section 11.17 Cooperation with Respect to Reporting..........................................................43

     

    SCHEDULE 1: Covered Aircraft

    SCHEDULE 2: Continental Increased Lease Rate

    SCHEDULE 3: Compensation for Capacity Purchase

    EXHIBIT A: Definitions

    EXHIBIT B: Form of Aircraft Sublease

    EXHIBIT C: Master Facility and Ground Handling Agreement

    EXHIBIT D: Terms of Codeshare Arrangements

    EXHIBIT E: Administrative Support and Information Services Provisioning Agreement

    EXHIBIT F: Fuel Purchasing Agreement

    EXHIBIT G: Use of Continental Marks

    EXHIBIT H: Use of Contractor Marks

    EXHIBIT I: Catering Standards

    EXHIBIT J: Ticket Handling Terms

     

     

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    AMENDED AND RESTATED

    CAPACITY PURCHASE AGREEMENT

    This Amended and Restated Capacity Purchase Agreement (this "Agreement"), dated as of April 17, 2002, is among Continental Airlines, Inc., a Delaware corporation ("Continental"), ExpressJet Holdings, Inc., a Delaware corporation ("Holdings"), XJT Holdings, Inc., a Delaware corporation and a wholly-owned subsidiary of Holdings ("XJT"), and ExpressJet Airlines, Inc., a Delaware corporation and a subsidiary of XJT ("ExpressJet" and, collectively with Holdings and XJT, "Contractor").

    WHEREAS, Continental, Holdings and XJT (formerly ExpressJet Airlines, Inc.) entered into that certain Capacity Purchase Agreement, dated as of January 1, 2001 (the "Original Capacity Purchase Agreement");

    WHEREAS, Continental, Holdings and XJT made certain amendments to the Original Capacity Purchase Agreement effective as of January 1, 2002;

    WHEREAS, XJT assigned its interests herein to ExpressJet (formerly New ExpressJet Airlines, Inc.) effective as of the date hereof, with the consent of Holdings and Continental; and

    WHEREAS, as a condition to the consent of Continental to the assignment to ExpressJet referenced above, XJT has agreed to become a party to this Agreement with such rights and obligations as are set forth more fully below, and the other parties hereto desire XJT to become a party hereto with such rights and obligations;

    NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants and obligations hereinafter contained, the parties agree to amend the Original Capacity Agreement to reflect the assignment of XJT's interests herein to ExpressJet, the addition of XJT hereto with certain rights and obligations, and certain other amendments relating thereto, and to restate it in its entirety, as so amended and to reflect the amendments effective as of January 1, 2002, as follows:

    ARTICLE I

    DEFINITIONS

    Capitalized terms used in this Agreement (including, unless otherwise defined therein, in the Schedules, Appendices and Exhibits to this Agreement) shall have the meanings set forth in Exhibit A hereto.

    ARTICLE II

    CAPACITY PURCHASE, SCHEDULES AND FARES

    Section 2.01 Capacity Purchase. Continental agrees to purchase the capacity of the Covered Aircraft for the Term, under the terms and conditions set forth herein and for the consideration described in Article III. Subject to the terms and conditions of this

     

     

     

     

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    Agreement, Contractor shall provide all of the capacity of the Covered Aircraft solely to Continental and use the Covered Aircraft solely to operate the Scheduled Flights.

    (a) Fares, Rules and Seat Inventory. Continental

    shall establish and publish all fares and related tariff rules for all

    seats on the Covered Aircraft. Contractor shall not publish any fares,

    tariffs, or related information for the Covered Aircraft. In addition,

    Continental shall have complete control over all seat inventory and

    inventory and revenue management decisions for the Covered Aircraft,

    including overbooking levels, discount seat levels and allocation of

    seats among various fare buckets.

    (b) Flight Schedules. Continental shall, in its sole

    discretion, establish and publish all schedules for the Covered

    Aircraft, including determining the city-pairs served, frequencies,

    utilization and timing of scheduled arrivals and departures and charter

    flights; provided that such schedules shall be subject to Reasonable

    Operating Constraints. Contractor and Continental shall meet monthly

    (but not later than the fourth Friday of each calendar month) to review

    the planned flight schedules for the Covered Aircraft for each of the

    next 12 months. At such meeting, Continental shall present a planned

    flight schedule for the Covered Aircraft for each of the next 12

    months, including a proposed Final Monthly Schedule for the next

    calendar month. At such meeting, Continental shall review and consider

    any changes to the planned flight schedule for the Covered Aircraft,

    including the proposed Final Monthly Schedule, suggested by Contractor.

    Following such monthly meeting, Continental shall make such adjustments

    to the proposed Final Monthly Schedule as it deems appropriate (subject

    to Reasonable Operating Constraints), and, not later than three

    Business Days prior to the beginning of each calendar month, will

    deliver to Contractor the Final Monthly Schedule.

    Section 2.02 Withdrawal of Regional Jet Aircraft from this Agreement. Continental shall be entitled to withdraw jet Covered Aircraft from the capacity purchase provisions of this Agreement, in accordance with and subject to the limitations, terms and conditions contained in this Section 2.02, which limitations, terms and conditions shall be applicable only to jet aircraft. Subject to the limitations contained below, Continental shall have complete discretion to select the particular Covered Aircraft and Engines to be withdrawn pursuant to this Section 2.02.

    (a) Continental Notice of and Limitations on Regional

    Jet Reduction. At any time and from time to time after July 1, 2003,

    Continental may give not more than 18 months and not less than 12

    months notice of the withdrawal of Covered Aircraft from the capacity

    purchase provisions of this Agreement, which notice shall specify an

    Effective Date and the number and type of Covered Aircraft to be

    withdrawn, and shall include an Early Withdrawal Schedule for the

    withdrawal of such aircraft that delineates the number of each aircraft

    type to be withdrawn by month. The number of Covered Aircraft to be

    withdrawn pursuant to this Section 2.02 shall be subject to the

    following numerical limitations:

     

     

     

     

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    (i) Continental shall not be entitled to

    provide in any notice delivered pursuant to Section 2.02(a)

    for the withdrawal of any number of Covered Aircraft greater

    than the excess of (i) 25% (rounded to the nearest whole

    number) of the sum of the number of Delivered Covered Aircraft

    as of the Effective Date set forth in such notice, plus the

    number of Delivered Covered Aircraft that have been withdrawn

    from the capacity purchase provisions of this Agreement at any

    time before such Effective Date in connection with a Labor

    Strike pursuant to Section 9.05(c) and the number withdrawn

    for any other reason within the three-year period immediately

    preceding such Effective Date, over (ii) the number of

    Delivered Covered Aircraft that have been withdrawn pursuant

    to this Section 2.02 within the three-year period immediately

    preceding such Effective Date; provided that the foregoing

    limitations shall not limit Continental's right to withdraw

    any Undelivered Covered Aircraft.

    (ii) Continental shall not be entitled to

    withdraw a Covered Aircraft pursuant to this Section 2.02 if,

    after such withdrawal, there would be fewer than 25 Covered

    Aircraft remaining.

    (iii) The Early Withdrawal Schedule may not

    provide for the withdrawal of more than 15 Delivered Covered

    Aircraft per month, and may not provide for the withdrawal of

    any Delivered Covered Aircraft more than 36 months after the

    Effective Date; provided that Continental may provide for the

    immediate withdrawal of any aircraft that are Undelivered

    Covered Aircraft on the applicable Effective Date.

    (b) Contractor's Right to Retain Regional Jets.

    Except to the extent otherwise provided in this Agreement, Contractor

    shall have the right either to retain (as Uncovered Aircraft) any

    Covered Aircraft being withdrawn from the capacity purchase provisions

    of this Agreement pursuant to this Section 2.02, or to return such

    aircraft to Continental (or its designee), in each case as follows:

    (i) Contractor shall have nine months after

    receipt of the Early Withdrawal Schedule delivered pursuant to

    Section 2.02(a) to notify Continental that it elects to retain

    any of the Covered Aircraft being withdrawn (whether such

    Covered Aircraft constitute Delivered Covered Aircraft or

    Undelivered Covered Aircraft). If Contractor elects to keep

    any Delivered Covered Aircraft, then its notice must include

    an indication by calendar month of the number and type of

    aircraft it proposes to retain, such number of any particular

    type of aircraft in any particular month to be no greater than

    the number of such type of aircraft scheduled to be withdrawn

    during such month pursuant to the Early Withdrawal Schedule.

    In addition, regardless of whether it intends to retain any

    aircraft, Contractor shall include in its notice a reasonably

    detailed current summary of the maintenance and repair

    condition of each aircraft and Engine and a list detailing the

    location of each Engine (by aircraft or, if appropriate,

    maintenance facility).

     

     

     

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    (ii) Within 30 days after receipt of

    Contractor's notice of its election to retain Covered Aircraft

    being withdrawn, Continental shall select the individual

    aircraft to be withdrawn, including those aircraft to be

    retained by Contractor, and shall notify Contractor of its

    selection. Continental shall have complete discretion in the

    selection of the particular Covered Aircraft to be withdrawn

    and those to be retained by Contractor; provided that

    Continental must adhere to the timing, number and type of

    aircraft to be retained by Contractor as provided in

    Contractor's notice to Continental delivered pursuant to

    Section 2.02(b)(i).

    (c) Replacement of Sublease. Upon Contractor

    retaining a previously Covered Aircraft as an Uncovered Aircraft

    pursuant to this Section 2.02, effective on the first day of the month

    during which such aircraft becomes an Uncovered Aircraft, the Covered

    Aircraft Sublease shall be terminated and replaced with an Uncovered

    Aircraft Sublease, and Contractor may fly the aircraft as permitted by

    Article VI.

    (d) Return Conditions. Upon the withdrawal from the

    capacity purchase provisions of this Agreement of a Covered Aircraft

    that is being returned to Continental (or its designee) pursuant to

    this Section 2.02, the Covered Aircraft Sublease with respect to such

    aircraft shall be terminated upon the date of such withdrawal, and

    Contractor shall not be required to meet the return conditions

    applicable to such aircraft that relate to time or cycles remaining

    between maintenance events or to any time- or cycle-controlled part

    under clause (v) of Section 4 of the Covered Aircraft Sublease;

    provided that Contractor shall remain obligated to comply with all

    other provisions of the Covered Aircraft Sublease applicable at the

    time, including without limitation provisions generally applicable to

    the maintenance, airworthiness, repair and general operating condition

    and cleanliness of the aircraft; and provided further, that the general

    condition of the Covered Aircraft being returned to Continental shall

    not have materially changed relative to the condition of Contractor's

    fleet of the same aircraft type since the related notice of withdrawal

    was delivered by Continental to Contractor pursuant to Section 2.02(a),

    and the withdrawn aircraft being returned to Continental shall not have

    been discriminated against or operated, maintained or otherwise treated

    differently (including with respect to the removal of any part for

    convenience or without cause) than any other Covered Aircraft.

    (e) Financial Arrangements. In connection with the

    withdrawal of any Covered Aircraft from the capacity purchase

    provisions of this Agreement pursuant to this Section 2.02, (i)

    Continental shall be responsible for all reasonable and necessary

    direct out-of-pocket costs incurred by Contractor as a result of such

    withdrawal, including without limitation the reasonable costs of

    terminating facility leases and/or employees and disposing of Excess

    Inventory caused by such withdrawal and any increased charges per

    scheduled block hour for Covered Aircraft under Section 5.4.3 of the

    Flight Hour Agreement precipitated by the return of any Covered

    Aircraft to Continental, but excluding any lost profits and any other

    indirect costs; provided that Contractor shall use its

     

     

     

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    reasonable good faith efforts to mitigate any such costs; (ii)

    Continental shall meet and confer with Contractor regarding the impact

    of the withdrawal on Contractor's cash flow, and shall negotiate in

    good faith regarding the provision by Continental of a credit facility

    for Contractor, if needed by Contractor as a result of such withdrawal,

    for a term not to exceed two years, a size not to exceed $75 million in

    the aggregate and at an interest rate equal to LIBOR plus 200 basis

    points; provided, that Continental has no obligation to provide such

    credit facility; (iii) for each such withdrawn aircraft being retained

    by Contractor, Contractor shall calculate a maintenance reimbursement

    equal to the product of (x) Contractor's average cost of a heavy

    maintenance visit for such aircraft type during the previous six months

    and (y) a fraction, the numerator of which is the number of hours

    remaining until the next heavy maintenance visit for such aircraft

    minus 1/2 of the total number of hours allowable between heavy

    maintenance visits for such aircraft, and the denominator of which is

    the total number of hours allowable between heavy maintenance visits

    for such aircraft, and at the time of such withdrawal (I) Continental

    shall pay Contractor an amount equal to such maintenance reimbursement,

    if the numerator of such fraction is less than zero, (II) Contractor

    shall pay Continental an amount equal to such maintenance

    reimbursement, if the numerator of such fraction is greater than zero,

    and (III) there shall be no maintenance reimbursement payable pursuant

    to this clause (iii) if the numerator of such fraction is equal to

    zero; and (iv) for each such withdrawn aircraft being retained by

    Contractor, if Continental shall have previously reimbursed Contractor

    for the cost of any engine life-limited component pursuant to Paragraph

    B(3) of Schedule 3 which component is installed in such aircraft, then

    Contractor shall pay to Continental an amount equal to the cost of such

    life-limited component multiplied by a fraction, the numerator of which

    is the number of hours remaining in the life of such life-limited part,

    and the denominator of which is the total number of hours in the life

    of such life-limited part. Contractor may elect, in lieu of making the

    payment contemplated by clause (iv) above, to pay such amount plus

    accrued interest, which interest shall accrue monthly at the interest

    rate used in the Uncovered Aircraft Sublease for such aircraft to

    determine the lease payments thereunder, in equal monthly installments

    over the remaining term of the Uncovered Aircraft Sublease with respect

    to such aircraft.

    Section 2.03 Withdrawal of Turboprop Aircraft from this Agreement.

    (a) Continental Notice of Turboprop Aircraft

    Withdrawal. All Turboprop Aircraft shall be withdrawn from the capacity

    purchase provisions of this Agreement on a schedule to be agreed upon

    by Continental and Contractor, but in any event not later than December

    31, 2004; provided that notwithstanding any such agreed schedule,

    Continental may at any time, upon not less than 45 days' notice (or 14

    days' notice in the case of a Turboprop Aircraft for which Continental

    received notice of a maintenance event pursuant to Section 4.05(a)),

    withdraw any Turboprop Aircraft from the capacity purchase provisions

    of

     

     

     

     

     

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    this Agreement. Without Continental's prior written consent, Contractor

    may not retain any Turboprop Aircraft withdrawn from the capacity

    purchase provisions of this Agreement. At Continental's request in

    connection with any withdrawal of a Turboprop Aircraft, Contractor

    shall promptly provide a list detailing the location of each turboprop

    engine (by aircraft or, if appropriate, maintenance facility).

    (b) Retirement Costs of Turboprop Aircraft.

    Continental shall be responsible for any reasonable out-of-pocket

    expenses associated with the retirement of each Turboprop Aircraft in

    connection with its withdrawal from the capacity purchase provisions of

    this Agreement pursuant to this Section 2.03; provided that Contractor

    shall conduct its retirement checks for such aircraft in a manner

    consistent with its past practices; provided, further, that Contractor

    shall not discriminate against or operate, maintain (except as provided

    above) or otherwise treat the aircraft differently in contemplation of

    its return to Continental (or its designee), including with respect to

    the removal of any part or parts for convenience or without cause; and

    provided, further, that if the amount which Contractor is compensated

    pursuant to Schedule 3 in respect of the reasonable out-of-pocket

    expenses incurred by Contractor as determined pursuant to this Section

    2.03(b) exceeds the actual aggregate amount of such expenses, then

    Contractor shall promptly reimburse to Continental an amount equal to

    the quotient of (i) such excess divided by (ii) the Cost Factor set

    forth on Appendix 23 to Schedule 3. In connection with each such

    retirement, Continental shall also (i) purchase (or arrange for the

    purchase) from Contractor, at the time of withdrawal, each such

    Turboprop Aircraft that is owned by Contractor at a price equal to the

    book value of such aircraft on Contractor's most recent financial

    statements, and (ii) purchase the Excess Inventory relating to such

    Turboprop Aircraft (as reasonably determined by Contractor) at a price

    equal to the book value of such inventory on Contractor's most recent

    financial statements.

    (c) Impairment Costs of Turboprop Aircraft. Subject

    to the provisions of Section 3.05, if Contractor shall incur a charge

    for the impairment of a Turboprop Aircraft prior to its withdrawal

    pursuant to this Section 2.03, then Continental shall reimburse

    Contractor in the amount of such charge; provided that Contractor shall

    not discriminate against any Turboprop Aircraft in determining whether

    to take such charge or the amount of such charge.

    Section 2.04 Withdrawal of Engines. In connection with the withdrawal of any Covered Aircraft (including any Turboprop Aircraft) from the capacity purchase provisions of this Agreement pursuant to Section 2.02 or 2.03, whether such aircraft is being retained by Contractor as an Uncovered Aircraft or returned to Continental or its designee, Continental shall have complete discretion in the selection of the particular Engines or Turboprop engines, as the case may be, to be withdrawn in connection with any particular aircraft and shall notify Contractor of its selection not less than 10 days after Continental shall have selected aircraft to be withdrawn pursuant to Section 2.02(b)(ii) or 2.03(a), as applicable. Continental shall bear the cost of any engine swaps reasonably necessary to accommodate its engine selections, based on the engine-location list provided to Continental by Contractor; provided that Contractor use its commercially reasonable efforts to minimize the number and cost of engine swaps reasonably necessary to accommodate Continental's engine selections and shall be

     

     

     

     

     

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    responsible for the cost of all such swaps, if any, required because of any inaccuracy in the engine-location list provided to Continental by Contractor.

    Section 2.05 Embraer Option Aircraft. With respect to the Embraer Option Aircraft, Contractor shall give Continental written notice of the deadline for the exercise of any option for any such Embraer Option Aircraft at least 60 days (but not more than 180 days) prior to such deadline, and Continental shall, within 30 days from receipt of such notice, determine and notify Contractor (i) that such Embraer Option Aircraft shall constitute Covered Aircraft, (ii) that such Embraer Option Aircraft shall be delivered to Contractor in exchange for the delivery to Continental of an Uncovered Aircraft that is subject to an Uncovered Aircraft Sublease, (iii) that Continental desires to acquire such Embraer Option Aircraft for its own account (or that of its designee) outside of this Agreement if Contractor does not intend to exercise such option or (iv) that it does not elect to exercise any of the above rights, in which case Embraer Option Aircraft obtained by Contractor in respect of such option shall be Uncovered Aircraft. If Continental shall have elected clause (i) above, then upon receipt by Contractor of notice from Continental of its determination, Contractor shall exercise its option to acquire such aircraft from Embraer, and the provisions of Section 5.01 shall apply. If Continental shall have elected clause (ii) above, then the provisions of Section 5.03(b) shall apply. If Continental shall have elected clause (iii) above, then Contractor shall notify Continental at least 15 days prior to the deadline for exercise of such option whether Contractor intends to exercise such option on its own behalf, and Contractor shall timely exercise such option on behalf of Continental (and take all other actions reasonably appropriate to permit Continental (or its designee) to acquire such aircraft) if Contractor shall have determined not to exercise such option on its own behalf.

    Section 2.06 Flight-Related Revenues. Contractor acknowledges and agrees that all revenues resulting from the sale and issuance of passenger tickets associated with the operation of the Covered Aircraft and all other sources of revenue associated with the operation of the Covered Aircraft, including without limitation revenues relating to the transportation of cargo or mail and revenues associated with food, beverage and duty-free services and guaranteed or incentive payments from airport, local or municipal authorities in connection with scheduling flights to such airport or locality, are the sole property of and shall be retained by Continental (or, if received by Contractor, shall be promptly remitted to Continental).

    ARTICLE III

    CONTRACTOR COMPENSATION

    Section 3.01 Base and Incentive Compensation. For and in consideration of the transportation services, facilities and other services to be provided by Contractor hereunder, Continental shall pay Contractor the base and incentive compensation as provided in Paragraph A of Schedule 3 hereto, subject to the terms and conditions set forth in this Article III.

    Section 3.02 Periodic Adjustment of Base and Incentive Compensation. The initial base and incentive compensation rates under this Agreement (including the initial

     

     

     

     

     

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    Block Hour Rates) set forth in Paragraph A of Schedule 3 hereto shall remain in effect through December 31, 2004, with certain limited adjustments as are provided in Schedule 3. The Block Hour Rates shall be subject to further adjustment on January 1, 2005 and each January 1 thereafter during the Term. Continental and Contractor hereby agree to meet promptly after July 1, 2004, September 1, 2005 and each September 1 thereafter during the Term in order to review and revise the Block Hour Rates, as appropriate, for the subsequent year based on the methodology (including the Cost Factor) for setting the initial Block Hour Rates as set forth in Schedule 3. Should the parties be unable to agree on such revised Block Hour Rates by October 1, 2004 for the year beginning January 1, 2005 or by November 1 in any subsequent year for the year beginning on the subsequent January 1, then the parties shall submit the disagreement to arbitration pursuant to Section 11.08.

    Section 3.03 Contractor Expenses. Except as provided otherwise in Section 3.04, Contractor shall discharge in accordance with commercially reasonable practices all expenses incurred in connection with Contractor's provision of Regional Airline Services.

    Section 3.04 Continental Expenses. In addition to the reconciliation pursuant to Section 3.06(b) of all or a portion of the actual costs of certain expenses, the anticipated costs of which are provided for in the Block Hour Rates:

    (a) Certain Revenue-Related Expenses. Continental

    shall be responsible for all passenger and cargo revenue-related

    expenses relating to the Regional Airlines Services, as described in

    Paragraph B(1) of Schedule 3.

    (b) Design Changes. Continental shall be responsible

    for any reasonable out-of-pocket expenses relating to interior and

    exterior design changes to the Covered Aircraft and other

    product-related changes required by Continental that occur outside of

    Contractor's normal aircraft and facility refurbishment program,

    including facility-related design changes and the cost of changes in

    uniforms and other livery.

    Section 3.05 Accounting Provisions and Audit.

    (a) Separate Books and Records. Contractor shall

    maintain separate books and records for the provision of Regional

    Airlines Services, on the one hand, and Contractor's other operations

    (if any) on the other, in each case in the aggregate, and shall include

    a reasonable allocation of expenses, including overhead, among such

    aircraft such that aircraft-specific costs are assigned among Covered

    Aircraft and Uncovered Aircraft based on the specific aircraft type

    that generated such cost and all other costs are allocated

    proportionately based on block hours flown; provided that in the event

    that engine maintenance or other costs arising under the Flight Hour

    Agreement change pursuant to the terms thereof as a result of the

    inclusion of Uncovered Aircraft under such agreement (including because

    of the stage length or other utilization characteristics of the

    Uncovered Aircraft), then the engine maintenance and other costs

    arising under

     

     

     

     

     

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    the Flight Hour Agreement shall be allocated to the Covered Aircraft as

    if such Uncovered Aircraft had not been included under such agreement,

    regardless of whether such allocation results in higher or lower costs

    being allocated to the Covered Aircraft. Contractor's books and records

    that relate to the provision of Regional Airlines Services shall be

    maintained in accordance with generally accepted accounting principles

    consistently applied, and such books and records and all calculations

    made pursuant to this Agreement shall be kept and made in accordance

    with the accounting policies and procedures used by Continental and

    Contractor to develop Block Hour Rates, unless otherwise agreed in

    writing by Continental. Without limiting the foregoing in any respect,

    Contractor agrees that it shall not depreciate Turboprop Aircraft or

    Excess Inventory from and after the date hereof more slowly than it has

    historically depreciated such items, unless otherwise agreed in writing

    by Continental.

    (b) Audit Rights. Contractor shall make available for

    inspection by Continental and its outside auditors, within a reasonable

    period of time after Continental makes a written request therefor, all

    of Contractor's books and records (including all financial and

    accounting records and operations reports, and records of other

    subsidiaries or affiliates of Contractor, if any, as necessary to audit

    the allocations made pursuant to Section 3.05(a)). Continental and its

    outside auditors shall be entitled to make copies and notes of such

    information as they deem necessary and to discuss such records with

    Contractor's Chief Financial Officer or such other employees or agents

    of Contractor knowledgeable about such records. Upon the reasonable

    written request of Continental or its outside auditors, Contractor will

    cooperate with Continental and its outside auditors to permit

    Continental and its outside auditors access to Contractor's outside

    auditors for purposes of reviewing such records.

    Section 3.06 Billing and Payment; Reconciliation.

    (a) Billing and Payment. On the next Business Day

    after Contractor receives the Final Monthly Schedule from Continental

    pursuant to Section 2.01(b), Contractor shall present a reasonably

    detailed written invoice for amounts due under this Agreement in

    respect of the Base Compensation and per passenger fees (based on the

    Forecasted Passengers) for the Scheduled Flights during the month to

    which such Final Monthly Schedule pertains. Continental shall pay

    Contractor the amount due under such invoice (the "Invoiced Amount"),

    subject to Continental's right to dispute any calculations set forth on

    such invoice that do not comply with the terms of this Agreement, and,

    at Continental's option, net of amounts owed by Contractor to

    Continental under the Administrative Support and Information Services

    Provisioning Agreement, the Master Facility and Ground Handling

    Agreement, the Fuel Purchasing Agreement and/or any Covered Aircraft

    Sublease or Uncovered Aircraft Sublease, as follows:

    (i) One-quarter of the Invoiced Amount shall

    be payable by Continental to Contractor, by electronic

    transfer of funds to a bank account designated by Contractor,

    available on or before the first day

     

     

     

     

     

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    of the month (or if such day is not a Business Day, the next

    Business Day) to which such invoice relates;

    (ii) One-quarter of the Invoiced Amount

    shall be payable by Continental to Contractor, by electronic

    transfer of funds to a bank account designated by Contractor,

    available on or before the 8th day of the month (or if such

    day is not a Business Day, the next Business Day) to which the

    invoice relates;

    (iii) One-quarter of the Invoiced Amount

    shall be payable by Continental to Contractor, by electronic

    transfer of funds to a bank account designated by Contractor,

    available on or before the 15th day of the month (or if such

    day is not a Business Day, the next Business Day) to which the

    invoice relates; and

    (iv) One-quarter of the Invoiced Amount

    shall be payable by Continental to Contractor, by electronic

    transfer of funds to a bank account designated by Contractor,

    available on or before the 22nd day of the month (or if such

    day is not a Business Day, the next Business Day) to which the

    invoice relates.

    (b) Reconciliation. Not later than 12 days following

    the end of each month, Contractor and Continental shall reconcile

    actual amounts due in respect of such month with the estimated amounts

    included in the Invoiced Amount for such items for such month in

    accordance with the terms and conditions set forth in Schedule 3. Such

    reconciled amounts for such month shall be paid by Continental to

    Contractor together with the next payment to be made pursuant to

    Section 3.06(a)(iii) above, or set off by Continental against any other

    amounts owing to Contractor, as the case may be. If, subsequent to any

    reconciliation payments or set-off, as the case may be, Contractor's

    financial statements, maintained as provided in Section 3.05(a), are

    restated, amended or otherwise adjusted for any month or Performance

    Period, then the reconciled amounts for such period shall be

    recalculated in accordance with the terms and conditions set forth in

    Schedule 3, and the parties shall make further payments or set off

    further amounts as appropriate in respect of such recalculations.

    ARTICLE IV

    CONTRACTOR OPERATIONS AND AGREEMENTS WITH CONTINENTAL

    Section 4.01 Crews; Resource Allocation.

    (a) Personnel Employed. Contractor shall be

    responsible for providing all crews (flight and cabin) and maintenance

    personnel and, at Contractor Airports, gate agents and other ground

    personnel, necessary to operate the Scheduled Flights and for all

    aspects (personnel and other) of dispatch control.

    (b) Resource Allocation. If Contractor is flying any

    Uncovered Aircraft, then for so long as either (i) the number of

    Scheduled Flights in a

     

     

     

     

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    calendar month represent at least 50% of the aggregate number of

    Contractor's scheduled flights of Covered and Uncovered Aircraft in

    such month or (ii) the number of Covered Aircraft is at least 200, then

    Contractor crews, maintenance personnel and other resources shall be

    allocated on a priority basis to Scheduled Flights above all other

    flights and aircraft.

    Section 4.02 Governmental Regulations. Contractor has and shall maintain all FAA, DOT and other certifications, permits, licenses, certificates and insurance required by governmental authorities to enable Contractor to perform the services required by this Agreement. All flight operations, dispatch operations and all other operations undertaken by Contractor pursuant to this Agreement shall be conducted and operated by Contractor in compliance in all material respects with all governmental regulations, including, without limitation, those relating to airport security, the use and transportation of hazardous materials, crew qualifications, crew training and crew hours. Without limiting Contractor's obligations under any Covered Aircraft Lease, all Covered Aircraft shall be operated and maintained by Contractor in compliance in all material respects with all governmental regulations, Contractor's own operations manuals and maintenance manuals and procedures, and all applicable equipment manufacturer's instructions.

    Section 4.03 Quality of Service. At all times, Contractor shall provide Regional Airline Services with appropriate standards of care, but in no event lower than such standards utilized by Continental as of the date of this Agreement. Continental procedures, performance standards and means of measurement thereof concerning the provision of air passenger and air cargo services shall be applicable to all Regional Airline Services provided by Contractor. Contractor shall achieve at least the comparable quality of airline service as provided by Continental, subject to limitations imposed by the type of aircraft used by Contractor, its route network and the availability of equipment and facilities, as compared to those of Continental. Contractor shall comply with all airline customer service commitments or policies of Continental as of the date hereof, including without limitation the "CustomerFirst" commitments, and employee conduct, appearance and training policies in place as of the date hereof, and shall handle customer-related services in a professional, businesslike and courteous manner. In connection therewith, Contractor shall maintain aircraft cleaning cycles and policies, and shall maintain adequate staffing levels, to ensure at least a comparable level of customer service and operational efficiency that Continental achieves, including without limitation in respect of customer complaint response, ticketing and boarding timing, and baggage services. In addition, at the request of Continental, Contractor shall comply with all such airline customer service commitments, policies or standards of care of Continental as adopted, amended or supplemented after the date hereof, provided that Continental shall reimburse Contractor for the reasonable out-of-pocket costs of Contractor of complying with such policies in excess of the costs of complying with such policies as in effect as of the date of this Agreement. Contractor shall provide Continental with timely communication regarding the status of all Scheduled Flights, and shall perform closeout procedures at service levels at least as high as those of Continental at comparably-sized airports. Contractor will use Continental's standard procedures for processing and adjudicating all claims for which Contractor is responsible in an effort to avoid such matters becoming the subject of litigation or insurance claims. Contractor and

     

     

     

     

     

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    Continental will periodically meet to discuss and review Contractor's customer service and handling procedures and policies and its employees' conduct, appearance and training standards and policies in an effort to ensure compliance with this Agreement, and to agree to the terms of any necessary corrective action plan and the timing of its implementation.

    Section 4.04 Safety Matters.

    (a) Incidents or Accidents. Contractor shall promptly

    notify Continental of all irregularities involving a flight operated by

    Contractor which result in any damage to persons or property or are

    otherwise likely to result in a complaint or claim by passengers or an

    investigation by a governmental agency or authority, shall furnish to

    Continental as much detail as practicable concerning such

    irregularities and shall cooperate with Continental at Contractor's own

    expense in any appropriate investigation. Contractor shall adopt

    Continental's Emergency Response Plan for aircraft accidents or

    incidents, and shall be responsible for Continental's direct costs

    resulting from Contractor's participation in such plan. In the event of

    an accident or incident involving a Covered Aircraft, Continental will

    have the right, but not the obligation, to manage the emergency

    response efforts on behalf of Contractor and to approve settlement of

    any liability claims resulting from the accident or incident.

    (b) Safety Audits. Continental shall have the right,

    at its own cost, to inspect, review, and observe Contractor's

    operations of Scheduled Flights, and/or to conduct a full safety and/or

    service audit of Contractor's operations, manuals and procedures

    reasonably related to Scheduled Flights, at such intervals as

    Continental reasonably requests. Any such safety review may include an

    audit of Contractor's maintenance and operating procedures, crew

    planning, passenger and baggage handling, customer service, personnel

    records, spare parts, inventory records, training records and manuals,

    and flight, flight training and operational personnel records.

    Section 4.05 Turboprops.

    (a) Maintenance. Contractor shall notify Continental

    at least 30 days prior to performing the last scheduled maintenance

    event of any type (including airframe checks, and engine, propeller and

    landing gear overhauls) on any Turboprop Aircraft prior to the

    withdrawal date for such aircraft as agreed pursuant to Section 2.03.

    Upon notice from Continental that, prior to such maintenance event,

    such Turboprop Aircraft is to be withdrawn from the capacity purchase

    provisions of this Agreement pursuant to Section 2.03, then Contractor

    shall cancel such maintenance event. The expected cost of such

    maintenance event provided for in the Block Hour Rates and theretofore

    paid to Contractor, net of any out-of-pocket costs to Contractor of

    such cancellation, shall be credited to Continental in connection with

    the next reconciliation payment pursuant to Paragraph B(9) of Schedule

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    (b) Post-Withdrawal Management. At the request of

    Continental, and at Continental's cost and direction, Contractor shall

    make arrangements for the storage and continued maintenance (including

    the keeping of active logs) of withdrawn Turboprop Aircraft that have

    not yet been returned to Continental or its designee, together with the

    Excess Inventory relating thereto.

    Section 4.06 Master Facility and Ground Handling Agreement. Contemporaneous with the execution and delivery of this Agreement, Contractor and Continental shall enter into a Master Facility and Ground Handling Agreement in the form attached hereto as Exhibit C.

    Section 4.07 Codeshare Terms. Contractor agrees to operate all Scheduled Flights using the Continental flight code and flight numbers assigned by Continental, or such other flight codes and flight numbers as may be assigned by Continental (to accommodate, for example, a Continental alliance partner), and otherwise under the codeshare terms set forth in Exhibit D.

    Section 4.08 Administrative Support and Information Services Provisioning Agreement. Contemporaneous with the execution and delivery of this Agreement, Continental and Contractor shall enter into the Administrative Support and Information Services Provisioning Agreement in the form attached hereto as Exhibit E.

    Section 4.09 Fuel Purchasing Agreement. Contemporaneous with the execution and delivery of this Agreement, Continental and Contractor shall enter into the Fuel Purchasing Agreement in the form attached hereto as Exhibit F.

    Section 4.10 Slots and Route Authorities. At the request of Continental made at any time and from time to time, including upon termination of this Agreement, Contractor shall use its commercially reasonable efforts to transfer to Continental or its designee, to the extent permitted by law, any airport takeoff or landing slots, route authorities or other similar regulatory authorizations held by Contractor and used for Scheduled Flights, in consideration of the payment to ExpressJet of the net book value, if any, of such slot, authority or authorization on ExpressJet's books. Contractor's obligations pursuant to the immediately preceding sentence shall survive the termination of this Agreement for so long as any transfer requested pursuant to this Section 4.10 shall not have been completed. Contractor hereby agrees that all of Contractor's contacts or communications with any applicable regulatory authority concerning any airport takeoff or landing slots, route authorities or other similar regulatory authorizations used for Scheduled Flights will be coordinated through Continental. If any airport takeoff or landing slot, route authority or other similar regulatory authorization held by Contractor and used for Scheduled Flights is withdrawn or otherwise forfeited as a result of Controllable Cancellations or any other reason within Contractor's reasonable control, then Contractor agrees to pay to Continental promptly upon demand an amount equal to the market value of such withdrawn or forfeited slot, authority or authorization.

    Section 4.11 Use of Continental Marks. Continental hereby grants to Contractor the non-exclusive and non-transferable rights to use the Continental Marks and other

     

     

     

     

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    Identification as provided in, and Contractor shall use the Continental Marks and other Identification in accordance with the terms and conditions of, Exhibit G.

    Section 4.12 Use of Contractor Marks. Contractor hereby grants to Continental the non-exclusive and non-transferable rights to use the Contractor Marks as provided in, and Continental shall use the Contractor Marks in accordance with the terms and conditions of, Exhibit H.

    Section 4.13 Catering Standards. Continental and Contractor shall comply with the catering requirements set forth on Exhibit I hereto. The parties agree that, in the event of a conflict between the provisions of Exhibit I and the Contractor Ground Handling Agreement, the provisions of Exhibit I shall control.

    Section 4.14 Ticket Handling Terms. Continental and Contractor shall comply with the ticket handling requirements set forth in Exhibit J hereto. The parties agree that, in the event of a conflict between the provisions of Exhibit J and the Contractor Ground Handling Agreement, the provisions of Exhibit J shall control.

    ARTICLE V

    FINANCING OF AIRCRAFT

    Section 5.01 Financing of Firm and Option Aircraft. Subject to the terms and conditions of this Agreement, Continental agrees to participate, on behalf of Contractor, in the financing for the firm-order aircraft under the Embraer Contract as further set forth on Schedule 1 attached hereto in accordance with and subject to the terms and conditions of the Embraer Contract and this Article V. For any such firm-order aircraft that constitute Covered Aircraft, Continental shall lease such aircraft from Embraer or its equity designee pursuant to the Embraer Contract and (if applicable with respect to a particular aircraft) the Funding Agreement and sublease such aircraft to Contractor under a Covered Aircraft Sublease. For any such firm-order aircraft that become Uncovered Aircraft (either in connection with the release of Covered Aircraft pursuant to Section 2.02 or in connection with certain terminations of this Agreement), Continental shall lease (or continue to lease, as the case may be) such aircraft from Embraer or its equity designee pursuant to the Embraer Contract and (if applicable with respect to a particular aircraft) the Funding Agreement and sublease such aircraft to Contractor under an Uncovered Aircraft Sublease, subject to the provisions of Section 5.03. In addition, Continental agrees to participate in the financing for the Embraer Option Aircraft that constitute Covered Aircraft pursuant to clause (i) of Section 2.05 as if such aircraft were firm-order aircraft under the Embraer Contract. Notwithstanding the foregoing, (i) if the other parties to any financing or lease transaction involving Covered Aircraft or Uncovered Aircraft consent to the release of Continental from any obligation to participate in such financing or otherwise to terminate Continental's head lease, in each case without increasing the obligations of Contractor under such contract, then Contractor agrees to consent to such release and agrees that the foregoing provisions of this Section 5.01 shall not apply in respect of such aircraft and (ii) Continental shall have no obligation under this Article V with respect to Undelivered Covered Aircraft that are deemed Uncovered Aircraft pursuant to Section 2.02 or Article IX. Contractor further

     

     

     

     

     

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    agrees that Continental shall be entitled to assign or otherwise transfer its interest in any Uncovered Aircraft and/or any financing or lease agreements relating thereto, and Contractor shall not withhold its required consent, if any, to such assignment or transfer; provided, that Contractor shall not be required to agree to such transfer or assignment if such action would cause Contractor to be in default of such financing or lease agreement (in which event the Uncovered Aircraft or the financing or lease agreement shall not be assigned or transferred unless Continental shall have provided indemnification or other protection sufficient to hold Contractor harmless against any loss, damage, claim or expense arising out of such default) or if such transfer or assignment would violate any applicable law; and provided further that Contractor's expenses in connection with such transaction shall be reimbursed by Continental.

    Section 5.02 No Financing of Other Aircraft. Except as provided in Section 5.01, the parties acknowledge and agree that Continental does not have any obligation hereunder to finance, arrange financing or participate in the financing of any aircraft on behalf of Contractor.

    Section 5.03 Refinancing or Replacement of Uncovered Aircraft.

    (a) Refinancing at Contractor's Option. If Contractor

    shall have successfully negotiated a transaction at any time providing

    for the refinancing of an Uncovered Aircraft and the termination by

    Continental of the head lease relating to such aircraft, then

    Continental shall use its reasonable efforts to cooperate with

    Contractor to consummate the transaction; provided, that Continental

    shall not be required to terminate such head lease if such termination

    is not permitted by such head lease or such termination would violate

    any applicable law or cause a breach under any other contract to which

    Continental is a party, in which event the Uncovered Aircraft Sublease

    shall not be terminated; and provided further that Continental's

    expenses in connection with such transaction shall be reimbursed by

    Contractor.

    (b) Replacement at Continental's Option. Continental

    shall be entitled at any time and from time to time to terminate the

    Uncovered Aircraft Sublease relating to an Uncovered Aircraft, and take

    possession of such Uncovered Aircraft, in a transaction providing for

    the delivery to Contractor of a Replacement Aircraft.

    (i) Replacement Using Embraer Option

    Aircraft. If the Replacement Aircraft proposed by Continental

    is an Embraer Option Aircraft, then Continental may take

    possession of the replaced Uncovered Aircraft on or after the

    fifth day after the earlier of the actual delivery date of the

    Replacement Aircraft and the scheduled delivery date of the

    Replacement Aircraft (regardless of whether such Replacement

    Aircraft is actually delivered on such date, whether or not

    Contractor has elected to exercise its option with respect to

    such Replacement Aircraft and whether or not Contractor is

    able to finance the acquisition of such Replacement Aircraft);

    provided that Continental shall have given Contractor at least

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    days' advance written notice prior to the expiration of

    Contractor's option to acquire such Embraer Option Aircraft;

    and provided further that such Embraer Option Aircraft does

    not constitute a Replacement Aircraft for another Uncovered

    Aircraft.

    (ii) Replacement Using Other Embraer

    Aircraft. If Continental (A) shall obtain the right to acquire

    (including by exercise of an option) any Embraer aircraft

    other than the Covered Aircraft and the Embraer Option

    Aircraft and (B) at least 30 days prior to the expiration of

    such right, shall propose in writing delivered to Contractor

    to acquire such aircraft or exercise an option for such

    aircraft on behalf of Contractor as a Replacement Aircraft for

    an Uncovered Aircraft, then Contractor shall be required to

    use its commercially reasonable efforts to finance the

    acquisition of such Replacement Aircraft prior to the

    expiration of such right. If Contractor shall obtain such

    financing on terms reasonably satisfactory to it prior to the

    expiration of such right, then (x) Continental shall acquire

    such Replacement Aircraft or cause it to be acquired, using

    such financing obtained by Contractor; (y) Continental shall

    be entitled to terminate the Uncovered Aircraft Sublease

    relating to such Uncovered Aircraft; and (z) Continental shall

    take possession of such Uncovered Aircraft on the fifth day

    after the delivery of such Replacement Aircraft to Contractor.

    If Contractor shall not obtain such financing on terms

    reasonably satisfactory to it prior to the expiration of such

    right, then Continental shall not be entitled to use such

    Embraer aircraft as a Replacement Aircraft for an Uncovered

    Aircraft.

    Section 5.04 Pre-Delivery Deposits. Continental shall pay all pre-delivery deposits required to be paid under the Embraer Contract in respect of all firm-order aircraft and all Embraer Option Aircraft other than those for which the option is being exercised in anticipation of such aircraft becoming an Uncovered Aircraft. If any of such pre-delivery deposits are returned to Contractor, Contractor shall promptly refund such amounts to Continental. Contractor shall be responsible for the payment of all other such pre-delivery deposits under the Embraer Contract.

    Section 5.05 Lease of Owned Aircraft. If Continental purchases or otherwise acquires title to any Covered Aircraft or Uncovered Aircraft, then Contractor shall cooperate reasonably with Continental to give effect to such purchase or acquisition, including by amending or otherwise re-executing each applicable Covered Aircraft Sublease and Uncovered Aircraft Sublease as a lease, in each case containing substantially the same terms and conditions as the corresponding sublease. If Continental owns any Covered Aircraft or Uncovered Aircraft as of the date hereof, then each reference in this document to a Covered Aircraft Sublease or Uncovered Aircraft Sublease shall be deemed to be a reference to a lease containing substantially the same terms and conditions as the corresponding sublease.

     

     

     

     

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    ARTICLE VI

    EXCLUSIVITY AND CERTAIN RIGHTS OF CONTINENTAL

    Section 6.01 Exclusivity; Use of Covered Aircraft. Contractor agrees that, except as otherwise directed or approved in writing by Continental in Continental's sole discretion, (i) the Covered Aircraft may be used only to provide the Regional Airline Services contemplated by this Agreement and (ii) the Covered Aircraft may not be used by Contractor for any other purpose (other than training flights, ferrying and other non-revenue flights related to the provision of the Regional Airline Services and consistent with past practices and Reasonable Operating Constraints), including without limitation flying for any other airline or on Contractor's own behalf.

    Section 6.02 Exclusive Arrangements at Hub Airports.

    (a) Contractor Hub Flights. In furtherance of the

    capacity purchase arrangements hereunder, Continental and Contractor

    agree that Contractor shall operate only Scheduled Flights in or out of

    any Hub Airport prior to the Termination Date, except as otherwise

    approved in writing by Continental in its sole discretion.

    (b) Continental Hub Flights. Subject to Section

    9.05(c), Continental agrees that, without Contractor's prior written

    consent, Continental shall not fly or contract with a third party to

    fly on Continental's behalf any regional jets in or out of any Existing

    Hub Airports until the earlier of any Termination Date and December 31,

    2005; provided that the foregoing provisions shall not apply with

    respect to up to ten flights per day operated by Continental's

    codeshare partners in or out of each Existing Hub Airport, which

    flights carry Continental's two-letter designator code "CO" or "CO*" as

    a secondary code; and provided, further, that (i) if the Embraer

    XRJ-145 aircraft does not meet design or performance specifications and

    the delivery of one or more Embraer XRJ-145 aircraft is cancelled or

    delayed by more than six months, and (ii) Contractor does not offer to

    provide to Continental regional airline services utilizing regional jet

    aircraft comparable to the Embraer XRJ-145 (assuming that such Embraer

    aircraft met its design and performance specifications) at block hour

    rates comparable to those provided herein for the XRJ-145 aircraft or,

    if higher, at a price at or lower than the price offered to Continental

    by any third party offering to provide such services, then the

    exclusivity provisions of this Section 6.02(b) shall not apply with

    respect to the block hours for which Continental would have utilized

    the Embraer XRJ-145 (which in any event may include routes and

    frequencies previously served by other Covered Aircraft).

    Section 6.03 Most Favored Nations. Notwithstanding any other provision in this Agreement to the contrary, at any time during which Continental is the largest customer of Contractor (measured by the percentage of all of Contractor's available seat miles represented by Scheduled ASMs during the most recently completed Performance Period), with respect to the purchase of Regional Airline Services hereunder Continental shall in all events be entitled to the same or comparable aggregate economic terms and

     

     

     

     

     

     

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    conditions (measured by the net benefit to Contractor on a cost per available seat mile basis), on a most-favored-nations basis, as are provided, directly or indirectly, to any other Major Carrier by Contractor in any agreement or series of agreements for the provision of flight services for such Major Carrier on a capacity purchase basis (or other arrangements the economics of which replicate capacity purchase arrangements) with an aggregate of more than 10 aircraft. To the extent that any such agreement or arrangement is entered into and is not available for audit by Continental pursuant to Section 3.05(b) because of contractual confidentiality restrictions in such agreement or arrangement, then in connection with Contractor's entering into such agreement or arrangement, each of Contractor and (with respect to financial provisions only) its outside auditors shall be required to certify whether the net benefit to Contractor of the economic terms and conditions of such agreement or arrangement is comparable to or exceeds the net benefit to Contractor of the economic terms and conditions of this Agreement (in each case on a cost per available seat mile basis).

    Section 6.04 Change of Control. Upon the occurrence of a Change of Control of Holdings, XJT or ExpressJet, at any time during which Continental is the largest customer of Contractor (measured by the percentage of all of Contractor's available seat miles represented by Scheduled ASMs during the most recently completed Performance Period), to which Change of Control Continental shall not have consented in writing in advance, then without any further action by any party the Block Hour Rates shall be decreased for the remaining Term by an amount equal to such Block Hour Rates multiplied by the Cost Factor, and the provisions of Paragraph B(9)(d) of Schedule 3 shall be of no further force or effect.

    ARTICLE VII

    INSURANCE

    Section 7.01 Minimum Insurance Coverages. During the Term, in addition to any insurance required to be maintained by Contractor pursuant to the terms of any aircraft lease (including without limitation each Covered Aircraft Sublease and Uncovered Aircraft Sublease), or by any applicable governmental authority, Contractor shall maintain, or cause to be maintained, in full force and effect policies of insurance with insurers of recognized reputation and responsibility, in each case to the extent available on a commercially reasonable basis, as follows:

    (a) Comprehensive aircraft hull and liability

    insurance, including aircraft third party, passenger liability

    (including passengers' baggage and personal effects), cargo and mail

    legal liability, and all-risk ground and flight physical damage, with a

    combined single limit of not less than $300 million per occurrence and

    a minimum limit in respect of personal injury (per clause AVN 60 or its

    equivalent) of $25 million per occurrence and in the aggregate;

    (b) Workers' compensation as required by the

    appropriate jurisdiction and employer's liability with a limit of not

    less than $1,000,000 combined single limit; and

     

     

     

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    (c) Other property and liability insurance coverages

    of the types and in the amounts that would be considered reasonably

    prudent for a business organization of Contractor's size and nature,

    under the insurance market conditions in effect at the time of

    placement, but in any event of the type and the amount that Continental

    may reasonably require to prevent or minimize a disruption in the

    provision of Regional Airline Services resulting from a casualty or

    liability incident related to Contractor's operations. All coverages

    described in this Section 7.01 shall be placed with deductibles

    reasonably prudent for a business organization of Contractor's size and

    nature, under the insurance market conditions in effect at the time of

    placement.

    Section 7.02 Endorsements. Unless Contractor and Continental are participating in a combined policy placement, Contractor shall cause the policies described in Section 7.01 to be duly and properly endorsed by Contractor's insurance underwriters with respect to Contractor's flights and operations as follows:

    (a) To provide that the underwriters shall waive

    subrogation rights against Continental, its directors, officers,

    agents, employees and other authorized representatives, except for

    their gross negligence or willful misconduct;

    (b) To provide that Continental, its directors,

    officers, agents, employees and other authorized representatives shall

    be endorsed as additional insured parties, except for their gross

    negligence or willful misconduct;

    (c) To provide that insurance shall be primary to and

    without right of contribution from any other insurance which may be

    available to the additional insureds;

    (d) To include a breach of warranty provision in

    favor of the additional insureds;

    (e) To accept and insure Contractor's hold harmless

    and indemnity undertakings set forth in this Agreement, but only to the

    extent of the coverage afforded by the policy or policies; and

    (f) To provide that such policies shall not be

    canceled, terminated or materially altered, changed or amended until 30

    days (but seven days or such lesser period as may be available in

    respect of hull, war and allied perils) after written notice shall have

    been sent to Continental.

    Section 7.03 Evidence of Insurance Coverage. At the commencement of this Agreement, and thereafter at Continental's request, Contractor shall furnish to Continental evidence reasonably satisfactory to Continental of such insurance coverage and endorsements (other than that obtained pursuant to Section 7.04 below), including certificates certifying that the such insurance and endorsements are in full force and effect. Initially, this evidence shall be a certificate of insurance. If Contractor fails to

     

     

     

     

     

     

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    acquire or maintain insurance as herein provided, Continental may at its option secure such insurance on Contractor's behalf at Contractor's expense.

    Section 7.04 Insurance Through Combined Placement.

    (a) Combined Placement. Promptly after the date

    hereof, Continental and Contractor shall seek to obtain bids from

    insurance providers with respect to airline hull and liability

    insurance, based on Continental's and Contractor's combined exposures.

    Each party will determine at its own discretion whether it will acquire

    this insurance based on the bids received. Any insurance so obtained

    will be a combined placement evidenced as appropriate by separate

    policies in the names of Continental and Contractor. If either party

    determines that it does not want to participate in such combined

    placement of insurance it will provide the other party written notice

    at least 120 days prior to the date for renewal of any existing

    insurance policy that covers both Contractor and Continental.

    (b) Allocation of Costs. The parties hereto shall

    allocate the costs of any such combined placements as provided in

    Paragraph B(7) of Schedule 3.

    (c) Adjustment for Major Loss. If there is a Major

    Loss under a combined placement insurance policy, Continental and

    Contractor will adjust the premium amounts paid by each party in

    accordance with the provisions set forth in Paragraph B(7) of Schedule

    3.

    ARTICLE VIII

    INDEMNIFICATION

    Section 8.01 Contractor Indemnification of Continental. Contractor shall be liable for and hereby agrees to fully defend, release, discharge, indemnify and hold harmless Continental, its directors, officers, employees and agents from and against any and all claims, demands, damages, liabilities, suits, judgments, actions, causes of action, losses, costs and expenses of any kind, character or nature whatsoever (in each case whether groundless or otherwise), including attorney's fees, costs and expenses in connection therewith and expenses of investigation and litigation thereof, which may be suffered by, accrued against, charged to, or recoverable from Continental or its directors, officers, employees or agents (including any such losses, costs and expenses involving (i) death or injury (including claims of emotional distress and other non-physical injury by passengers) to any person including any of Contractor's or Continental's directors, officers, employees or agents, (ii) loss of, damage to, or destruction of property (including real, tangible and intangible property, and specifically including regulatory property such as route authorities, slots and other landing rights), including any loss of use of such property, and (iii) damages due to delays) in any manner arising out of, connected with, or attributable to (w) any act or omission by Contractor or any of its directors, officers, employees or agents relating to the provision of Regional Airline Services, (x) the performance, improper performance, or non-performance of any and all

     

     

     

     

     

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    obligations to be undertaken by Contractor or any of its directors, officers, employees or agents pursuant to this Agreement, (y) the operation, non-operation, or improper operation of the Covered Aircraft or Contractor's equipment or facilities at any location or (z) the termination of an Uncovered Aircraft Sublease and the related head lease pursuant to Section 5.03(a) hereto, excluding only claims, demands, damages, liabilities, suits, judgments, actions, causes of action, losses, costs and expenses to the extent resulting from the negligence or willful misconduct of Continental or its directors, officers, agents or employees. Contractor will do all things necessary to cause and assure, and will cause and assure, that Contractor will at all time be and remain in custody and control of all aircraft, equipment, and facilities of, or operated by, Contractor, and Continental and its directors, officers, employees and agents shall not, for any reason, be deemed to be in custody or control, or a bailee, of such aircraft, equipment or facilities.

    Section 8.02 Continental Indemnification of Contractor. Continental shall be liable for and hereby agrees fully to defend, release, discharge, indemnify, and hold harmless Contractor, its directors, officers, employees, and agents from and against any and all claims, demands, damages, liabilities, suits, judgments, actions, causes of action, losses, costs and expenses of any kind, character or nature whatsoever (in each case whether groundless or otherwise), including attorneys' fees, costs and expenses in connection therewith and expenses of investigation and litigation thereof, which may be suffered by, accrued against, charged to, or recoverable from Contractor, or its directors, officers, employees or agents (including any such losses, costs and expenses involving (i) death or injury (including claims of emotional distress and other non-physical injury by passengers) to any person including any of Contractor's or Continental's directors, officers, employees or agents, (ii) loss of, damage to, or destruction of property (including any loss of use of such property including real, tangible and intangible property, and specifically including regulatory property such as route authorities, slots and other landing rights), and (iii) damages due to delays) in any manner arising out of, connected with, or attributable to, (x) the performance, improper performance, or nonperformance of any and all obligations to be undertaken by Continental or any of its directors, officers, employees or agents pursuant to this Agreement, or (y) the operation, non-operation or improper operation of Continental's aircraft, equipment or facilities (excluding, for the avoidance of doubt, Covered Aircraft, Uncovered Aircraft and any equipment or facilities leased or subleased by Continental to Contractor) at any location, excluding only claims, demands, damages, liabilities, suits judgments, actions, causes of action, losses, costs and expenses to the extent resulting from the negligence or willful misconduct of Contractor or its directors, officers, agents or employees. Continental will do all things necessary to cause and assure, and will cause and assure, that Continental will at all times be and remain in custody and control of any aircraft, equipment and facilities of, or operated by, Continental, and Contractor and its directors, officers, employees and agents shall not, for any reason, be deemed to be in the custody or control, or a bailee, of such aircraft, equipment or facilities.

    Section 8.03 Indemnification Claims. A party (the "Indemnified Party") entitled to indemnification from another party under the terms of this Agreement (the "Indemnifying Party") shall provide the Indemnifying Party with prompt written notice

     

     

     

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    (an "Indemnity Notice") of any third party claim which the Indemnified Party believes gives rise to a claim for indemnity against the Indemnifying Party hereunder. The Indemnifying Party shall be entitled, if it accepts financial responsibility for the third party claim, to control the defense of or to settle any such third party claim at its own expense and by its own counsel; provided that the Indemnified Party's prior written consent (which may not be unreasonably withheld or delayed) must be obtained prior to settling any such third party claim. If the Indemnifying Party does not accept financial responsibility for the third party claim or fails to defend against the third party claim that is the subject of an Indemnity Notice within 30 days of receiving such notice (or sooner if the nature of the third party claim so requires), or otherwise contests its obligation to indemnify the Indemnified Party in connection therewith, the Indemnified Party may, upon providing written notice to the Indemnifying Party, pay, compromise or defend such third party claim. The Indemnified Party shall provide the Indemnifying Party with such information as the Indemnifying Party shall reasonably request to defend any such third party claim and shall otherwise cooperate with the Indemnifying Party in the defense of any such third party claim. Except as set forth in this Section 8.03, the Indemnified Party shall not enter into any settlement or other compromise or consent to a judgment with respect to a third party claim as to which the Indemnifying Party has an indemnity obligation hereunder without the prior written consent of the Indemnifying Party (which may not be unreasonably withheld or delayed), and the entering into of any settlement or compromise or the consent to any judgment in violation of the foregoing shall constitute a waiver by the Indemnified Party of its right to indemnity hereunder to the extent the Indemnifying Party was prejudiced thereby. Any Indemnifying Party shall be subrogated to the rights of the Indemnified Party to the extent that the Indemnifying Party pays for any loss, damage or expense suffered by the Indemnified Party hereunder.

    Section 8.04 Employer's Liability; Independent Contractors; Waiver of Control.

    (a) Employer's Liability and Workers' Compensation.

    Each party hereto assumes full responsibility for its employer's

    liability and workers' compensation liability to its own officers,

    directors, employees or agents on account of injury or death resulting

    from or sustained in the performance of their respective service under

    this Agreement. Each party, with respect to its own employees, accepts

    full and exclusive liability for the payment of workers' compensation

    and employer's liability insurance premiums with respect to such

    employees, and for the payment of all taxes, contributions or other

    payments for unemployment compensation or old age benefits, pensions or

    annuities now or hereafter imposed upon employers by the government of

    the United States or any other governmental body, including state,

    local or foreign, with respect to such employees measured by the wages,

    salaries, compensation or other remuneration paid to such employees, or

    otherwise, and each party further agrees to make such payments and to

    make and file all reports and returns, and to do everything to comply

    with the laws imposing such taxes, contributions or other payments.

    (b) Independent Contractors. The employees, agents,

    and independent contractors of Contractor engaged in performing any of

    the services Contractor is to perform pursuant to this Agreement are

    employees, agents, and

     

     

     

     

     

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    independent contractors of Contractor for all purposes, and under no

    circumstances will be deemed to be employees, agents or independent

    contractors of Continental. In its performance under this Agreement,

    Contractor will act, for all purposes, as an independent contractor and

    not as an agent for Continental. Notwithstanding the fact that

    Contractor has agreed to follow certain procedures, instructions and

    standards of service of Continental pursuant to this Agreement,

    Continental will have no supervisory power or control over any

    employees, agents or independent contractors engaged by Contractor in

    connection with its performance hereunder, and all complaints or

    requested changes in procedures made by Continental will, in all

    events, be transmitted by Continental to Contractor's designated

    representative. Nothing contained in this Agreement is intended to

    limit or condition Contractor's control over its operations or the

    conduct of its business as an air carrier, and Contractor and its

    principals assume all risks of financial losses which may result from

    the operation of the air services to be provided by Contractor

    hereunder.

    (c) Employees. The employees, agents, and independent

    contractors of Continental engaged in performing any of the services

    Continental is to perform pursuant to this Agreement are employees,

    agents, and independent contractors of Continental for all purposes,

    and under no circumstances will be deemed to be employees, agents, or

    independent contractors of Contractor. Contractor will have no

    supervision or control over any such Continental employees, agents and

    independent contractors and any complaint or requested change in

    procedure made by Contractor will be transmitted by Contractor to

    Continental's designated representative. In its performance under this

    Agreement, Continental will act, for all purposes, as an independent

    contractor and not as an agent for Contractor.

    (d) Contractor Flights. The fact that Contractor's

    operations are conducted under Continental's Marks and listed under the

    CO designator code will not affect their status as flights operated by

    Contractor for purposes of this Agreement or any other agreement

    between the parties, and Contractor and Continental agree to advise all

    third parties, including passengers, of this fact.

    Section 8.05 Survival. The provisions of this Article VIII shall survive the termination of this Agreement for a period of seven years.

    ARTICLE IX

    TERM, TERMINATION AND DISPOSITION OF AIRCRAFT

    Section 9.01 Base Term. This Agreement shall commence on and shall be effective as of January 1, 2001 and, unless earlier terminated or extended as provided herein, shall continue until December 31, 2010 (the "Base Term").

    Section 9.02 Extension Terms. The term of this Agreement may be extended at the sole election of Continental for up to four additional five-year terms (each, an

     

     

     

     

     

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    "Extension Term") upon written notice to Contractor delivered at least 24 months prior to the expiration of the Base Term or the Extension Term, as applicable.

    Section 9.03 Early Termination.

    (a) By Continental after Five Years. Continental may

    terminate this Agreement for any reason or for no reason, at its sole

    option, at any time on or after January 1, 2006, by providing written

    notice to Contractor that specifies a Termination Date of not more than

    18 months nor less than 12 months after the provision of such notice.

    Such written notice may be delivered before January 1, 2006 so long as

    the Termination Date is on or after January 1, 2006.

    (b) By Continental for Cause. Continental may

    terminate this Agreement, with or without any advance notice, upon the

    occurrence and continuation of any event that constitutes Cause.

    (c) By Continental for Breach. Continental may

    terminate this Agreement, with or without any advance notice, upon the

    occurrence of a material breach of this Agreement by Contractor as

    described in clause (ii) below. Continental may terminate this

    Agreement upon the occurrence of any other material breach of this

    Agreement by Contractor, which breach shall not have been cured within

    90 days after written notice of such breach is delivered by Continental

    to Contractor. The parties hereto agree that, without limiting the

    circumstances or events that may constitute a material breach, (i) the

    occurrence of a System Flight Disruption, a Labor Strike or any event

    constituting Cause shall constitute a material breach of this Agreement

    by Contractor, (ii) at any time that Continental makes a reasonable and

    good faith determination, using recognized standards of safety, that

    there is a material safety concern with the operation of any Scheduled

    Flights, Contractor shall be deemed to have materially breached this

    Agreement and (iii) the grounding of any of the Embraer Fleets by

    regulatory or court order or other governmental action shall constitute

    a material breach of this Agreement by Contractor.

    (d) By Contractor for Breach. Contractor may

    terminate this Agreement upon the occurrence of any material breach of

    this Agreement by Continental, which breach shall not have been cured

    within 90 days after written notice of such breach is delivered by

    Contractor to Continental.

    (e) Survival During Wind-Down Period. Upon any

    termination hereunder, the Term shall continue, and this Agreement

    shall survive in full force and effect, beyond the Termination Date

    until the end of the Wind-Down Period, and the rights and obligations

    of the parties under this Agreement, including without limitation

    remedies available upon the occurrence of events constituting Cause or

    material breach, shall continue with respect to the Covered Aircraft

    until they become Uncovered Aircraft.

     

     

     

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    Section 9.04 Disposition of Aircraft during Wind-Down Period.

    (a) Termination by Continental After Five Years. If

    this Agreement is terminated by Continental under Section 9.03(a), then

    the Covered Aircraft shall be withdrawn from the capacity purchase

    provisions of this Agreement in accordance with the following terms and

    conditions:

    (i) At the time of delivery of any notice of

    termination delivered pursuant to Section 9.03(a), Continental

    shall deliver to Contractor a Wind-Down Schedule providing for

    the withdrawal of all Covered Aircraft from the capacity

    purchase provisions of this Agreement, delineating the number

    of each aircraft type to be withdrawn by month.

    (ii) The Wind-Down Schedule may not provide

    for the withdrawal of more than 15 Delivered Covered Aircraft

    per month, and may not provide for the withdrawal of any

    Delivered Covered Aircraft more than 60 months after the

    Termination Date. Undelivered Covered Aircraft (determined as

    of the Termination Date) shall be deemed to be Uncovered

    Aircraft on the Termination Date.

    (iii) Contractor shall have nine months

    after receipt of the proposed Wind-Down Schedule to notify

    Continental whether it elects to retain any of the Covered

    Aircraft being withdrawn (whether such Covered Aircraft

    constitute Delivered Covered Aircraft or Undelivered Covered

    Aircraft). If Contractor elects to keep any Delivered Covered

    Aircraft, then its notice must set forth by calendar month the

    number and type of aircraft it proposes to retain, such number

    of any particular type of aircraft in any particular month to

    be no greater than the number of such type of aircraft

    scheduled to be withdrawn during such month pursuant to the

    Wind-Down Schedule. In addition, regardless of whether it

    intends to retain any aircraft, Contractor shall include in

    its notice a reasonably detailed current summary of the

    maintenance and repair condition of each aircraft and Engine

    and a list detailing the location of each Engine (by aircraft

    or, if appropriate, maintenance facility).

    (iv) Within 30 days after receipt of

    Contractor's notice of its election to retain Covered Aircraft

    being withdrawn, Continental shall select the individual

    aircraft to be withdrawn according to the Wind-Down Schedule,

    including those aircraft to be retained by Contractor, and

    shall notify Contractor of its selection. Continental shall

    have complete discretion in the selection of the particular

    Covered Aircraft to be withdrawn in any month and those to be

    retained by Contractor; provided that Continental must adhere

    to the timing, number and type of aircraft to be retained by

    Contractor as provided in Contractor's notice to Continental

    delivered pursuant to Section 9.04(a)(iii).

     

     

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    (v) If any Covered Aircraft is being

    retained by Contractor pursuant to this Section 9.04, then

    effective on the first day of the month in which such Covered

    Aircraft becomes an Uncovered Aircraft pursuant to the

    Wind-Down Schedule the Covered Aircraft Sublease with respect

    to such aircraft shall be terminated and replaced with an

    Uncovered Aircraft Sublease. Upon each such aircraft becoming

    an Uncovered Aircraft, Contractor shall calculate a

    maintenance reimbursement equal to the product of (x) the

    average cost of a heavy maintenance visit for such aircraft

    type during the previous six months and (y) a fraction, the

    numerator of which is the number of hours remaining until the

    next heavy maintenance visit for such aircraft minus 1/2 of

    the total number of hours allowable between heavy maintenance

    visits for such aircraft, and the denominator of which is the

    total number of hours allowable between heavy maintenance

    visits for such aircraft. At the time of such withdrawal (I)

    Continental shall pay Contractor an amount equal to such

    maintenance reimbursement, if the numerator of such fraction

    is less than zero, (II) Contractor shall pay Continental an

    amount equal to such maintenance reimbursement, if the

    numerator of such fraction is greater than zero, and (III)

    there shall be no maintenance reimbursement payable pursuant

    to this sentence if the numerator of such fraction is equal to

    zero. In addition, if Continental shall have previously

    reimbursed Contractor for the cost of any engine life-limited

    component pursuant to Paragraph B(3) of Schedule 3 which

    component is installed in such aircraft, then Contractor shall

    pay to Continental an amount equal to the cost of such

    life-limited component multiplied by a fraction, the numerator

    of which is the number of hours remaining in the life of such

    life-limited part, and the denominator of which is the total

    number of hours in the life of such life-limited part.

    Contractor may elect, in lieu of making the payment

    contemplated by the preceding sentence to pay such amount plus

    accrued interest, which interest shall accrue monthly at the

    interest rate used in the Uncovered Aircraft Sublease for such

    aircraft to determine the lease payments thereunder, in equal

    monthly installments over the remaining term of the Uncovered

    Aircraft Sublease with respect to such aircraft.

    (vi) Upon the withdrawal of a Covered

    Aircraft that is being returned to Continental (or its

    designee) pursuant to this Section 9.04, the Covered Aircraft

    Sublease with respect to such aircraft shall be terminated,

    and Contractor shall not be required to meet the return

    conditions applicable to such aircraft that relate to time or

    cycles remaining between maintenance events or to any time- or

    cycle- controlled part under clause (v) of Section 4 of the

    Covered Aircraft Sublease; provided that Contractor shall

    remain obligated to comply with all other provisions of the

    Covered Aircraft Sublease applicable at the time, including

    without limitation provisions generally applicable to the

    maintenance, airworthiness, repair and general operating

    condition and cleanliness of the aircraft; and provided

    further, that the general condition

     

     

     

     

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    of the Covered Aircraft being returned shall not have

    materially changed relative to the condition of Contractor's

    fleet of the same aircraft type since the notice of

    termination was delivered by Continental to Contractor, and

    the withdrawn aircraft being returned shall have not been

    discriminated against or operated, maintained or otherwise

    treated differently (including with respect to the removal of

    any part for convenience or without cause) than any other

    Covered Aircraft

    (vii) In connection with the withdrawal of

    each Covered Aircraft, whether such aircraft is being retained

    by Contractor as an Uncovered Aircraft or returned to

    Continental or its designee, Continental shall have complete

    discretion in the selection of the particular Engines or

    Turboprop engines, as the case may be, to be withdrawn in

    connection with any particular aircraft and shall notify

    Contractor of its selection not less than 10 days after

    Continental shall have selected aircraft to be withdrawn

    pursuant to Section 9.04(a)(iv). Continental shall bear the

    cost of any engine swaps reasonably necessary to accommodate

    its engine selections, based on the engine-location list

    provided to Continental by Contractor; provided that

    Contractor use its commercially reasonable efforts to minimize

    the number and cost of engine swaps reasonably necessary to

    accommodate Continental's engine selections and shall be

    responsible for the cost of all such swaps, if any, required

    because of any inaccuracy in the engine-location list provided

    to Continental by Contractor.

    (b) Termination by Continental for Cause. If this

    Agreement is terminated by Continental under Section 9.03(b), then the

    Covered Aircraft shall be withdrawn from the capacity purchase

    provisions of this Agreement and Continental shall have the option to

    take possession (or direct possession to its designee) of any of such

    aircraft in accordance with the following terms and conditions:

    (i) Within five Business Days after the

    Termination Date, Continental may elect by written notice to

    Contractor to withdraw, effective as of the Termination Date,

    all of the Covered Aircraft from the capacity provisions of

    this Agreement and to terminate all of the Covered Aircraft

    Subleases and replace such subleases with Uncovered Aircraft

    Subleases (such an election being referred to as an "Immediate

    Withdrawal Election"). If Continental makes an Immediate

    Withdrawal Election, Continental shall provide to Contractor

    within five Business Days after the Termination Date a

    Wind-Down Schedule that provides for the return to Continental

    (and for the termination of the related Uncovered Aircraft

    Sublease) of any of such aircraft that Continental elects to

    retain, delineating the date of the return of such aircraft.

    Such Wind-Down Schedule will provide for the return to

    Continental of all such aircraft within 360 days following the

    Termination Date. Contractor shall deliver

     

     

     

     

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    possession of such aircraft to Continental or its designee in

    accordance with the Wind-Down Schedule.

    (ii) If Continental determines not to make

    an Immediate Withdrawal Election, Continental shall provide to

    Contractor within five Business Days after the Termination

    Date a Wind-Down Schedule providing for the withdrawal of all

    Covered Aircraft from the capacity purchase provisions of this

    Agreement, delineating the date of the withdrawal of each

    Covered Aircraft. The Wind-Down Schedule will provide for the

    withdrawal of all Covered Aircraft within 360 days following

    the Termination Date. Continental shall also indicate in the

    Wind-Down Schedule which aircraft shall be returned to

    Continental (or its designee). Contractor shall deliver

    possession of such aircraft to Continental or its designee

    upon the withdrawal of such aircraft from the capacity

    provisions of this Agreement in accordance with the Wind-Down

    Schedule.

    (iii) Contractor shall be required to retain

    as Uncovered Aircraft all aircraft (including all Turboprop

    Aircraft) not determined by Continental to be returned to

    Continental pursuant to this Section 9.04(b), and the

    provisions of Section 9.04(a)(v) shall apply as if such

    aircraft were being retained by Contractor in connection with

    a termination under Section 9.03(a). With respect to each such

    aircraft being returned to Continental (or its designee), the

    provisions of Section 9.04(a)(vi) shall apply as if the

    aircraft were being returned to Continental in connection with

    a termination under Section 9.03(a) (except that if

    Continental makes an Immediate Withdrawal Election, an

    Uncovered Aircraft Sublease with respect to a particular

    aircraft will not terminate until such aircraft is returned to

    Continental in accordance with the Wind-Down Schedule). With

    respect to any Turboprop Aircraft owned by Contractor and not

    previously retired, if Continental elects to take possession

    of such aircraft it shall purchase such aircraft and the

    Excess Inventory relating thereto for a price equal to the

    book value of such aircraft and such Excess Inventory on

    Contractor's most recent financial statements. In connection

    with the withdrawal of each Covered Aircraft from the capacity

    purchase provisions of this Agreement pursuant to this Section

    9.04(b), whether such aircraft is being retained by Contractor

    as an Uncovered Aircraft or returned to Continental or its

    designee, Continental shall have complete discretion in the

    selection of the particular Engines or Turboprop engines, as

    the case may be, to be withdrawn in connection with any

    particular aircraft and shall notify Contractor of its

    selection not less than 10 days after Continental shall have

    selected aircraft to be withdrawn pursuant to this Section

    9.04(b). At Continental's request, Contractor shall promptly

    provide a list detailing the location of each engine (by

    aircraft or, if appropriate, maintenance facility).

    Continental shall bear the cost of any engine swaps reasonably

    necessary to accommodate the engine selections, based on the

    engine-location list provided to Continental by Contractor;

     

     

     

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    provided that Contractor shall use its commercially reasonable

    efforts to minimize the number and cost of engine swaps

    reasonably necessary to accommodate the engine selections and

    shall be responsible for the cost of all such swaps, if any,

    required because of any inaccuracy in the engine-location list

    provided to Continental by Contractor.

    (c) Termination by Continental for Breach. If this

    Agreement is terminated by Continental under Section 9.03(c), then the

    provisions of Section 9.04(a) shall apply as if this Agreement were

    terminated under Section 9.03(a), except that (i) Continental shall

    have the option to deem such Covered Aircraft withdrawn from the

    capacity purchase provisions of this Agreement as of the Termination

    Date or according to the Wind-Down Schedule, and each Covered Aircraft

    Sublease shall be terminated with the aircraft being returned to

    Continental or replaced with an Uncovered Aircraft Sublease as

    applicable; (ii) the Wind-Down Schedule may not commence until the

    later of the Termination Date and 30 days following Continental's

    delivery of the Wind-Down Schedule to Contractor, (iii) Contractor

    shall have 15 days after receipt of such Wind-Down Schedule to notify

    Continental of its decision to retain any of the Covered Aircraft or

    any aircraft that were Covered Aircraft immediately prior to such

    Termination Date, (iv) Continental shall have five days after receipt

    of such notice from Contractor to select the individual aircraft to be

    returned to Continental; (v) Contractor shall be required to retain any

    Turboprop Aircraft owned by Contractor and not previously retired,

    unless Continental elects to purchase such aircraft and the Excess

    Inventory relating thereto for a price equal to the book value of such

    aircraft and such Excess Inventory on Contractor's most recent

    financial statements; and (vi) in connection with the withdrawal of

    each Covered Aircraft, whether such aircraft is being retained by

    Contractor as an Uncovered Aircraft or returned to Continental or its

    designee, Continental shall have complete discretion in the selection

    of the particular Engines or Turboprop engines to be withdrawn in

    connection with any particular aircraft and shall notify Contractor of

    its selection not less than five days after Continental shall have

    selected aircraft to be withdrawn pursuant to this Section 9.04(c). At

    Continental's request, Contractor shall promptly provide a list

    detailing the location of each such engine (by aircraft or, if

    appropriate, maintenance facility). Continental shall bear the cost of

    any engine swaps reasonably necessary to accommodate its engine

    selections, based on the engine-location list provided to Continental

    by Contractor; provided that Contractor shall use its commercially

    reasonable efforts to minimize the number and cost of engine swaps

    reasonably necessary to accommodate Continental's engine selections and

    shall be responsible for the cost of all such swaps, if any, required

    because of any inaccuracy in the engine-location list provided to

    Continental by Contractor.

    (d) Termination by Contractor for Breach. If this

    Agreement is terminated by Contractor under Section 9.03(d), then the

    Covered Aircraft shall be withdrawn from the capacity purchase

    provisions of this Agreement in accordance with the following terms and

    conditions:

     

     

     

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    (i) The notice of termination delivered by

    Contractor to Continental pursuant to Section 9.03(d) shall

    contain a Termination Date that is at least 180 days after the

    date of such notice, and a Wind-Down Schedule beginning on

    such Termination Date and setting forth the number and type of

    Covered Aircraft that Contractor elects to retain as Uncovered

    Aircraft. The Wind-Down Schedule may not provide for the

    withdrawal of more than 15 Delivered Covered Aircraft per

    month, and may not provide for the withdrawal of any Delivered

    Covered Aircraft more than 60 months after the Termination

    Date. Undelivered Covered Aircraft (determined as of the

    Termination Date) shall be deemed to be withdrawn on the

    Termination Date (whether or not retained as Uncovered

    Aircraft). In addition, regardless of whether it intends to

    retain any aircraft, Contractor shall include in its notice a

    reasonably detailed current summary of the maintenance and

    repair condition of each aircraft and each Engine and

    Turboprop engine and a list detailing the location of each

    Engine and Turboprop engine (by aircraft or, if appropriate

    maintenance facility).

    (ii) Continental shall, within 120 days of

    receipt of such Wind-Down Schedule from Contractor, propose a

    schedule for the withdrawal from the capacity purchase

    provisions of this Agreement of the Covered Aircraft not being

    retained by Contractor, which aircraft shall be returned to

    Continental (or its designee) upon their withdrawal from the

    capacity purchase provisions of this Agreement; provided that

    such Wind-Down Schedule may not provide for the withdrawal of

    more than 15 Delivered Covered Aircraft per month (inclusive

    of those aircraft being retained by Contractor), and may not

    provide for the withdrawal of any Delivered Covered Aircraft

    more than 60 months after the Termination Date. Continental

    shall select the individual aircraft to be withdrawn according

    to the Wind-Down Schedule, including those aircraft to be

    retained by Contractor, and shall notify Contractor of its

    selection. Continental shall have complete discretion in the

    selection of the particular Covered Aircraft to be withdrawn

    in any month and those to be retained by Contractor; provided

    that Continental must adhere to the timing, number and type of

    aircraft to be retained by Contractor as provided in

    Contractor's notice to Continental delivered pursuant to

    Section 9.04(d)(i). In addition, in connection with the

    withdrawal of each Covered Aircraft, whether such aircraft is

    being retained by Contractor as an Uncovered Aircraft or

    returned to Continental or its designee, Continental shall

    have complete discretion in the selection of the particular

    Engines or Turboprop engines to be withdrawn in connection

    with any particular aircraft and shall notify Contractor of

    its selection not less than 10 days after Continental shall

    have selected aircraft to be withdrawn pursuant to this

    Section 9.04(d). Continental shall bear the cost of any engine

    swaps reasonably necessary to accommodate its engine

    selections, based on the engine-location list provided to

    Continental by Contractor; provided that Contractor shall use

    its commercially reasonable efforts to minimize the

     

     

     

     

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    number and cost of engine swaps reasonably necessary to

    accommodate Continental's engine selections and shall be

    responsible for the cost of all such swaps, if any, required

    because of any inaccuracy in the engine-location list provided

    to Continental by Contractor.

    (iii) Within 30 days of receipt of

    Continental's Wind-Down Schedule, Contractor may elect in

    writing to have all of the Covered Aircraft being returned to

    Continental (or its designee) converted to Uncovered Aircraft

    and returned to Continental effective as of the Termination

    Date. If Contractor does not make such an election, such

    Covered Aircraft shall be converted to Uncovered Aircraft and

    returned to Continental both in accordance with Continental's

    Wind-Down Schedule delivered pursuant to Section 9.04(d)(ii).

    (iv) With respect to each aircraft that is

    retained by Contractor pursuant to this Section 9.04(d), the

    provisions of Section 9.04(a)(v) shall apply as if the

    aircraft were being retained by Contractor in connection with

    a termination under Section 9.03(a). With respect to each such

    aircraft being returned to Continental (or its designee)

    pursuant to this Section 9.04(d), the provisions of Section

    9.04(a)(vi) shall apply as if the aircraft were being returned

    to Continental in connection with a termination under Section

    9.03(a).

    (e) Termination at End of Term. If the Agreement is

    terminated at the end of the Base Term or any Extension Term, then the

    provisions of Section 9.04(a) shall apply as if the termination were

    pursuant to Section 9.03(a), except that the Termination Date shall be

    the end of such Base Term or Extension Term, and Continental's initial

    Wind-Down Schedule shall be delivered to Contractor not less than 24

    months prior to the Termination Date, and Contractor shall have 12

    months after receipt of the proposed Wind-Down Schedule to notify

    Continental of any Covered Aircraft that Contractor elects to retain.

    (f) Termination of Other Financings. If any Covered

    Aircraft are not leased from Continental, but are subject to a security

    interest or mortgage in favor of Continental in connection with

    Continental's guarantee of Contractor's lease or purchase obligations,

    then the foregoing provisions relating to the termination of subleases

    shall apply instead to the foreclosure by Continental under such

    security interest or mortgage, as the case may be, and the foregoing

    provisions relating to increased lease rates shall apply instead to the

    payment by Contractor to Continental of a financing fee equal to two

    percent per annum of the amount guaranteed for the life of Contractor's

    lease or outstanding obligations with respect to the applicable Covered

    Aircraft.

    (g) Maintenance at Continental's Expense. With

    respect to any aircraft being returned to Continental by Contractor, if

    pursuant to the provisions of this Agreement Contractor is released

    from the obligation to meet

     

     

     

     

     

     

     

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    any return conditions applicable to such aircraft under the Covered

    Aircraft Sublease applicable thereto, Contractor shall, at

    Continental's cost, perform such maintenance on such aircraft,

    consistent with Contractor's maintenance program, as and when requested

    by Continental prior to such return.

    (h) Fleet Hour Program. In connection with the return

    of any Covered Aircraft to Continental, Contractor shall use its

    commercially reasonable efforts to facilitate the participation by

    Continental in the fleet hour program of Rolls Royce Allison, and in

    connection therewith both Contractor and Continental shall cooperate in

    connection with any adjustment of charges pursuant to Section 5.4.3 of

    the Flight Hour Agreement precipitated by the return of any Covered

    Aircraft to Continental.

    (i) Excess Inventory and Improvements.

    (i) In connection with the return of any

    Covered Aircraft to Continental (whether pursuant to Section

    2.02 or this Article IX), Continental shall promptly purchase

    from Contractor the Excess Inventory relating thereto at a

    price equal to the book value of such Excess Inventory on

    Contractor's most recent financial statements.

    (ii) In connection with the return of any

    Covered Aircraft to Continental (whether pursuant to Section

    2.02 or this Article IX) which Covered Aircraft shall contain

    improvements that are reflected as an asset on Contractor's

    most recent financial statements, then Continental shall

    promptly pay to Contractor the book value of such improvements

    as reflected in such financial statements.

    (iii) In connection with the retention of

    any Covered Aircraft by Contractor (whether pursuant to

    Section 2.02 or this Article IX) which Covered Aircraft shall

    contain improvements that are reflected as an asset on

    Continental's most recent financial statements, then

    Contractor shall promptly pay to Continental the book value of

    such improvements as reflected in such financial statements.

    Section 9.05 Other Remedies for Breach.

    (a) Material Breach by Contractor. Upon a material

    breach of this Agreement by Contractor (including without limitation,

    those described in Section 9.03(c)), which breach shall not have been

    cured within 60 days after written notice delivered by Continental to

    Contractor, then for the period from such 60th day until such breach is

    cured or the Agreement is otherwise terminated by Continental pursuant

    to Section 9.03, in addition to, and not in limitation of, any recourse

    or remedy available to Continental at law or in equity, Contractor

    shall pay to Continental on the 1st and 15th of each month during such

    period an amount equal to the greater of the Cost Factor and the

    Prevailing Margin, multiplied by Contractor's aggregate fixed and

    variable operating costs allocable

     

     

     

     

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    to Scheduled Flights for the semi-monthly period ending one calendar

    month prior to the date of such payment; provided, that if the material

    breach is in respect of any event constituting Cause, the 60-day cure

    period referenced above shall not apply, and Contractor shall pay such

    amounts to Continental from the first day of such material breach until

    such breach is cured or the Agreement is otherwise terminated by

    Continental pursuant to Section 9.03; and provided further, that in no

    event shall Contractor be required to pay to Continental under this

    Section 9.05(a) in respect of any calendar month an amount that is in

    excess of the aggregate amount received by Contractor from Continental

    in respect of such calendar month pursuant to Section 3.06 (it being

    understood that the aggregate amount received by Contractor from

    Continental in respect of any calendar month shall include any amounts

    that would have been received but for the set-off of any such amounts

    by Continental pursuant to Section 11.16).

    (b) Material Breach by Continental. Upon a material

    breach of this Agreement by Continental, which breach shall not have

    been cured within 60 days after written notice delivered by Contractor

    to Continental, then for the period from such 60th day until such

    breach is cured or the Agreement is otherwise terminated by Contractor

    pursuant to Section 9.03, in addition to, and not in limitation of, any

    recourse or remedy available to Contractor at law or in equity,

    Contractor shall be entitled to obtain the payments due to it hereunder

    directly from Airline Clearing House, Inc. for the duration of such

    default.

    (c) Labor Strike. In the event of a Labor Strike,

    then (i) the provisions of Section 6.02(b) shall no longer apply for

    the duration of the Term, (ii) the provisions of Paragraph B(6)(e) of

    Schedule 3 and Section 9.05(a) shall apply, (iii) after each of the

    2nd, 15th, 30th, 45th, 60th and 75th days of such Labor Strike,

    Continental (or its designee) shall be entitled to take immediate

    possession of up to 20 Covered Aircraft (up to a total of 120 aircraft

    after such 75th day) designated by Continental, which shall

    simultaneously be withdrawn from this Agreement and the provisions of

    Section 9.04(a)(vi) shall apply as if such aircraft were being returned

    to Continental in connection with a termination under Section 9.03(a),

    and (iv) if Continental (or its designee) shall take possession of any

    aircraft pursuant to clause (iii) above, then for so long as the Labor

    Strike shall continue and for 180 days thereafter, Contractor shall

    provide Continental or its designee with first-priority access to all

    of Contractor's operating and training facilities, including without

    limitation, flight simulators and hangars, at the standard rental rate

    charged by Contractor to third parties prior to the beginning of the

    Labor Strike (or, if Contractor had not rented any such facility, at

    non-strike market rates), and to its inventory of spare parts and other

    equipment at market rates, in each case for such period of time and to

    such extent as is necessary and prudent in Continental's judgment to

    operate such aircraft safely and to integrate such aircraft and such

    operations into Continental's (or its designee's) fleet and operations.

    (d) Punitive Damages. No party to this Agreement or

    any of its affiliates shall be liable to any other party hereto or any

    of its affiliates for

     

     

     

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    claims for punitive, special or exemplary damages, arising out of or

    relating to this Agreement or the transactions contemplated hereby,

    regardless of whether a claim is based on contract, tort (including

    negligence), strict liability, violation of any applicable deceptive

    trade practices act or similar law or any other legal or equitable

    principle, and each party releases the others and their respective

    affiliates from liability for any such damages. No party shall be

    entitled to rescission of this Agreement as a result of breach of any

    other party's representations, warranties, covenants or agreements, or

    for any other matter.

    ARTICLE X

    REPRESENTATIONS, WARRANTIES AND COVENANTS

    Section 10.01 Representations, Warranties and Covenants of Holdings, XJT and ExpressJet. Holdings, XJT and ExpressJet, jointly and severally, represent, warrant and covenant to Continental as of the date hereof as follows:

    (a) Organization and Qualification. Each of Holdings,

    XJT and ExpressJet is a duly organized and validly existing corporation

    in good standing under the laws of the State of Delaware and has the

    corporate power and authority to own, operate and use its assets and

    operate the Regional Airline Services.

    (b) Authority Relative to this Agreement. Each of

    Holdings, XJT and ExpressJet has the corporate power and authority to

    execute and deliver this Agreement and to consummate the transactions

    contemplated hereby in accordance with the terms hereof. The execution

    and delivery of this Agreement and the consummation of the transactions

    contemplated hereby have been duly authorized by all necessary

    corporate action on the part of each of Holdings, XJT and ExpressJet.

    This Agreement has been duly and validly executed and delivered by each

    of Holdings, XJT and ExpressJet and is, assuming due execution and

    delivery thereof by Continental and that Continental has legal power

    and right to enter into this Agreement, a valid and binding obligation

    of each of Holdings, XJT and ExpressJet, enforceable against each of

    Holdings, XJT and ExpressJet in accordance with its terms, except as

    enforcement hereof may be limited by bankruptcy, insolvency, fraudulent

    conveyance, reorganization, moratorium and other similar laws relating

    to or affecting the enforcement of creditors' rights generally and

    legal principles of general applicability governing the availability of

    equitable remedies (whether considered in a proceeding in equity or at

    law or otherwise under applicable law).

    (c) Conflicts; Defaults. Neither the execution or

    delivery of this Agreement nor the performance by each of Holdings, XJT

    and ExpressJet of the transactions contemplated hereby will (i)

    violate, conflict with, or constitute a default under any of the terms

    of either Holdings', XJT's or ExpressJet's certificate of

    incorporation, by-laws, or any provision of, or result in the

    acceleration of any obligation under, any material contract, sales

    commitment, license, purchase order, security agreement, mortgage,

    note, deed, lien, lease or

     

     

     

     

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    other agreement to which Holdings, XJT or ExpressJet is a party, (ii)

    result in the creation or imposition of liens in favor of any third

    person or entity, (iii) violate any law, statute, judgment, decree,

    order, rule or regulation of any governmental authority, or (iv)

    constitute any event which, after notice or lapse of time or both,

    would result in such violation, conflict, default, acceleration or

    creation or imposition of liens.

    (d) Broker. None of Holdings, XJT or ExpressJet has

    retained or agreed to pay any broker or finder with respect to this

    Agreement and the transactions contemplated hereby.

    (e) Board Designee. At all times during the Term,

    with respect to XJT and ExpressJet, and, with respect only to Holdings,

    when Continental has ceased to elect at least one director pursuant to

    its ownership of special voting preferred stock of Holdings, each of

    Holdings, XJT and ExpressJet agrees that it will endeavor to ensure

    that an individual designated from time to time by Continental (who

    shall not be a director, officer or employee of Continental) shall be a

    member of the board of directors of Holdings, XJT or ExpressJet, as the

    case may be. In furtherance of such endeavors, at the time of any

    nomination, appointment or election of any board member of Holdings,

    XJT or ExpressJet, when no Continental designee is a member of such

    board, and, with respect only to Holdings, when Continental has ceased

    to elect at least one director pursuant to its ownership of special

    voting preferred stock of Holdings, then Holdings, XJT or ExpressJet,

    as the case may be, shall nominate or appoint, as the case may be, an

    individual designated by Continental at such time and, in the event of

    a shareholders vote, shall recommend to shareholders such individual's

    election to the board. In addition, at any time when no Continental

    designee is a member of its board and at Continental's request,

    Holdings, XJT or ExpressJet, as the case may be, shall invite the

    individual designated by Continental at such time to attend all board

    meetings (including telephonic meetings) and review all actions taken

    without a meeting, and shall provide such individual, at the same time

    as provided to board members, all materials provided to board members

    in connection with such meetings or actions taken without a meeting.

    Section 10.02 Representations and Warranties of Continental. Continental represents and warrants to Holdings, XJT and ExpressJet as of the date hereof as follows:

    (a) Organization and Qualification. Continental is a

    duly incorporated and validly existing corporation in good standing

    under the laws of the State of Delaware.

    (b) Authority Relative to this Agreement. Continental

    has the corporate power and authority to execute and deliver this

    Agreement and to consummate the transactions contemplated hereby in

    accordance with the terms hereof. The execution and delivery of this

    Agreement and the consummation of the transactions contemplated hereby

    have been duly authorized by all necessary corporate action on the part

    of Continental. This Agreement has been duly and

     

     

     

     

     

    35

     

     

    validly executed and delivered by Continental and is, assuming due

    execution and delivery thereof by Holdings, XJT and ExpressJet and that

    Holdings, XJT and ExpressJet each has legal power and right to enter

    into this Agreement, a valid and binding obligation of Continental,

    enforceable against Continental in accordance with its terms, except as

    enforcement hereof may be limited by bankruptcy, insolvency, fraudulent

    conveyance, reorganization, moratorium and other similar laws relating

    to or affecting the enforcement of creditors' rights generally and

    legal principles of general applicability governing the availability of

    equitable remedies (whether considered in a proceeding in equity or at

    law or otherwise under applicable law).

    (c) Conflicts; Defaults. Neither the execution or

    delivery of this Agreement nor the performance by Continental of the

    transactions contemplated hereby will (i) violate, conflict with, or

    constitute a default under any of the terms of Continental's

    certificate of incorporation, by-laws, or any provision of, or result

    in the acceleration of any obligation under, any material contract,

    sales commitment, license, purchase order, security agreement,

    mortgage, note, deed, lien, lease or other agreement to which

    Continental is a party, (ii) result in the creation or imposition of

    any liens in favor of any third person or entity, (iii) violate any

    law, statute, judgment, decree, order, rule or regulation of any

    governmental authority, or (iv) constitute any event which, after

    notice or lapse of time or both, would result in such violation,

    conflict, default, acceleration or creation or imposition of liens.

    (d) Broker. Continental has not retained or agreed to

    pay any broker or finder with respect to this Agreement and the

    transactions contemplated hereby.

    ARTICLE XI

    MISCELLANEOUS

    Section 11.01 Amendment of Certain Contracts. Without Continental's express prior written consent, Contractor shall not amend, supplement, grant a waiver or extension under, or otherwise modify (i) the Embraer Contract in any manner that results in changes to the pricing, number or delivery schedule of firm-order and option aircraft subject to such agreements, the financing or leasing arrangements contained therein, or any other changes that may be expected to adversely affect Continental's rights, benefits or obligations under this Agreement or Contractor's ability to perform hereunder, or (ii) the Flight Hour Agreement in any manner that adversely affects the engine maintenance costs of Contractor or Continental in respect of the Covered Aircraft. Contractor agrees to consent to any amendment of the Embraer Contract that reduces the financing or other obligations of Continental under the Embraer Contract, provided that such amendment does not increase the obligations of Contractor under such contract, it being understood that such amendment shall not discharge or otherwise reduce Continental's obligations under Article V.

     

     

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    Section 11.02 Notices. All notices made pursuant to this Agreement shall be in writing and shall be deemed given upon (a) a transmitter's confirmation of a receipt of a facsimile transmission (but only if followed by confirmed delivery by a standard overnight courier the following Business Day or if delivered by hand the following Business Day), or (b) confirmed delivery by a standard overnight courier or delivered by hand, to the parties at the following addresses:

    if to Continental:

    Continental Airlines, Inc.

    1600 Smith Street, HQSCD

    Houston, Texas 77002

    Attention: Senior Vice President - Corporate Development

    Telecopy No.: (713) 324-3229

    with a copy to:

    Continental Airlines, Inc.

    1600 Smith Street, HQSLG

    Houston, Texas 77002

    Attention: General Counsel

    Telecopy No.: (713) 324-5161

    if to Holdings, XJT or ExpressJet to:

    ExpressJet Holdings, Inc.

    1600 Smith Street, HQSCE

    Houston, Texas 77002

    Attention: Chief Financial Officer

    Telecopy No.: (713) 324-4420

    or to such other address as any party hereto may have furnished to the other parties by a notice in writing in accordance with this Section 11.02.

    Section 11.03 Binding Effect; Assignment. This Agreement and all of the provisions hereof shall be binding upon the parties hereto and inure to the benefit of the parties hereto and their respective successors and permitted assigns. Except with respect to a merger of either party with another Person, neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any party hereto without the prior written consent of the other parties.

    Section 11.04 Amendment and Modification. This Agreement may not be amended or modified in any respect except by a written agreement signed by the parties hereto.

    Section 11.05 Waiver. The observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or

     

     

     

     

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    prospectively) by the party entitled to enforce such term, but such waiver shall be effective only if it is in writing signed by the party against which such waiver is to be asserted. Unless otherwise expressly provided in this Agreement, no delay or omission on the part of any party in exercising any right or privilege under this Agreement shall operate as a waiver thereof, nor shall any waiver on the part of any party of any right or privilege under this Agreement operate as a waiver of any other right or privilege under this Agreement nor shall any single or partial exercise of any right or privilege preclude any other or further exercise thereof or the exercise of any other right or privilege under this Agreement. No failure by any party to take any action or assert any right or privilege hereunder shall be deemed to be a waiver of such right or privilege in the event of the continuation or repetition of the circumstances giving rise to such right unless expressly waived in writing by each party against whom the existence of such waiver is asserted.

    Section 11.06 Interpretation. The table of contents and the section and other headings and subheadings contained in this Agreement and in the exhibits and schedules hereto are solely for the purpose of reference, are not part of the agreement of the parties hereto, and shall not in any way affect the meaning or interpretation of this Agreement or any exhibit or schedule hereto. All references to days or months shall be deemed references to calendar days or months. All references to "$" shall be deemed references to United States dollars. Unless the context otherwise requires, any reference to an "Article," a "Section," an "Exhibit," or a "Schedule" shall be deemed to refer to a section of this Agreement or an exhibit or schedule to this Agreement, as applicable. The words "hereof," "herein" and "hereunder" and words of similar import referring to this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. Whenever the words "include," "includes" or "including" are used in this Agreement, unless otherwise specifically provided, they shall be deemed to be followed by the words "without limitation." This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting or causing the document to be drafted.

    Section 11.07 Confidentiality. Except as required by law or in any proceeding to enforce the provisions of this Agreement, Continental, ExpressJet, XJT and Holdings hereby agree not to publicize or disclose to any third party the terms or conditions of this Agreement or any of the Ancillary Agreements, or any exhibit, schedule or appendix hereto or thereto, without the prior written consent of the other parties thereto. Except as required by law or in any proceeding to enforce the provisions of this Agreement or any of the Ancillary Agreements, Continental, ExpressJet, XJT and Holdings hereby agree not to disclose to any third party any confidential information or data, both oral and written, received from the other, whether pursuant to or in connection with this Agreement or any of the Ancillary Agreements, and designated as such by the other without the prior written consent of the party providing such confidential information or data. Continental, ExpressJet, XJT and Holdings hereby agree not to use any such confidential information or data of the other party other than in connection with performing their respective obligations or enforcing their respective rights under this Agreement or any of the Ancillary Agreements, or as otherwise expressly contemplated by this Agreement or any of the Ancillary Agreements. If any party is served with a subpoena or other process requiring the production or disclosure of any of such

     

     

     

     

     

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    agreements or information, then the party receiving such subpoena or other process, before complying with such subpoena or other process, shall immediately notify the other parties of same and permit said other parties a reasonable period of time to intervene and contest disclosure or production. Upon termination of this Agreement, each party must return to each other any confidential information or data received from the other and designated as such by the party providing such confidential information or data which is still in the recipient's possession or control. The provisions of this Section 11.07 shall survive the termination of this Agreement for a period of ten years.

    Section 11.08 Arbitration.

    (a) Agreement to Arbitrate. Subject to Section 11.11,

    any and all claims, demands, causes of action, disputes, controversies,

    and other matters in question arising out of or primarily relating to

    Article III or Schedule 3 to this Agreement, including without

    limitation the definition of any term used therein (all of which are

    referred to herein as "Claims") shall be resolved by binding

    arbitration pursuant to the Federal Arbitration Act. Each of the

    parties agrees that arbitration under this Section 11.08 is the

    exclusive method for resolving any Claim and that it will not commence

    an action or proceeding based on a Claim hereunder, except to enforce

    the arbitrators' decisions as provided in this Section 11.08, to compel

    any other party to participate in arbitration under this Section 11.08

    or as otherwise provided in Section 11.11. The governing law for any

    such action or proceeding shall be the law set forth in Section

    11.08(f).

    (b) Initiation of Arbitration. If any Claim has not

    been resolved by mutual agreement on or before the 15th day following

    the first notice of the subject matter of the Claim to or from a

    disputing party, then the arbitration may be initiated by any party by

    providing to the others a written notice of arbitration specifying the

    Claim or Claims to be arbitrated. If a party refuses to honor its

    obligations under this agreement to arbitrate, any other party may

    compel arbitration in either federal or state court.

    (c) Place of Arbitration. The arbitration proceeding

    shall be conducted in Houston, Texas, or some other place mutually

    agreed upon by the parties.

    (d) Selection of Arbitrators. Within thirty days of

    the notice initiating the arbitration procedure, each party shall

    designate one arbitrator, who shall not be disqualified on the basis of

    minimal past or present relationships with the party appointing such

    arbitrator. If a party fails to designate an arbitrator, the other

    party may have an arbitrator appointed by applying to the senior active

    United States District Judge for the Southern District of Texas. The

    two arbitrators so selected shall then select a third arbitrator. If

    the two arbitrators chosen by the parties fail to agree on the third

    arbitrator, then the parties (or either of them) may apply to the

    senior active United States District Judge for the Southern District of

    Texas for the appointment of a third arbitrator. The third arbitrator

    shall take an oath of neutrality. The three arbitrators shall make all

    of

     

     

     

     

     

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    their decisions by majority vote. Evident partiality on the part of an

    arbitrator exists only where the circumstances are such that a

    reasonable person would have to conclude there in fact existed actual

    bias and a mere appearance or impression of bias will not constitute

    evident partiality or otherwise disqualify an arbitrator. Minimal or

    trivial past or present relationships between the neutral arbitrator

    and the party selecting such arbitrator or any of the other

    arbitrators, or the failure to disclose such minimal or trivial past or

    present relationships, will not by themselves constitute evident

    partiality or otherwise disqualify any arbitrator.

    (e) Choice of Law as to Procedural Matters. The

    enforcement of this agreement to arbitrate, the making, validity,

    construction, and interpretation of this agreement to arbitrate, and

    all procedural aspects of the proceeding pursuant to this agreement to

    arbitrate, including but not limited to, the issues subject to

    arbitration (i.e., arbitrability), the scope of the arbitrable issues,

    allegations of waiver, delay or defenses to arbitrability, and the

    rules governing the conduct of the arbitration, shall be governed by

    and construed pursuant to the Federal Arbitration Act.

    (f) Choice of Law as to Substantive Claims. In

    deciding the substance of the parties' Claims, the arbitrators shall

    apply the substantive laws of the State of Texas (excluding Texas

    choice-of-law principles that might call for the application of the law

    of another jurisdiction).

    (g) Procedure. Except as modified in this Agreement,

    the arbitration shall be conducted in accordance with the rules of

    arbitration of the Federal Arbitration Act and, to the extent an issue

    is not addressed by the federal law of arbitration, by the Commercial

    Arbitration Rules of the American Arbitration Association. It is

    contemplated that although the arbitration shall be conducted in

    accordance with the Commercial Arbitration Rules of the American

    Arbitration Association, the arbitration proceeding will be

    self-administered by the parties; provided, however, that if a party

    believes the process will be enhanced if it is administered by the

    American Arbitration Association, such party shall have the right to

    cause the process to become administered by the American Arbitration

    Association by applying to the American Arbitration Association and,

    thereafter, the arbitration shall be conducted pursuant to the

    administration of the American Arbitration Association. In determining

    the extent of discovery, the number and length of depositions, and all

    other pre-hearing matters, the arbitrators shall endeavor to the extent

    possible to streamline the proceedings and minimize the time and cost

    of the proceedings.

    (h) Final Hearing. The final hearing shall be

    conducted within 120 days of the selection of the third arbitrator. The

    final hearing shall not exceed ten working days, with each party to be

    granted one-half of the allocated time to present its case to the

    arbitrators.

    (i) Damages. Only actual damages may be awarded. It

    is expressly agreed that the arbitrators shall have no authority to

    award treble,

     

     

     

     

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    exemplary or punitive damages of any type under any circumstances

    regardless of whether such damages may be available under the

    applicable law.

    (j) Decision of the Arbitration. The arbitrators

    shall render their final decision within twenty days of the completion

    of the final hearing completely resolving all of the Claims that are

    the subject of the arbitration proceeding. The arbitrators' ultimate

    decision after final hearing shall be in writing. The arbitrators shall

    certify in their decision that no part of their award includes any

    amount for treble, exemplary or punitive damages. The arbitrators'

    decision shall be final and non-appealable to the maximum extent

    permitted by law. Any and all of the arbitrators' orders and decisions

    may be enforceable in, and judgment upon any award rendered in the

    arbitration proceeding may be confirmed and entered by, any federal or

    state court having jurisdiction.

    (k) Confidentiality. All proceedings conducted

    hereunder and the decision of the arbitrators shall be kept

    confidential by the parties.

    Section 11.09 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. The Agreement may be executed by facsimile signature.

    Section 11.10 Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof. Any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

    Section 11.11 Equitable Remedies. Each of Continental, Holdings, XJT and ExpressJet acknowledges and agrees that under certain circumstances the breach by Continental, Holdings, XJT or ExpressJet of a term or provision of this Agreement will materially and irreparably harm the other party, that money damages will accordingly not be an adequate remedy for such breach and that the non-defaulting party, in its sole discretion and in addition to its rights under this Agreement and any other remedies it may have at law or in equity, may apply to any court of law or equity of competent jurisdiction (without posting any bond or deposit) for specific performance and/or other injunctive relief in order to enforce or prevent any breach of the provisions of this Agreement.

    Section 11.12 Relationship of Parties. Nothing in this Agreement shall be interpreted or construed as establishing between the parties a partnership, joint venture or other similar arrangement.

    Section 11.13 Entire Agreement. This Agreement (including the exhibits and schedules hereto) and the Ancillary Agreements are intended by the parties as a complete statement of the entire agreement and understanding of the parties with respect to the subject matter hereof and all matters between the parties related to the subject matter herein or therein set forth.

     

     

     

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    Section 11.14 Governing Law. Except with respect to matters referenced in Section 11.08(e) (which shall be governed by and construed pursuant to the Federal Arbitration Act), this Agreement shall be governed by and construed in accordance with the laws of the State of Texas (excluding Texas choice-of-law principles that might call for the application of the law of another jurisdiction) as to all matters, including matters of validity, construction, effect, performance and remedies. Except as otherwise provided in Section 11.08(e), any action arising out of this Agreement or the rights and duties of the parties arising hereunder may be brought, if at all, only in the state or federal courts located in Harris County, Texas.

    Section 11.15 Guarantees.

    (a) Holdings Guarantee. Holdings hereby

    unconditionally and irrevocably guarantees to Continental the due and

    punctual performance by each of XJT and ExpressJet of all of their

    obligations arising under this Agreement and the Ancillary Agreements.

    If either XJT or ExpressJet shall fail or be unable to perform such

    obligations as and when the same shall be required to be performed,

    then Holdings shall be obligated to perform or cause to be performed

    such obligations in accordance with the terms hereof and thereof. This

    guaranty is a guaranty of payment, performance and compliance and not

    of collectibility and is in no way conditioned or contingent upon any

    attempt to collect from or enforce performance or compliance by

    ExpressJet or XJT or upon any other event or condition whatsoever.

    (b) XJT Guarantee. XJT hereby unconditionally and

    irrevocably guarantees to Continental the due and punctual performance

    by ExpressJet of all of its obligations arising under this Agreement

    and the Ancillary Agreements. If ExpressJet shall fail or be unable to

    perform such obligations as and when the same shall be required to be

    performed, then XJT shall be obligated to perform or cause to be

    performed such obligations in accordance with the terms hereof and

    thereof. This guaranty is a guaranty of payment, performance and

    compliance and not of collectibility and is in no way conditioned or

    contingent upon any attempt to collect from or enforce performance or

    compliance by ExpressJet or upon any other event or condition

    whatsoever.

    Section 11.16 Right of Set-Off. If (i) any party hereto shall be in default hereunder to any other party, (ii) Contractor shall be in default under any Covered Aircraft Sublease or Uncovered Aircraft Sublease, (iii) Contractor shall be in default under that certain promissory note, dated as of March 31, 2001, payable by Contractor in favor of Continental, or (iv) any party to any tax agreement among the parties hereto shall be in default to any other party thereunder, then in any such case the non-defaulting party shall be entitled to set off from any payment owed by such non-defaulting party to the defaulting party hereunder any amount owed by the defaulting party to the non-defaulting party thereunder; provided that contemporaneously with any such set-off, the

     

     

     

     

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    non-defaulting party shall give written notice of such action to the defaulting party; provided further that the failure to give such notice shall not affect the validity of the set-off. It is specifically agreed that (i) for purposes of the set-off by any non-defaulting party, mutuality shall be deemed to exist among Continental, Holdings, XJT and ExpressJet; (ii) reciprocity among Continental, Holdings, XJT and ExpressJet exists with respect to their relative rights and obligations in respect of any such set-off; and (iii) the right of set-off is given as additional security to induce the parties to enter into the transactions contemplated hereby and by the Ancillary Agreements. Upon completion of any such set-off, the obligation of the defaulting party to the non-defaulting party shall be extinguished to the extent of the amount so set-off. Each party hereto further waives any right to assert as a defense to any attempted set-off the requirements of liquidation or mutuality. This set-off provision shall be without prejudice, and in addition, to any right of set-off, combination of accounts, lien or other right to which any non-defaulting party is at any time otherwise entitled (either by operation of law, contract or otherwise).

    Section 11.17 Cooperation with Respect to Reporting. Each of the parties hereto agrees to use its commercially reasonable efforts to cooperate with each other party in providing necessary data, to the extent in the possession of the first party, required by such other party in order to meet any reporting requirements to, or otherwise in connection with any filing with or provision of information to be made to, any regulatory agency or other governmental authority.

     

     

     

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    IN WITNESS WHEREOF, the parties hereto have caused this Amended and Restated Capacity Purchase Agreement to be duly executed and delivered as of the date and year first written above.

     

    CONTINENTAL AIRLINES, INC.

     

    By:

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

    Name: Jeffery A. Smisek

    Title: Executive Vice President- Corporate

    EXPRESSJET HOLDINGS, INC.

     

    By:

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

    Name: James B. Ream

    Title: President and Chief Executive Officer

    XJT HOLDINGS, INC.

     

    By:

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

    Name: James B. Ream

    Title: President and Chief Executive Officer

    EXPRESSJET AIRLINES, INC.

     

    By:

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

    Name: James B. Ream

    Title: President and Chief Executive Officer

     

     

     

     

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    SCHEDULE 1

    COVERED AIRCRAFT

    ERJ-145 AIRCRAFT

    ORDER 1/1/01

    NUMBER AIRCRAFT TAIL US REG MSN STATUS

    ====================================================================================================

    ERJ-145ER 925 N14925 145004 Delivered

    ERJ-145ER 926 N15926 145005 Delivered

    ERJ-145ER 927 N16927 145006 Delivered

    ERJ-145ER 928 N17928 145007 Delivered

    ERJ-145ER 929 N13929 145009 Delivered

    ERJ-145ER 930 N14930 145011 Delivered

    ERJ-145ER 932 N15932 145015 Delivered

    ERJ-145ER 933 N14933 145018 Delivered

    ERJ-145ER 934 N12934 145019 Delivered

    ERJ-145ER 935 N13935 145022 Delivered

    ERJ-145ER 936 N13936 145025 Delivered

    ERJ-145ER 937 N14937 145026 Delivered

    ERJ-145ER 938 N14938 145029 Delivered

    ERJ-145ER 939 N14939 145030 Delivered

    ERJ-145ER 940 N14940 145033 Delivered

    ERJ-145ER 941 N15941 145035 Delivered

    ERJ-145ER 942 N14942 145037 Delivered

    ERJ-145ER 943 N14943 145040 Delivered

    ERJ-145ER 944 N16944 145045 Delivered

    ERJ-145ER 945 N14945 145049 Delivered

    ERJ-145ER 946 N12946 145052 Delivered

    ERJ-145ER 947 N14947 145054 Delivered

    ERJ-145ER 948 N15948 145056 Delivered

    ERJ-145LR 949 N13949 145057 Delivered

    ERJ-145LR 950 N14950 145061 Delivered

    ERJ-145LR 951 N16951 145063 Delivered

    ERJ-145LR 952 N14952 145067 Delivered

    ERJ-145LR 953 N14953 145071 Delivered

    ERJ-145LR 954 N16954 145072 Delivered

    ERJ-145LR 955 N13955 145075 Delivered

    ERJ-145LR 956 N13956 145078 Delivered

    ERJ-145LR 957 N12957 145080 Delivered

    ERJ-145LR 958 N13958 145085 Delivered

    ERJ-145LR 959 N14959 145091 Delivered

    ERJ-145LR 960 N14960 145100 Delivered

    ERJ-145LR 961 N16961 145103 Delivered

    ERJ-145LR 962 N27962 145110 Delivered

    ERJ-145LR 963 N16963 145116 Delivered

    ERJ-145LR 964 N13964 145123 Delivered

    ERJ-145LR 965 N13965 145125 Delivered

    ERJ-145LR 966 N19966 145131 Delivered

    ERJ-145LR 967 N12967 145133 Delivered

    ERJ-145LR 968 N13968 145138 Delivered

     

     

    Schedule 1-1

     

     

     

    ORDER 1/1/01

    NUMBER AIRCRAFT TAIL US REG MSN STATUS

    ====================================================================================================

    ERJ-145LR 969 N13969 145141 Delivered

    ERJ-145LR 970 N13970 145146 Delivered

    ERJ-145LR 971 N22971 145149 Delivered

    ERJ-145LR 972 N14972 145151 Delivered

    ERJ-145LR 973 N15973 145159 Delivered

    ERJ-145LR 974 N14974 145161 Delivered

    ERJ-145LR 975 N13975 145163 Delivered

    ERJ-145LR 976 N16976 145171 Delivered

    ERJ-145LR 977 N14977 145175 Delivered

    ERJ-145LR 978 N13978 145180 Delivered

    ERJ-145LR 979 N13979 145181 Delivered

    ERJ-145LR 980 N15980 145202 Delivered

    ERJ-145LR 981 N16981 145208 Delivered

    ERJ-145LR 982 N18982 145223 Delivered

    ERJ-145LR 983 N15983 145239 Delivered

    ERJ-145LR 984 N17984 145246 Delivered

    ERJ-145LR 985 N15985 145248 Delivered

    ERJ-145LR 986 N15986 145254 Delivered

    ERJ-145LR 987 N16987 145261 Delivered

    ERJ-145LR 988 N13988 145265 Delivered

    ERJ-145LR 989 N13989 145271 Delivered

    ERJ-145LR 990 N13990 145277 Delivered

    ERJ-145LR 991 N14991 145278 Delivered

    ERJ-145LR 992 N13992 145284 Delivered

    ERJ-145LR 993 N14993 145289 Delivered

    ERJ-145LR 994 N13994 145291 Delivered

    ERJ-145LR 995 N13995 145295 Delivered

    ERJ-145LR 996 N12996 145296 Delivered

    ERJ-145LR 997 N13997 145298 Delivered

    ERJ-145LR 998 N14998 145302 Delivered

    ERJ-145LR 999 N16999 145307 Delivered

    ERJ-145LR 924 N12924 145311 Delivered

    ERJ-145LR 923 N14923 145318 Delivered

    ERJ-145LR 922 N12922 145338 Delivered

    ERJ-145LR 921 N12921 145354 Delivered

    Aircraft 80 ERJ-145LR Firm

    Aircraft 81 ERJ-145LR Firm

    Aircraft 82 ERJ-145LR Firm

    Aircraft 83 ERJ-145LR Firm

    Aircraft 84 ERJ-145LR Firm

    Aircraft 85 ERJ-145LR Firm

    Aircraft 86 ERJ-145LR Firm

    Aircraft 87 ERJ-145LR Firm

    Aircraft 88 ERJ-145LR Firm

    Aircraft 89 ERJ-145LR Firm

    Aircraft 90 ERJ-145LR Firm

    Aircraft 91 ERJ-145LR Firm

     

     

     

    Schedule 1-2

     

     

    ORDER 1/1/01

    NUMBER AIRCRAFT TAIL US REG MSN STATUS

    ====================================================================================================

    Aircraft 92 ERJ-145LR Firm

    Aircraft 93 ERJ-145LR Firm

    Aircraft 94 ERJ-145LR Firm

    Aircraft 95 ERJ-145LR Firm

    Aircraft 96 ERJ-145LR Firm

    Aircraft 97 ERJ-145LR Firm

    Aircraft 98 ERJ-145LR Firm

    Aircraft 99 ERJ-145LR Firm

    Aircraft 100 ERJ-145LR Firm

    Aircraft 101 ERJ-145LR Firm

    Aircraft 102 ERJ-145LR Firm

    Aircraft 103 ERJ-145LR Firm

    Aircraft 104 ERJ-145LR Firm

    Aircraft 105 ERJ-145LR Firm

    Aircraft 106 ERJ-145LR Firm

    Aircraft 107 ERJ-145LR Firm

    Aircraft 108 ERJ-145LR Firm

    Aircraft 109 ERJ-145LR Firm

    Aircraft 110 ERJ-145LR Firm

    Aircraft 111 ERJ-145LR Firm

    Aircraft 112 ERJ-145LR Firm

    Aircraft 113 ERJ-145LR Firm

    Aircraft 114 ERJ-145LR Firm

    Aircraft 115 ERJ-145LR Firm

    Aircraft 116 ERJ-145LR Firm

    Aircraft 117 ERJ-145LR Firm

    Aircraft 118 ERJ-145LR Firm

    Aircraft 119 ERJ-145LR Firm

    Aircraft 120 ERJ-145LR Firm

    Aircraft 121 ERJ-145LR Firm

    Aircraft 122 ERJ-145LR Firm

    Aircraft 123 ERJ-145LR Firm

    Aircraft 124 ERJ-145LR Firm

    Aircraft 125 ERJ-145LR Firm

    Aircraft 126 ERJ-145LR Firm

    Aircraft 127 ERJ-145LR Firm

    Aircraft 128 ERJ-145LR Firm

    Aircraft 129 ERJ-145LR Firm

    Aircraft 130 ERJ-145LR Firm

    Aircraft 131 ERJ-145LR Firm

    Aircraft 132 ERJ-145LR Firm

    Aircraft 133 ERJ-145LR Firm

    Aircraft 134 ERJ-145LR Firm

    Aircraft 135 ERJ-145LR Firm

    Aircraft 136 ERJ-145LR Firm

    Aircraft 137 ERJ-145LR Firm

    Aircraft 138 ERJ-145LR Firm

     

     

     

    Schedule 1-3

     

     

    ORDER 1/1/01

    NUMBER AIRCRAFT TAIL US REG MSN STATUS

    ====================================================================================================

    Aircraft 139 ERJ-145LR Firm

    Aircraft 140 ERJ-145LR Firm

    Aircraft 141 ERJ-145LR Firm

    Aircraft 142 ERJ-145LR Firm

    Aircraft 143 ERJ-145LR Firm

    Aircraft 144 ERJ-145LR Firm

    Aircraft 145 ERJ-145LR Firm

    Aircraft 146 ERJ-145LR Firm

    Aircraft 147 ERJ-145LR Firm

    Aircraft 148 ERJ-145LR Firm

    Aircraft 149 ERJ-145LR Firm

    Aircraft 150 ERJ-145LR Firm

    Aircraft 151 ERJ-145LR Firm

    Aircraft 152 ERJ-145LR Firm

    Aircraft 153 ERJ-145LR Firm

    Aircraft 154 ERJ-145LR Firm

    Aircraft 155 ERJ-145LR Firm

    Aircraft 156 ERJ-145LR Firm

    Aircraft 157 ERJ-145LR Firm

    Aircraft 158 ERJ-145LR Firm

    Aircraft 159 ERJ-145LR Firm

    Aircraft 1 ERJ-145XR Firm

    Aircraft 2 ERJ-145XR Firm

    Aircraft 3 ERJ-145XR Firm

    Aircraft 4 ERJ-145XR Firm

    Aircraft 5 ERJ-145XR Firm

    Aircraft 6 ERJ-145XR Firm

    Aircraft 7 ERJ-145XR Firm

    Aircraft 8 ERJ-145XR Firm

    Aircraft 9 ERJ-145XR Firm

    Aircraft 10 ERJ-145XR Firm

    Aircraft 11 ERJ-145XR Firm

    Aircraft 12 ERJ-145XR Firm

    Aircraft 13 ERJ-145XR Firm

    Aircraft 14 ERJ-145XR Firm

    Aircraft 15 ERJ-145XR Firm

    Aircraft 16 ERJ-145XR Firm

    Aircraft 17 ERJ-145XR Firm

    Aircraft 18 ERJ-145XR Firm

    Aircraft 19 ERJ-145XR Firm

    Aircraft 20 ERJ-145XR Firm

    Aircraft 21 ERJ-145XR Firm

    Aircraft 22 ERJ-145XR Firm

    Aircraft 23 ERJ-145XR Firm

    Aircraft 24 ERJ-145XR Firm

    Aircraft 25 ERJ-145XR Firm

     

     

     

    Schedule 1-4

     

     

    ORDER 1/1/01

    NUMBER AIRCRAFT TAIL US REG MSN STATUS

    ====================================================================================================

    Aircraft 26 ERJ-145XR Firm

    Aircraft 27 ERJ-145XR Firm

    Aircraft 28 ERJ-145XR Firm

    Aircraft 29 ERJ-145XR Firm

    Aircraft 30 ERJ-145XR Firm

    Aircraft 31 ERJ-145XR Firm

    Aircraft 32 ERJ-145XR Firm

    Aircraft 33 ERJ-145XR Firm

    Aircraft 34 ERJ-145XR Firm

    Aircraft 35 ERJ-145XR Firm

    Aircraft 36 ERJ-145XR Firm

    Aircraft 37 ERJ-145XR Firm

    Aircraft 38 ERJ-145XR Firm

    Aircraft 39 ERJ-145XR Firm

    Aircraft 40 ERJ-145XR Firm

    Aircraft 41 ERJ-145XR Firm

    Aircraft 42 ERJ-145XR Firm

    Aircraft 43 ERJ-145XR Firm

    Aircraft 44 ERJ-145XR Firm

    Aircraft 45 ERJ-145XR Firm

    Aircraft 46 ERJ-145XR Firm

    Aircraft 47 ERJ-145XR Firm

    Aircraft 48 ERJ-145XR Firm

    Aircraft 49 ERJ-145XR Firm

    Aircraft 50 ERJ-145XR Firm

    Aircraft 51 ERJ-145XR Firm

    Aircraft 52 ERJ-145XR Firm

    Aircraft 53 ERJ-145XR Firm

    Aircraft 54 ERJ-145XR Firm

    Aircraft 55 ERJ-145XR Firm

    Aircraft 56 ERJ-145XR Firm

    Aircraft 57 ERJ-145XR Firm

    Aircraft 58 ERJ-145XR Firm

    Aircraft 59 ERJ-145XR Firm

    Aircraft 60 ERJ-145XR Firm

    Aircraft 61 ERJ-145XR Firm

    Aircraft 62 ERJ-145XR Firm

    Aircraft 63 ERJ-145XR Firm

    Aircraft 64 ERJ-145XR Firm

    Aircraft 65 ERJ-145XR Firm

    Aircraft 66 ERJ-145XR Firm

    Aircraft 67 ERJ-145XR Firm

    Aircraft 68 ERJ-145XR Firm

    Aircraft 69 ERJ-145XR Firm

    Aircraft 70 ERJ-145XR Firm

    Aircraft 71 ERJ-145XR Firm

    Aircraft 72 ERJ-145XR Firm

     

     

     

     

    Schedule 1-5

     

     

    ORDER 1/1/01

    NUMBER AIRCRAFT TAIL US REG MSN STATUS

    ====================================================================================================

    Aircraft 73 ERJ-145XR Firm

    Aircraft 74 ERJ-145XR Firm

    Aircraft 75 ERJ-145XR Firm

    Aircraft 76 ERJ-145XR Firm

    Aircraft 77 ERJ-145XR Firm

    Aircraft 78 ERJ-145XR Firm

    Aircraft 79 ERJ-145XR Firm

    Aircraft 80 ERJ-145XR Firm

    Aircraft 81 ERJ-145XR Firm

    Aircraft 82 ERJ-145XR Firm

    Aircraft 83 ERJ-145XR Firm

    Aircraft 84 ERJ-145XR Firm

    Aircraft 85 ERJ-145XR Firm

    Aircraft 86 ERJ-145XR Firm

     

    ERJ-135 AIRCRAFT

    ORDER 1/1/01

    NUMBER AIRCRAFT TAIL US REG MSN STATUS

    ====================================================================================================

    ERJ-135ER 501 N16501 145145 Delivered

    ERJ-135ER 502 N16502 145166 Delivered

    ERJ-135ER 503 N19503 145176 Delivered

    ERJ-135ER 504 N25504 145186 Delivered

    ERJ-135ER 505 N14505 145192 Delivered

    ERJ-135ER 506 N27506 145206 Delivered

    ERJ-135ER 507 N17507 145215 Delivered

    ERJ-135ER 508 N14508 145220 Delivered

    ERJ-135ER 509 N15509 145238 Delivered

    ERJ-135ER 510 N16510 145251 Delivered

    ERJ-135ER 511 N16511 145267 Delivered

    ERJ-135ER 512 N27512 145274 Delivered

    ERJ-135LR 513 N17513 145292 Delivered

    ERJ-135LR 514 N14514 145303 Delivered

    ERJ-135LR 515 N29515 145309 Delivered

    ERJ-135LR 516 N14516 145323 Delivered

    ERJ-135LR 517 N24517 145332 Delivered

    ERJ-135LR 518 N28518 145334 Delivered

    Aircraft 19 ERJ-135LR Firm

    Aircraft 20 ERJ-135LR Firm

    Aircraft 21 ERJ-135LR Firm

    Aircraft 22 ERJ-135LR Firm

    Aircraft 23 ERJ-135LR Firm

     

     

     

    Schedule 1-6

     

     

    ORDER 1/1/01

    NUMBER AIRCRAFT TAIL US REG MSN STATUS

    ====================================================================================================

    Aircraft 24 ERJ-135LR Firm

    Aircraft 25 ERJ-135LR Firm

    Aircraft 26 ERJ-135LR Firm

    Aircraft 27 ERJ-135LR Firm

    Aircraft 28 ERJ-135LR Firm

    Aircraft 29 ERJ-135LR Firm

    Aircraft 30 ERJ-135LR Firm

     

    CONVERTED ORDERS NEW ORDER

    Aircraft 31 ERJ-135LR 145LR Firm

    Aircraft 32 ERJ-135LR 145LR Firm

    Aircraft 33 ERJ-135LR 145LR Firm

    Aircraft 34 ERJ-135LR 145LR Firm

    Aircraft 35 ERJ-135LR 145LR Firm

    Aircraft 36 ERJ-135LR 145LR Firm

    Aircraft 37 ERJ-135LR 145LR Firm

    Aircraft 38 ERJ-135LR 145LR Firm

    Aircraft 39 ERJ-135LR 145LR Firm

    Aircraft 40 ERJ-135LR 145XR Firm

    Aircraft 41 ERJ-135LR 145XR Firm

    Aircraft 42 ERJ-135LR 145XR Firm

    Aircraft 43 ERJ-135LR 145XR Firm

    Aircraft 44 ERJ-135LR 145XR Firm

    Aircraft 45 ERJ-135LR 145XR Firm

    Aircraft 46 ERJ-135LR 145XR Firm

    Aircraft 47 ERJ-135LR 145XR Firm

    Aircraft 48 ERJ-135LR 145XR Firm

    Aircraft 49 ERJ-135LR 145XR Firm

    Aircraft 50 ERJ-135LR 145XR Firm

     

    TURBOPROP AIRCRAFT

    TAIL AIRCRAFT US REG

    ====================================================

    811 ATR-42-320 N25811

    812 ATR-42-320 N19812

    813 ATR-42-320 N14813

    814 ATR-42-320 N18814

    815 ATR-42-320 N14815

    816 ATR-42-320 N15816

    817 ATR-42-320 N34817

     

     

     

    Schedule 1-7

     

     

     

     

    TAIL AIRCRAFT US REG

    ====================================================

    818 ATR-42-320 N15818

    819 ATR-42-320 N14819

    820 ATR-42-320 N34820

    821 ATR-42-320 N14821

    822 ATR-42-320 N14822

    823 ATR-42-320 N15823

    824 ATR-42-320 N16824

    825 ATR-42-320 N14825

    826 ATR-42-320 N26826

    827 ATR-42-320 N15827

    828 ATR-42-320 N14828

    829 ATR-42-320 N14829

    830 ATR-42-320 N14830

    831 ATR-42-320 N17831

    832 ATR-42-320 N14832

    833 ATR-42-320 N14833

    834 ATR-42-320 N14834

    835 ATR-42-320 N11835

    836 ATR-42-320 N42836

    837 ATR-42-320 N21837

    838 ATR-42-320 N99838

    840 ATR-42-320 N93840

    841 ATR-42-320 N97841

    842 ATR-42-320 N86842

    712 EMB-120ER N34712

    713 EMB-120ER N15713

    715 EMB-120ER N12715

    716 EMB-120ER N27716

    717 EMB-120ER N40717

    718 EMB-120ER N16718

    720 EMB-120ER N17720

    722 EMB-120ER N47722

    723 EMB-120ER N16723

    724 EMB-120ER N16724

    725 EMB-120ER N15725

    726 EMB-120ER N51726

    727 EMB-120ER N22727

    728 EMB-120ER N17728

    729 EMB-120ER N16729

    730 EMB-120ER N15730

     

     

     

    Schedule 1-8

     

     

     

    TAIL AIRCRAFT US REG

    ====================================================

    731 EMB-120ER N16731

    732 EMB-120ER N15732

    733 EMB-120ER N58733

    734 EMB-120ER N57734

    534 B1900-D N17534

    538 B1900-D N81538

    540 B1900-D N16540

    541 B1900-D N17541

    542 B1900-D N47542

    543 B1900-D N49543

    544 B1900-D N48544

    546 B1900-D N81546

    547 B1900-D N69547

    548 B1900-D N69548

    549 B1900-D N69549

    550 B1900-D N87550

    551 B1900-D N87551

    552 B1900-D N87552

    553 B1900-D N81553

    554 B1900-D N87554

    555 B1900-D N87555

    556 B1900-D N81556

    557 B1900-D N87557

     

     

    Schedule 1-9

     

     

     

    SCHEDULE 2

    CONTINENTAL INCREASED LEASE RATE

    CALCULATIONS FOR UNCOVERED AIRCRAFT SUBLEASES

    The interest rate used in a Covered Aircraft Sublease relating to an aircraft to determine the lease payments thereunder shall be increased by 200 basis points and used to determine the lease payments under the Uncovered Aircraft Sublease for the same aircraft.

     

     

     

     

     

    Schedule 2-1

     

     

     

     

    SCHEDULE 3

     

     

    A. Base and Incentive Compensation. The following provisions shall apply

    for all applicable periods through December 31, 2004:

    1. Base Compensation. For each calendar month, "Base

    Compensation" shall equal the sum of (i) (a) the First

    Benchmark Factor multiplied by (b) the aggregate sum of the

    following products for each aircraft type set forth in the

    Final Monthly Schedule: the First Adjusted Block Hour Rate for

    the applicable aircraft type multiplied by the number of block

    hours of Scheduled Flights set forth on the Final Monthly

    Schedule for such month for such aircraft type and (ii) the

    Appendix 1 Expenses set forth in column 1 of Appendix 1 for

    such calendar month as may be adjusted pursuant to Paragraph

    (A)(3) of this Schedule 3.

    The "First Benchmark Factor" for each calendar month equals

    one minus the sum of the First Cancellation Rate for such

    calendar month and the Second Cancellation Rate for such

    calendar month. The First Benchmark Factor for each month in

    2001 is set forth in Appendix 2.

    The "First Adjusted Block Hour Rate" for a particular aircraft

    type and a particular month equals (i) the applicable Appendix

    3 Block Hour Rate set forth on Appendix 3 for such aircraft

    type and month, minus (ii) the sum of (a) the Appendix 4 Block

    Hour Rate set forth on Appendix 4 for such aircraft type and

    month, (b) the Appendix 5 Block Hour Rate set forth on

    Appendix 5 for such aircraft type and month and (c) the

    Appendix 6 Block Hour Rate set forth on Appendix 6 for such

    aircraft type and month, plus (iii) the sum of (x) the Second

    Adjusted Block Hour Rate for such aircraft type and month, (y)

    the Third Adjusted Block Hour Rate for such aircraft type and

    month and (z) the Fourth Adjusted Block Hour Rate for such

    aircraft type and month.

    The "Second Adjusted Block Hour Rate" for a particular

    aircraft type and a particular month is obtained by

    multiplying the Appendix 4 Block Hour Rate for such aircraft

    type and month by the Appendix 7 Block Hours set forth on

    Appendix 7 for such aircraft type and dividing such product by

    the average scheduled block hours per departure for such

    aircraft type as set forth on the Final Monthly Schedule.

    The "Third Adjusted Block Hour Rate" for a particular aircraft

    type and a particular month equals the quotient of (1) the sum

    of (a) the product of (i) the First Forecast Rate-Component 1

    for the applicable month as set forth on Appendix 8 multiplied

    by (ii) the First Weighted Average Number for such aircraft

    type, plus (b) the product of (i) the First Forecast

    Rate-Component 2 for the applicable month as set forth on

    Appendix 8 multiplied by (ii) the Second Weighted Average

    Number for

     

     

     

     

     

    Schedule 3-1

     

     

    such aircraft type, divided by (2) the product of (w) the

    total number of scheduled block hours for such aircraft type

    as set forth in the Final Monthly Schedule, multiplied by (x)

    the First Benchmark Factor, multiplied by (y) the Cost

    Difference as set forth on Appendix 23.

    The "First Weighted Average Number" for a particular aircraft

    type equals the product of (1) the number of scheduled

    departures of such aircraft type from a Continental airport,

    excluding airport codes YHZ, YOW, and YQB, as set forth in the

    Final Monthly Schedule multiplied by (2) the Weighted

    Departure Number for such aircraft type.

    The "Second Weighted Average Number" for a particular aircraft

    type equals the product of (1) the number of scheduled

    departures of such aircraft type from a Continental Airport as

    set forth in the Final Monthly Schedule multiplied by (2) the

    Weighted Departure Number for such aircraft type.

    The "Weighted Departure Number" for (1) the Embraer ERJ-145XR

    is {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH

    THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST

    FOR CONFIDENTIAL TREATMENT}, (2) the Embraer ERJ-145 is

    {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE

    SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR

    CONFIDENTIAL TREATMENT}, (3) the Embraer ERJ-135 is

    {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE

    SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR

    CONFIDENTIAL TREATMENT}, (4) the ATR-42-320 is {CONFIDENTIAL

    MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND

    EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL

    TREATMENT}, (5) the Embraer 120 is {CONFIDENTIAL MATERIAL

    OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE

    COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}

    and (6) the Beech 1900-D is {CONFIDENTIAL MATERIAL OMITTED AND

    FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION

    PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}.

    The "Fourth Adjusted Block Hour Rate" for a particular

    aircraft type and a particular month equals the quotient of

    (i) the product of (a) the Contract Fuel Rate multiplied by

    (b) the Appendix 9 Rate Per Block Hour set forth

     

     

     

    Schedule 3-2

     

     

    in Appendix 9 for such aircraft type based on the average

    scheduled stage length per departure for such aircraft type as

    set forth in the Final Monthly Schedule using the nearest

    lower stage length set forth in Appendix 9 divided by (ii) the

    Cost Difference set forth on Appendix 23.

    2. Incentive Compensation. With respect to each calendar month,

    incentive compensation shall be calculated as follows:

    a. Headstart Bonus. Contractor shall receive a payment

    of {CONFIDENTIAL MATERIAL OMITTED AND FILED

    SEPARATELY WITH THE SECURITIES AND EXCHANGE

    COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL

    TREATMENT} for each Scheduled Flight that is an

    On-time Headstart Flight during a calendar month, if

    any, in excess of the product of the number of

    Headstart Flights during such calendar month and the

    Headstart On-time Benchmark. The Headstart On-time

    Benchmark for each month in 2001 is set forth in

    Appendix 2.

    b. Baggage Handling Bonus. Contractor shall receive a

    payment in an amount equal to the product of (i)

    {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY

    WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT

    TO A REQUEST FOR CONFIDENTIAL TREATMENT} and (ii) the

    excess, if any, of (a) the quotient of (1) the total

    number of Enplanements for Continental and Contractor

    during such calendar month at Contractor Airports of

    the type described in clause (i) of the definition

    thereof, multiplied by the Baggage Handling

    Benchmark, divided by (2) 1,000 over (b) each bag

    improperly handled (as measured by claims filed for

    mishandled baggage) for Continental and Contractor by

    Contractor during such calendar month at Contractor

    Airports of the type described in clause (i) of the

    definition thereof. The Baggage Handling Benchmark

    for each month in 2001 is set forth in Appendix 2.

    c. Appendix 10 Fee. Contractor will receive a fee equal

    to the quotient of (i) the Appendix 10 invoice rate

    set forth in Appendix 10 for the applicable month

    multiplied by the number of Forecasted Passengers for

    the applicable month, which fee represents payment

    for interrupted trip expense, passenger liability

    insurance, baggage handling, claims, repairs and

    delivery (Contractor Airports only), and security and

    screening (Contractor Airports only) expenses,

    divided by (ii) the Cost Difference set forth in

    Appendix 23. This incentive compensation will be

    reconciled, in the monthly reconciliation described

    in

     

     

     

     

    Schedule 3-3

     

     

    Section 3.06(b) of the Agreement, to the number of

    Actual Passengers for such calendar month multiplied

    by the Appendix 10 reconciliation rate set forth in

    Appendix 10 for the applicable month, which fee

    represents the same categories of expense as

    represented by the per passenger invoice rate, other

    than passenger liability insurance and third-party

    security and screening (Contractor Airports only),

    which category of expense is reconciled pursuant to

    Paragraph B(9)(a).

    3. Fleet Size Adjustments. Upon the withdrawal of one or more

    Covered Aircraft (excluding Turboprop Aircraft) from the

    capacity purchase provisions of this Agreement, the Appendix 1

    Expenses shall be adjusted as follows:

    a. Expenses set forth in column 2 of Appendix 1 (after

    giving effect to any adjustments thereto pursuant to

    this Paragraph A(3)(a)) for each applicable month

    shall decrease by the quotient of (i) the actual

    expenses of the type reflected in column 2 relating

    to the specific aircraft (identified by tail number)

    withdrawn from the Agreement, divided by (ii) the

    Cost Difference set forth on Appendix 23.

    b. Expenses set forth in columns 4, 6, 9, 11, 12 and 13

    of Appendix 1 for each applicable month will be

    reduced by an amount equal to the product of (i) the

    amount of each of such expenses included in Appendix

    1 Expenses (after giving effect to any previous

    adjustments thereto pursuant to this Paragraph

    A(3)(b)) and (ii) the quotient of (1) the number of

    aircraft so withdrawn from the Agreement (after

    giving effect to any previous adjustments pursuant to

    this Paragraph A(3)(b)) and (2) the number of

    aircraft constituting Covered Aircraft immediately

    prior to such withdrawal.

    c. The remainder of the Appendix 1 Expenses will

    decrease as follows:

    I. For the first {CONFIDENTIAL MATERIAL OMITTED

    AND FILED SEPARATELY WITH THE SECURITIES AND

    EXCHANGE COMMISSION PURSUANT TO A REQUEST

    FOR CONFIDENTIAL TREATMENT} aircraft (other

    than Turboprop Aircraft) to be withdrawn

    from the Agreement (taking into account all

    withdrawals under the Agreement), the

    remainder of the Appendix 1 Expenses after

    giving effect to any other adjustments

    provided in this Paragraph A(3) will be

    reduced by the product of (a) such remainder

    of the Appendix 1 Expenses,

     

     

     

    Schedule 3-4

     

     

    multiplied by (b) {CONFIDENTIAL MATERIAL

    OMITTED AND FILED SEPARATELY WITH THE

    SECURITIES AND EXCHANGE COMMISSION PURSUANT

    TO A REQUEST FOR CONFIDENTIAL TREATMENT}

    multiplied by (c) the quotient of (1) the

    number of aircraft so withdrawn and (2) the

    number of aircraft constituting Covered

    Aircraft immediately prior to such

    withdrawal.

    II. For the next {CONFIDENTIAL MATERIAL OMITTED

    AND FILED SEPARATELY WITH THE SECURITIES AND

    EXCHANGE COMMISSION PURSUANT TO A REQUEST

    FOR CONFIDENTIAL TREATMENT} aircraft (other

    than Turboprop Aircraft) to be withdrawn

    from the Agreement (taking into account all

    withdrawals from the Agreement), the

    remainder of the Appendix 1 Expenses after

    giving effect to any other adjustments

    provided in this Paragraph A(3) will be

    reduced by the product of (a) such remainder

    of the Appendix 1 Expenses, multiplied by

    (b) {CONFIDENTIAL MATERIAL OMITTED AND FILED

    SEPARATELY WITH THE SECURITIES AND EXCHANGE

    COMMISSION PURSUANT TO A REQUEST FOR

    CONFIDENTIAL TREATMENT} multiplied by (c)

    the quotient of (1) the number of aircraft

    so withdrawn and (2) the number of aircraft

    constituting Covered Aircraft immediately

    prior to such withdrawal.

    III. For all other aircraft (other than Turboprop

    Aircraft) to be withdrawn from the

    Agreement, Continental and Contractor shall

    meet and confer to agree on a reasonable

    reduction of the remainder of the Appendix 1

    Expenses after giving effect to any other

    adjustments provided in this Paragraph A(3)

    to give effect to the reduction in

    Contractor's Appendix 1 Expenses as a result

    of such withdrawal.

    B. Expenses and Reconciliation.

    1. Passenger and Cargo Revenue-Related Expenses. With respect to

    Scheduled Flights, passenger and cargo revenue-related

    expenses, including without limitation commissions, food and

    beverage costs, charges for fare or tariff filings, sales and

    advertising costs, computer reservation system fees, credit

    card discount fees, reservation costs, revenue accounting

    costs, and OnePass participation costs, shall be incurred

    directly by Continental.

     

     

     

    Schedule 3-5

     

     

    2. Fuel Reconciliation. If during any calendar month actual

    Fuel-Related Expense for Scheduled Flights varies from the

    assumed Fuel-Related Expense included in the First Adjusted

    Block Hour Rates for each applicable aircraft type (based on

    the Second Forecast Rate), then a reconciliation payment for

    such calendar month shall be made in accordance with this

    Paragraph B(2). The reconciliation set forth below in this

    Paragraph B(2) shall be made separately for each Fuel-Related

    Component Expense.

    a. If Contractor's actual applicable Fuel-Related

    Component Expense per gallon during a particular

    month for Scheduled Flights is lower than the

    Contract Fuel Rate for the applicable Fuel-Related

    Component, and Contractor's actual number of gallons

    consumed for such month for Scheduled Flights is

    lower than the Second Forecast Rate, Contractor shall

    reimburse Continental an amount equal to the sum of:

    I. the quotient of (1) the product of (a) the

    difference between the Contract Fuel Rate

    for the applicable Fuel-Related Component

    and such actual Fuel-Related Component

    Expense per gallon multiplied by (b) the

    Second Forecast Rate divided by (2) the Cost

    Difference set forth on Appendix 23, plus

    II. the quotient of (1) the product of (a) the

    difference between the Second Forecast Rate

    and such actual number of gallons consumed

    and (b) such actual Fuel-Related Component

    Expense per gallon divided by (2) the Cost

    Difference set forth on Appendix 23.

    The "Second Forecast Rate" for any particular month

    is equal to the aggregate sum of the following

    product for each aircraft type: (i) the Appendix 9

    Rate Per Block Hour set forth in Appendix 9 for such

    aircraft type based on the average scheduled stage

    length per departure for such aircraft type as set

    forth in the Final Monthly Schedule using the nearest

    lower stage length set forth in Appendix 9 multiplied

    by (ii) the number of scheduled block hours for such

    aircraft type in the Final Monthly Schedule for such

    month multiplied by (iii) the First Benchmark Factor.

    b. If Contractor's actual applicable Fuel-Related

    Component Expense per gallon during a particular

    month for Scheduled Flights is lower than the

    Contract Fuel Rate for the applicable Fuel-Related

    Component, and Contractor's actual number of gallons

    consumed for such month for Scheduled Flights is

    higher than the Second Forecast Rate, then:

     

     

    Schedule 3-6

     

     

    I. Contractor shall reimburse Continental an

    amount equal to the quotient of (1) the

    product of (a) the difference between the

    Contract Fuel Rate for the applicable

    Fuel-Related Component and such actual

    Fuel-Related Component Expense per gallon

    multiplied by (b) the Second Forecast Rate

    divided by (2) the Cost Difference set forth

    on Appendix 23, and

    II. Continental shall reimburse Contractor an

    amount equal to the quotient of (1) the

    product of (a) the difference between such

    actual number of gallons consumed and the

    Second Forecast Rate multiplied by (b) such

    actual Fuel-Related Component Expense per

    gallon divided by (2) the Cost Difference

    set forth on Appendix 23.

    c. If Contractor's actual applicable Fuel-Related

    Component Expense per gallon during a particular

    month for Scheduled Flights equals the Contract Fuel

    Rate for the applicable Fuel-Related Component, then:

    I. if Contractor's actual number of gallons

    consumed for such month for Scheduled

    Flights is lower than the Second Forecast

    Rate, Contractor shall reimburse Continental

    an amount equal to the quotient of (1) the

    product of (a) the difference between the

    Second Forecast Rate and such actual number

    of gallons consumed multiplied by (b) the

    Contract Fuel Rate for the applicable

    Fuel-Related Component divided by (2) the

    Cost Difference set forth on Appendix 23;

    and

    II. if Contractor's actual number of gallons

    consumed for such month for Scheduled

    Flights is greater than the Second Forecast

    Rate, Continental shall reimburse Contractor

    an amount equal to the quotient of (1) the

    product of (a) the difference between such

    actual number of gallons consumed and the

    Second Forecast Rate multiplied by (b) the

    Contract Fuel Rate for the applicable

    Fuel-Related Component divided by (2) the

    Cost Difference set forth on Appendix 23.

    d. If Contractor's actual number of gallons consumed

    during a particular month for Scheduled Flights

    equals the Second Forecast Rate, and if Contractor's

    actual applicable Fuel-Related Component Expense per

    gallon during a particular month for Scheduled

    Flights is lower than the Contract Fuel Rate for the

    applicable Fuel-Related Component, Contractor shall

    reimburse Continental an amount equal to the quotient

    of (1) the product of (a) the difference between the

    Contract Fuel Rate for the

     

     

     

     

    Schedule 3-7

     

     

    applicable Fuel-Related Component and such actual

    Fuel-Related Component Expense per gallon multiplied

    by (b) the Second Forecast Rate divided by (2) the

    Cost Difference set forth on Appendix 23;

    3. Certain Parts:

    a. Contractor shall be reimbursed for the cost of all

    engine life limited components when replaced so long

    as, at the time of such replacement of the component,

    the applicable aircraft is a Covered Aircraft.

    b. If, with Continental's prior written consent,

    Contractor amends the Flight Hour Agreement to cover

    engine life limited components on Covered Aircraft,

    then the Appendix 3 Block Hour Rates shall be

    increased for the months following the effectiveness

    of such amendment to reimburse Contractor for the

    additional expense at cost (without any amount in

    respect of the Cost Factor).

    4. Administrative and Facilities Expenses.

    a. Administrative Costs. The Appendix 3 Block Hour Rates

    and the Appendix 1 Expenses include allocations of

    administrative compensation costs. The parties hereto

    have entered into the Administrative Support and

    Information Services Provisioning Agreement, pursuant

    to which Continental has agreed to provide Contractor

    with certain administrative services. Pursuant to the

    Administrative Support and Information Services

    Provisioning Agreement, the parties hereto have

    agreed to enter into a transition plan, which plan

    will provide for the termination of the services

    provided by Continental to Contractor thereunder over

    a certain period of time. As a result, certain of

    such services may be terminated during the term of

    this Agreement. Contractor and Continental hereby

    agree that in connection with the transition plan

    Contractor and Continental shall meet and confer to

    adjust the Appendix 3 Block Hour Rates and Appendix 1

    Expenses to reasonably reflect any increases or

    decreases in Contractor's administrative compensation

    costs or other administrative costs and the costs

    payable to Continental pursuant to the Administrative

    Support and Information Services Provisioning

    Agreement as a result of Contractor's having to

    replace any of such terminated services.

     

     

    Schedule 3-8

     

     

    b. Facility and Ground Handling Costs. In consideration

    of the services provided by Continental to Contractor

    pursuant to Paragraph 1.1.1 of the Continental Ground

    Handling Agreement during a particular month,

    Contractor will pay Continental a fee equal to the

    product of (i) the First Forecast Rate - Component 1

    set forth on Appendix 8 for such month, multiplied by

    (ii) the First Weighted Average Number for such

    month. In addition, if at any time Contractor shall

    relocate its headquarters, the parties agree to meet

    and confer pursuant to Paragraph B(11) regarding such

    event.

    5. Flight Overfly Reconciliation.

    a. With respect to Scheduled Flights, for any calendar

    month Contractor's actual block hours flown per

    departure for any particular aircraft type exceeds

    the scheduled block hours per departure for such

    aircraft type for such calendar month as set forth in

    the Final Monthly Schedule, then the reconciliation

    for such period shall include a payment for such

    aircraft type by Continental to Contractor in an

    amount equal to the product of (i) the First

    Incremental Cost Rate set forth on Appendix 11 with

    respect to such aircraft type and such month,

    multiplied by (ii) the quotient of (1) the difference

    between such actual number of block hours per

    departure and such number of scheduled block hours

    per departure divided by (2) such number of scheduled

    block hours per departure, multiplied by (iii) the

    number of scheduled block hours for such aircraft

    type as set forth on the Final Monthly Schedule

    multiplied by (iv) the First Benchmark Factor for

    such calendar month.

    b. With respect to Scheduled Flights, for any calendar

    month the scheduled block hours per departure for any

    particular aircraft type as set forth on the Final

    Monthly Schedule exceeds Contractor's actual block

    hours flown per departure for such aircraft type for

    such calendar month, then the reconciliation for such

    period shall include a payment for such aircraft type

    by Contractor to Continental in an amount equal to

    the product of (i) the Second Incremental Cost Rate,

    set forth on Appendix 12 with respect to such

    aircraft type and month, multiplied by (ii) the

    quotient of (1) the difference between such number of

    scheduled block hours per departure and such actual

    number of block hours per departure, divided by (2)

    such number of scheduled block hours per departure,

    multiplied by (iii) the number of scheduled block

    hours for such aircraft type as set forth on the

    Final Monthly Schedule multiplied by (iv) the First

    Benchmark Factor for such calendar month.

     

     

    Schedule 3-9

     

     

    6. Flight Cancellation Reconciliation.

    a. If the product of the total number of Scheduled

    Flights for a particular aircraft type during a

    calendar month as set forth in the Final Monthly

    Schedule multiplied by the First Cancellation Rate

    exceeds the actual number of Uncontrollable

    Cancellations of such aircraft type in such calendar

    month (such excess number of flights of such aircraft

    type being the "First Cancellation Number" for such

    aircraft type), then the reconciliation for such

    period shall include a payment by Continental to

    Contractor in an amount equal to the product of (i)

    the First Incremental Cost Rate, as set forth on

    Appendix 11 for such aircraft type and such month,

    multiplied by (ii) the First Cancellation Number for

    such aircraft type, multiplied by (iii) the actual

    number of block hours per departure for such aircraft

    type for such calendar month.

    b. If the actual number of Uncontrollable Cancellations

    for a particular aircraft type during a calendar

    month exceeds the product of the total number of

    Scheduled Flights for such aircraft type during such

    calendar month multiplied by the First Cancellation

    Rate (such excess number of flights of such aircraft

    type being the "Second Cancellation Number" for such

    aircraft type), then the reconciliation for such

    period shall include a payment by Contractor to

    Continental in an amount equal to the product of (i)

    the Second Incremental Cost Rate, as set forth on

    Appendix 12 for such aircraft type and such month,

    multiplied by (ii) the Second Cancellation Number for

    such aircraft type, multiplied by (iii) the average

    number of block hours per Scheduled Flight for such

    aircraft type for such calendar month.

    c. If the product of the total number of Scheduled

    Flights for a particular aircraft type during a

    calendar month multiplied by the Second Cancellation

    Rate exceeds the actual number of Controllable

    Cancellations for such aircraft type in such calendar

    month (such excess number of flights of such aircraft

    type being the "Third Cancellation Number" for such

    aircraft type), then the reconciliation for such

    period shall include a payment by Continental to

    Contractor in an amount equal to the product of (i)

    the Third Incremental Cost Rate multiplied by (ii)

    the Third Cancellation Number for such aircraft type,

    multiplied by (iii) the actual number of block hours

    per flight for such aircraft type for such calendar

    month.

    The "Third Incremental Cost Rate" for a particular

    aircraft type equals the Fourth Incremental Cost Rate

    for such aircraft type plus the Fifth Incremental

    Cost Rate for such aircraft type.

     

     

    Schedule 3-10

     

     

    The "Fourth Incremental Cost Rate" for a particular

    aircraft type and for a particular month equals the

    product of (i) the sum of (a) the applicable Appendix

    13 Incremental Cost Rate set forth on Appendix 13 for

    such aircraft type and month, minus the sum of (1)

    the Appendix 14 Block Hour Rate set forth on Appendix

    14 for such aircraft type and month plus (2) the

    Appendix 5 Block Hour Rate set forth on Appendix 5

    for such aircraft type and month, plus (b) the

    Adjusted Appendix 14 Block Hour Rate for such

    aircraft type and month plus (c) the Third Adjusted

    Block Hour Rate for such aircraft type and month and

    (ii) the First Benchmark Factor for such month.

    The "Adjusted Appendix 14 Block Hour Rate" for a

    particular aircraft type and a particular month is

    obtained by multiplying the Appendix 14 Block Hour

    Rate by the Appendix 7 Block Hours set forth on

    Appendix 7 for such aircraft type and dividing such

    product by the average scheduled block hours per

    departure for such aircraft type as set forth on the

    Final Monthly Schedule.

    The "Fifth Incremental Cost Rate" is obtained by

    allocating the Appendix 1 Expenses among the

    different aircraft types by each type's allocable

    share of statistics from the Final Monthly Schedule

    based on the methodology set forth in Appendix 15,

    and dividing such allocation to a specific aircraft

    type by the scheduled block hours for such aircraft

    type set forth in the Final Monthly Schedule, then

    multiplying such quotient by the First Benchmark

    Factor.

    d. If the actual number of Controllable Cancellations

    for a particular aircraft type in a calendar month

    exceeds the product of the total number of Scheduled

    Flights for such aircraft type during such calendar

    month multiplied by the Second Cancellation Rate

    (such excess number of flights of such aircraft type

    being the "Fourth Cancellation Number" for such

    aircraft type), then the reconciliation for such

    period shall include a payment by Contractor to

    Continental in an amount equal to the product of (i)

    the Third Incremental Cost Rate for such aircraft

    type multiplied by (ii) the Fourth Cancellation

    Number, multiplied by (iii) the average number of

    block hours per Scheduled Flight for such aircraft

    type for such calendar month.

    e. For purposes of this Paragraph B(6), for any month

    during which a Labor Strike occurs, the Second

    Cancellation Rate for such month shall be adjusted to

    equal the difference between (a) the Second

    Cancellation Rate for such month (before any such

    adjustment)

     

     

     

     

    Schedule 3-11

     

     

    and (b) the product of (1) the quotient of (i) the

    Second Cancellation Rate for such month (before any

    such adjustment) divided by (ii) the number of days

    in the particular month, multiplied by (2) the number

    of days in such month (not to exceed the number of

    days in the particular month) during which such Labor

    Strike was occurring. For purposes of this Paragraph

    B(6), for any month during which a Labor Strike

    occurs, the First Cancellation Rate for such month

    shall be adjusted to equal the difference between (a)

    the First Cancellation Rate for such month (before

    any such adjustment) and (b) the product of (1) the

    quotient of (i) the First Cancellation Rate for such

    month (before any such adjustment) divided by (ii)

    30, multiplied by (2) the number of days in such

    month (not to exceed 30 days) during which such Labor

    Strike was occurring.

    f. For all purposes of this Agreement, the term

    Uncontrollable Cancellations shall include the

    following:

    I. After presentation of the Final Monthly

    Schedule pursuant to Section 2.01(b) of the

    Agreement, if Continental makes any changes

    to such schedule that result in a

    cancellation of a Scheduled Flight, then

    such cancellation shall constitute an

    Uncontrollable Cancellation.

    II. If any proposed Scheduled Flight on a

    planned flight schedule involves a flight to

    a new airport which will be a Contractor

    Airport, and Contractor experiences a delay

    in preparing the required facilities and

    making all necessary arrangements to

    complete a flight to such airport, which

    delay either (i) is caused by the

    Environmental Protection Agency, airport or

    any other governmental authority, or (ii)

    occurs after Contractor received less than

    90 days' advance notice of such Scheduled

    Flight to a new airport and used its

    commercially reasonable efforts to prepare

    the required facilities and make all

    necessary arrangements (all in accordance

    with the Master Facility and Ground Handling

    Agreement), and in either case such

    Scheduled Flight is cancelled, then such

    cancellation shall constitute an

    Uncontrollable Cancellation.

    g. Subject to the provisions of Paragraph B(6)(f),

    Contractor hereby agrees that each cancellation of a

    Scheduled Flight shall be designated as either a

    Controllable Cancellation or an Uncontrollable

    Cancellation on a basis consistent with Contractor's

    historical experience, including specifically the

    methodology used to create the data set forth in

    Appendix 2.

     

     

     

    Schedule 3-12

     

     

    7. Insurance Costs.

    a. If Contractor elects not to participate in a combined

    placement for a particular insurance policy,

    Contractor shall not be reimbursed or otherwise

    compensated (through adjustments to Block Hour Rates,

    reconciliation amounts, amounts in respect of the

    Cost Factor or otherwise) for any Excess Insurance

    Costs with respect to such policy.

    b. If Continental elects not to participate in a

    combined placement for a particular insurance policy,

    Continental shall pay to Contractor an amount equal

    to the Excess Insurance Costs with respect to such

    policy, up to the Average Peer Group Rates.

    Contractor shall not be reimbursed or otherwise

    compensated (through adjustments to Block Hour Rates

    or otherwise) to the extent that its insurance costs

    exceed the Average Peer Group Rates.

    c. Contractor will pay to Continental its proportionate

    share of all combined-placement insurance premiums

    not later than the date that Continental is required

    under the terms of the applicable policy to pay the

    policy premiums. The cost allocation for such

    combined placements shall be as follows:

    I. Hull and War Risk Coverage Rate. To be

    determined each year; a dollar amount equal

    to the combined placement program's

    composite whole rate as set forth in the

    current group policy, multiplied by

    Contractor's average fleet value for the

    policy period, as determined by recognized

    standard industry methods of valuation

    consistent with prior practice.

    II. Liability Rates. To be determined each year;

    an amount equal to the combined placement

    program's composite liability rate as set

    forth in the current group policy,

    multiplied by revenue passenger miles, as

    determined by recognized standard industry

    methods consistent with prior practice.

    III. Miscellaneous Insurance (Property, Casualty

    and D&O, etc.) Rates. The parties agree to

    meet annually to determine the cost

    allocation for all other insurance coverage

    based on Contractor's portion of the "total

    exposure base" for such coverage, as

    determined by recognized standard industry

    methods consistent with prior practice.

     

     

    Schedule 3-13

     

     

    d. In the Performance Period subsequent to the next

    combined policy insurance renewal following a Major

    Loss caused by Continental (or, if such a Major Loss

    occurs so close to the combined policy insurance

    renewal date that the effects are not reflected in

    the next combined policy insurance renewal premium

    amount, then in the Performance Period subsequent to

    the renewal in which the effects are first included),

    Continental and Contractor agree to determine the

    amount of increase in the combined policy insurance

    premiums, if any, to be attributed to such Major Loss

    (as opposed to a general increase in the premiums) as

    follows:

    I. The parties will compare the combined policy

    premium increase to premium increases

    experienced by the five Major Carriers

    closest to Continental in aggregate revenue

    passenger miles at the time of such

    determination, excluding any Major Carrier

    that experienced a Major Loss within the

    previous three years.

    II. The average annual increase in insurance

    costs for such Major Carriers shall be

    calculated by (i) subtracting the expiring

    rates of each such Major Carrier from its

    new rates, (ii) adding the total of such

    differences and (iii) dividing the total by

    the number of Major Carriers whose rates

    were included in the calculation.

    III. The amount that the increase in the combined

    premiums for Continental and Contractor

    exceeds the average annual increase in

    insurance costs calculated pursuant to

    clause (II) above shall be deemed to be the

    portion of the increase for such year due to

    such Major Loss (the "Continental Premium

    Surcharge Amount").

    IV. The Continental Premium Surcharge Amount for

    the subsequent two years shall be

    {CONFIDENTIAL MATERIAL OMITTED AND FILED

    SEPARATELY WITH THE SECURITIES AND EXCHANGE

    COMMISSION PURSUANT TO A REQUEST FOR

    CONFIDENTIAL TREATMENT} and {CONFIDENTIAL

    MATERIAL OMITTED AND FILED SEPARATELY WITH

    THE SECURITIES AND EXCHANGE COMMISSION

    PURSUANT TO A REQUEST FOR CONFIDENTIAL

    TREATMENT}, respectively, of the Continental

    Premium Surcharge Amount for the first year,

    and shall be {CONFIDENTIAL MATERIAL OMITTED

    AND FILED SEPARATELY WITH THE SECURITIES AND

    EXCHANGE COMMISSION PURSUANT TO A REQUEST

    FOR CONFIDENTIAL TREATMENT} thereafter.

     

     

    Schedule 3-14

     

     

    V. The Continental Premium Surcharge Amount

    shall be borne solely by Continental and

    that amount shall be deducted from the

    aggregate premium amounts included in all

    cost-sharing calculations between

    Continental and Contractor.

    e. In the Performance Period subsequent to the next

    combined policy insurance renewal following a Major

    Loss caused by Contractor (or, if such a Major Loss

    occurs so close to the combined policy insurance

    renewal date that the effects are not reflected in

    the next combined policy insurance renewal premium

    amount, then in the Performance Period subsequent to

    the renewal in which the effects are first included),

    Continental and Contractor agree to determine the

    amount of increase in the combined policy insurance

    premiums, if any, to be attributed to such Major Loss

    (as opposed to a general increase in the premiums) as

    follows:

    I. The parties will compare the combined policy

    premium increase to premium increases

    experienced by the five regional airlines

    with annual revenues closest to those of

    Contractor, excluding any such regional

    airline that experienced a Major Loss within

    the previous three years.

    II. The average annual increase in insurance

    costs for such regional airlines shall be

    calculated by (i) subtracting the expiring

    rates of each such regional airlines from

    its new rates, (ii) adding the total of such

    differences and (iii) dividing the total by

    the number of such regional airlines whose

    rates were included in the calculation.

    III. The parties will also calculate the maximum

    permitted increase in annual premiums which

    would be permitted if the policy coverage

    was limited to the insurance limits required

    to be maintained by Contractor (the

    "Contractor Premium Surcharge Limit").

    IV. The amount that the Contractor Premium

    Surcharge Limit exceeds the average annual

    increase in insurance costs calculated

    pursuant to clause (II) above shall be

    deemed to be the portion of the increase for

    such year due to such Major Loss and payable

    by Contractor (the "Contractor Premium

    Surcharge Amount").

     

     

     

     

    Schedule 3-15

     

     

    V. The amount that the increase in the combined

    premiums for Continental and Contractor

    exceeds the sum of (x) the average annual

    increase in insurance costs calculated

    pursuant to clause (II) above and (y) the

    Contractor Premium Surcharge Amount shall be

    deemed to be the portion of the increase for

    such year due to such Major Loss and payable

    by Continental (the "Contractor Premium

    Surcharge Overflow Amount").

    VI. The Contractor Premium Surcharge Amount for

    the subsequent two years shall be

    {CONFIDENTIAL MATERIAL OMITTED AND FILED

    SEPARATELY WITH THE SECURITIES AND EXCHANGE

    COMMISSION PURSUANT TO A REQUEST FOR

    CONFIDENTIAL TREATMENT} and {CONFIDENTIAL

    MATERIAL OMITTED AND FILED SEPARATELY WITH

    THE SECURITIES AND EXCHANGE COMMISSION

    PURSUANT TO A REQUEST FOR CONFIDENTIAL

    TREATMENT}, respectively, of the Contractor

    Premium Surcharge Amount for the first year,

    and shall be {CONFIDENTIAL MATERIAL OMITTED

    AND FILED SEPARATELY WITH THE SECURITIES AND

    EXCHANGE COMMISSION PURSUANT TO A REQUEST

    FOR CONFIDENTIAL TREATMENT} thereafter.

    VII. The Contractor Premium Surcharge Overflow

    Amount for the subsequent two years shall be

    {CONFIDENTIAL MATERIAL OMITTED AND FILED

    SEPARATELY WITH THE SECURITIES AND EXCHANGE

    COMMISSION PURSUANT TO A REQUEST FOR

    CONFIDENTIAL TREATMENT} and {CONFIDENTIAL

    MATERIAL OMITTED AND FILED SEPARATELY WITH

    THE SECURITIES AND EXCHANGE COMMISSION

    PURSUANT TO A REQUEST FOR CONFIDENTIAL

    TREATMENT}, respectively, of the Contractor

    Premium Surcharge Overflow Amount for the

    first year, and shall be {CONFIDENTIAL

    MATERIAL OMITTED AND FILED SEPARATELY WITH

    THE SECURITIES AND EXCHANGE COMMISSION

    PURSUANT TO A REQUEST FOR CONFIDENTIAL

    TREATMENT} thereafter.

     

     

     

    Schedule 3-16

     

     

    VIII. The Contractor Premium Surcharge Amount

    shall be borne solely by Contractor and that

    amount shall be deducted from the aggregate

    premium amounts included in all cost-sharing

    calculations between Continental and

    Contractor.

    IX. The Contractor Premium Surcharge Overflow

    Amount shall be borne solely by Continental

    and that amount shall be deducted from the

    aggregate premium amounts included in all

    cost-sharing calculations between

    Continental and Contractor.

    f. Contractor shall be reimbursed in full for the

    aggregate of all insurance deductibles paid in any

    calendar year up to an amount equal to the historical

    average of such deductibles paid by Contractor during

    the last five full calendar years for which such

    calculations are available as of such date of

    determination.

    8. Volume Reconciliation.

    a. Hotel Volume Reconciliation. The following expenses

    incurred in connection with Scheduled Flights as

    allocated pursuant to Section 3.05(a) shall be

    reconciled as follows:

    I. Pilot Contract Hotel Stays. Included in the

    Appendix 3 Block Hour Rates is an assumed

    cost associated with an assumed number of

    Contract Hotel Stays for pilots per

    scheduled block hour set forth in the Final

    Monthly Schedule. If the actual number of

    Contract Hotel Stays for pilots per

    scheduled block hour set forth in the Final

    Monthly Schedule for a particular month

    exceeds the number of assumed Contract Hotel

    Stays for pilots per scheduled block hour

    for such month as set forth in Appendix 16a,

    then Continental shall pay an amount to

    Contractor equal to the quotient of (a) the

    product of (i) the difference between (1)

    such actual number of Contract Hotel Stays

    for pilots per scheduled block hour during

    such month and (2) such assumed number of

    Contract Hotel Stays for pilots per

    scheduled block hour during such month,

    multiplied by (ii) the number of scheduled

    block hours for such month multiplied by

    (iii) the assumed cost per Contract Hotel

    Stay for pilots for such month as set forth

    in Appendix 16a divided by (b) the Cost

    Difference set forth on Appendix 23. If the

    actual number of Contract Hotel Stays for

    pilots per scheduled block hour set forth in

    the Final Monthly Schedule for a particular

    month is less than the number of assumed

    Contract Hotel Stays for pilots per

    scheduled block hour for such month as set

    forth in Appendix 16a, then Contractor shall

    pay an amount to

     

     

     

    Schedule 3-17

     

     

    Continental equal to the quotient of (a) the

    product of (i) the difference between (1)

    such assumed number of Contract Hotel Stays

    for pilots per scheduled block hour during

    such month and (2) such actual number of

    Contract Hotel Stays for pilots per

    scheduled block hour during such month,

    multiplied by (ii) the number of scheduled

    block hours for such month, multiplied by

    (iii) the assumed cost per Contract Hotel

    Stay for pilots for such month as set forth

    in Appendix 16a divided by (b) the Cost

    Difference set forth on Appendix 23.

    II. Flight Attendant Contract Hotel Stays.

    Included in the Appendix 3 Block Hour Rates

    is an assumed cost associated with an

    assumed number of Contract Hotel Stays for

    flight attendants per scheduled block hour

    set forth in the Final Monthly Schedule. If

    the actual number of Contract Hotel Stays

    for flight attendants per scheduled block

    hour set forth in the Final Monthly Schedule

    for a particular month exceeds the number of

    assumed Contract Hotel Stays for flight

    attendants per scheduled block hour for such

    month as set forth in Appendix 16b, then

    Continental shall pay an amount to

    Contractor equal to the quotient of (a) the

    product of (i) the difference between (1)

    such actual number of Contract Hotel Stays

    for flight attendants per scheduled block

    hour during such month and (2) such assumed

    number of Contract Hotel Stays for flight

    attendants per scheduled block hour during

    such month, multiplied by (ii) the number of

    scheduled block hours for such month

    multiplied by (iii) the assumed cost per

    Contract Hotel Stay for flight attendants

    for such month as set forth in Appendix 16b

    divided by (b) the Cost Difference set forth

    on Appendix 23. If the actual number of

    Contract Hotel Stays for flight attendants

    per scheduled block hour set forth in the

    Final Monthly Schedule for a particular

    month is less than the number of assumed

    Contract Hotel Stays for flight attendants

    per scheduled block hour for such month as

    set forth in Appendix 16b, then Contractor

    shall pay an amount to Continental equal to

    the quotient of (a) the product of (i) the

    difference between (1) such assumed number

    of Contract Hotel Stays for flight

    attendants per scheduled block hour during

    such month and (2) such actual number of

    Contract Hotel Stays for flight attendants

    per scheduled block hour during such month,

    multiplied by (ii) the number of scheduled

    block hours for such month, multiplied by

    (iii) the assumed cost per Contract Hotel

    Stay for flight attendants for such month as

     

     

     

     

    Schedule 3-18

     

     

    set forth in Appendix 16b divided by (b) the

    Cost Difference set forth on Appendix 23.

    b. Pilot Training Volume Reconciliation. The following

    expenses incurred in connection with Scheduled

    Flights, as allocated pursuant to Section 3.05(a),

    shall be reconciled as follows:

    I. New Hire Training Cycles. Included in the

    Appendix 1 Expenses is an assumed cost

    associated with an assumed number of Pilot

    New Hire Training Cycles for each aircraft

    type. If the actual number of Pilot New Hire

    Training Cycles for a particular month and a

    particular aircraft type exceeds the number

    of assumed Pilot New Hire Training Cycles

    for such month and aircraft type as set

    forth in Appendix 17b, then Continental

    shall pay an amount to Contractor equal to

    the quotient of (a) the product of (i) the

    difference between (1) such actual number of

    Pilot New Hire Training Cycles during such

    month for such aircraft type and (2) such

    assumed number of Pilot New Hire Training

    Cycles during such month for such aircraft

    type, multiplied by (ii) the assumed cost of

    each Pilot New Hire Training Cycle for such

    month and such aircraft type as set forth in

    Appendix 17a divided by (b) the Cost

    Difference set forth on Appendix 23. If the

    actual number of Pilot New Hire Training

    Cycles for a particular month and aircraft

    type is less than the assumed number of

    Pilot New Hire Training Cycles for such

    month and aircraft type as set forth in

    Appendix 17b, then Contractor shall pay an

    amount to Continental equal to the quotient

    of (a) the product of (i) the difference

    between (1) such assumed number of Pilot New

    Hire Training Cycles during such month for

    such aircraft type and (2) such actual

    number of Pilot New Hire Training Cycles

    during such month for such aircraft type,

    multiplied by (ii) the assumed cost of each

    Pilot New Hire Training Cycle for such month

    and such aircraft type as set forth in

    Appendix 17a divided by (b) the Cost

    Difference set forth on Appendix 23.

    II. Pilot Transitional Training Cycles. Included

    in the Appendix 1 Expenses is an assumed

    cost associated with an assumed number of

    Pilot Transitional Training Cycles for each

    aircraft type. If the actual number of Pilot

    Transitional Training Cycles for a

    particular month and a particular aircraft

    type exceeds the number of assumed Pilot

    Transitional Training Cycles for such month

    and aircraft type as set forth in Appendix

    17c, then Continental

     

     

     

     

     

    Schedule 3-19

     

     

    shall pay an amount to Contractor equal to

    the quotient of (a) the product of (i) the

    difference between (1) such actual number of

    Pilot Transitional Training Cycles during

    such month for such aircraft type and (2)

    such assumed number of Pilot Transitional

    Training Cycles during such month for such

    aircraft type, multiplied by (ii) the

    assumed cost of each Pilot Transitional

    Training Cycle for such month and aircraft

    type as set forth in Appendix 17a divided by

    (b) the Cost Difference set forth on

    Appendix 23. If the actual number of Pilot

    Transitional Training Cycles for a

    particular month and aircraft type is less

    than the number of assumed Pilot

    Transitional Training Cycles for such month

    and aircraft type as set forth in Appendix

    17c, then Contractor shall pay an amount to

    Continental equal to the quotient of (a) the

    product of (i) the difference between (1)

    such assumed number of Pilot Transitional

    Training Cycles during such month for such

    aircraft type and (2) such actual number of

    Pilot Transitional Training Cycles during

    such month for such aircraft type,

    multiplied by (ii) the assumed cost of each

    Pilot Transitional Training Cycle for such

    month and aircraft type as set forth in

    Appendix 17a divided by (b) the Cost

    Difference set forth on Appendix 23.

    III. Pilot Upgrade Training Cycles. Included in

    the Appendix 1 Expenses is an assumed cost

    associated with an assumed number of Pilot

    Upgrade Training Cycles for each aircraft

    type. If the actual number of Pilot Upgrade

    Training Cycles for a particular month and a

    particular aircraft type exceeds the number

    of assumed Pilot Upgrade Training Cycles for

    such month and such aircraft type as set

    forth in Appendix 17d, then Continental

    shall pay an amount to Contractor equal to

    the quotient of (a) the product of (i) the

    difference between (1) such actual number of

    Pilot Upgrade Training Cycles during such

    month for such aircraft type and (2) such

    assumed number of Pilot Upgrade Training

    Cycles during such month for such aircraft

    type, multiplied by (ii) the assumed cost of

    each Pilot Upgrade Training Cycle for such

    month and such aircraft type as set forth in

    Appendix 17a divided by (b) the Cost

    Difference set forth on Appendix 23. If the

    actual number of Pilot Upgrade Training

    Cycles for a particular month and a

    particular aircraft type is less than the

    number of assumed Pilot Upgrade Training

    Cycles for such month and such aircraft type

    as set forth in Appendix 17d, then

    Contractor shall pay an amount to

    Continental equal to the quotient of (a) the

     

     

     

     

    Schedule 3-20

     

     

     

     

     

    product of (i) the difference between (1)

    such assumed number of Pilot Upgrade

    Training Cycles during such month for such

    aircraft type and (2) such actual number of

    Pilot Upgrade Training Cycles during such

    month for such aircraft type, multiplied by

    (ii) the assumed cost of each Pilot Upgrade

    Training Cycles for such month and aircraft

    type as set forth in Appendix 17a divided by

    (b) the Cost Difference set forth on

    Appendix 23.

    IV. Pilot Recurrent Flight Training Cycles.

    Included in the Appendix 1 Expenses is an

    assumed cost associated with an assumed

    number of Pilot Recurrent Flight Training

    Cycles for each aircraft type. If the actual

    number of Pilot Recurrent Flight Training

    Cycles for a particular month and a

    particular aircraft type exceeds the number

    of assumed Pilot Recurrent Flight Training

    Cycles for such month and such aircraft type

    and as set forth in Appendix 17e, then

    Continental shall pay an amount to

    Contractor equal to the quotient of (a) the

    product of (i) the difference between (1)

    such actual number of Pilot Recurrent Flight

    Training Cycles during such month and such

    aircraft type and (2) such assumed number of

    Pilot Recurrent Flight Training Cycles

    during such month for such aircraft type,

    multiplied by (ii) the assumed cost of each

    Pilot Recurrent Flight Training Cycle for

    such month and such aircraft type as set

    forth in Appendix 17a divided by (b) the

    Cost Difference set forth on Appendix 23. If

    the actual number of Pilot Recurrent Flight

    Training Cycles for a particular month and a

    particular aircraft type is less than the

    number of assumed Pilot Recurrent Flight

    Training Cycles for such month and such

    aircraft type as set forth in Appendix 17e,

    then Contractor shall pay an amount to

    Continental equal to the quotient of (a) the

    product of (i) the difference between (1)

    such assumed number of Pilot Recurrent

    Flight Training Cycles during such month for

    such aircraft type and (2) such actual

    number of Pilot Recurrent Flight Training

    Cycles during such month for such aircraft

    type, multiplied by (ii) the assumed cost of

    each Pilot Recurrent Flight Training Cycles

    for such month and such aircraft type as set

    forth in Appendix 17a divided by (b) the

    Cost Difference set forth on Appendix 23.

    V. Pilot Recurrent Ground Training Cycles.

    Included in the Appendix 1 Expenses is an

    assumed cost associated with an assumed

    number of Pilot Recurrent Ground Training

    Cycles for each aircraft type. If the actual

    number of Pilot

     

    Schedule 3-21

     

     

    Recurrent Ground Training Cycles for a

    particular month and a particular aircraft

    type exceeds the number of assumed Pilot

    Recurrent Ground Training Cycles for such

    month and such aircraft type and as set

    forth in Appendix 17f, then Continental

    shall pay an amount to Contractor equal to

    the quotient of (a) the product of (i) the

    difference between (1) such actual number of

    Pilot Recurrent Ground Training Cycles

    during such month and such aircraft type and

    (2) such assumed number of Pilot Recurrent

    Ground Training Cycles during such month for

    such aircraft type, multiplied by (ii) the

    assumed cost of each Pilot Recurrent Ground

    Training Cycle for such month and such

    aircraft type as set forth in Appendix 17a

    divided by (b) the Cost Difference set forth

    on Appendix 23. If the actual number of

    Pilot Recurrent Ground Training Cycles for a

    particular month and a particular aircraft

    type is less than the number of assumed

    Pilot Recurrent Ground Training Cycles for

    such month and such aircraft type as set

    forth in Appendix 17f, then Contractor shall

    pay an amount to Continental equal to the

    quotient of (a) the product of (i) the

    difference between (1) such assumed number

    of Pilot Recurrent Ground Training Cycles

    during such month for such aircraft type and

    (2) such actual number of Pilot Recurrent

    Ground Training Cycles during such month for

    such aircraft type, multiplied by (ii) the

    assumed cost of each Pilot Recurrent Ground

    Training Cycles for such month and such

    aircraft type as set forth in Appendix 17a

    divided by (b) the Cost Difference set forth

    on Appendix 23.

      1. Pilot and Flight Attendant Per Diem Reconciliation.

    I. Pilot Per Diem. Included in the Appendix 3

    Block Hour Rates is an assumed cost

    associated with an assumed number of Pilot

    Per Diem Hours per scheduled block hour. If

    the actual number of Pilot Per Diem Hours

    per scheduled block hour for a particular

    month exceeds the number of assumed Pilot

    Per Diem Hours per scheduled block hour in

    such month as set forth in Appendix 18a,

    then Continental shall pay an amount to

    Contractor equal to the quotient of (a) the

    product of (i) the difference between (1)

    such actual number of Pilot Per Diem Hours

    per scheduled block hour during such month

    and (2) such assumed number of Pilot Per

    Diem Hours per scheduled block hour during

    such month, multiplied by (ii) the number of

    scheduled block hours for such month,

    multiplied by (iii) the assumed

     

     

     

     

    Schedule 3-22

     

     

    amount payable for each Pilot Per Diem Hour

    for such month as set forth in Appendix 18a

    divided by (b) the Cost Difference set forth

    on Appendix 23. If the actual number of

    Pilot Per Diem Hours per scheduled block

    hour for a particular month is less than the

    number of assumed Pilot Per Diem Hours per

    scheduled block hour in such month as set

    forth in Appendix 18a, then Contractor shall

    pay an amount to Continental equal to the

    quotient of (a) the product of (i) the

    difference between (1) such assumed number

    of Pilot Per Diem Hours per scheduled block

    hour during such month and (2) such actual

    number of Pilot Per Diem Hours per scheduled

    block hour during such month, multiplied by

    (ii) the number of scheduled block hours for

    such month, multiplied by (iii) the assumed

    amount payable for each Pilot Per Diem Hour

    for such month as set forth in Appendix 18a

    divided by (b) the Cost Difference set forth

    on Appendix 23.

    II. Flight Attendants Per Diem. Included in the

    Appendix 3 Block Hour Rates is an assumed

    cost associated with an assumed number of

    Flight Attendant Per Diem Hours per

    scheduled block hour. If the actual number

    of Flight Attendant Per Diem Hours per

    scheduled block hour for a particular month

    exceeds the number of assumed Flight

    Attendant Per Diem Hours per scheduled block

    hour in such month as set forth in Appendix

    18b, then Continental shall pay an amount to

    Contractor equal to the quotient of (a) the

    product of (i) the difference between (1)

    such actual number of Flight Attendant Per

    Diem Hours per scheduled block hour during

    such month and (2) such assumed number of

    Flight Attendant Per Diem Hours per

    scheduled block hour during such month,

    multiplied by (ii) the number of scheduled

    block hours for such month, multiplied by

    (iii) the assumed amount payable for each

    Flight Attendant Per Diem Hour for such

    month as set forth in Appendix 18b divided

    by (b) the Cost Difference set forth on

    Appendix 23. If the actual number of Flight

    Attendant Per Diem Hours per scheduled block

    hour for a particular month is less than the

    number of assumed Flight Attendant Per Diem

    Hours per scheduled block hour in such month

    as set forth in Appendix 18b, then

    Contractor shall pay an amount to

    Continental equal to the quotient of (a) the

    product of (i) the difference between (1)

    such assumed number of Flight Attendant Per

    Diem Hours per scheduled block hour during

    such month and (2) such actual number of

    Flight Attendant Per Diem Hours per

     

     

     

    Schedule 3-23

     

     

    scheduled block hour during such month,

    multiplied by (ii) the number of scheduled

    block hours for such month, multiplied by

    (iii) the assumed amount payable for each

    Flight Attendant Per Diem Hour for such

    month as set forth in Appendix 18b divided

    by (b) the Cost Difference set forth on

    Appendix 23.

    d. Pilot Soft Time Reconciliation. Included in the

    Appendix 3 Block Hour Rates is an assumed cost

    associated with an assumed number of Pilot Flight

    Paid Hours per scheduled Pilot Block Hour. If the

    actual number of Pilot Flight Paid Hours per

    scheduled Pilot Block Hour for a particular month

    exceeds the number of assumed Pilot Flight Paid Hours

    per scheduled Pilot Block Hour in such month as set

    forth in Appendix 19, then Continental shall pay an

    amount to Contractor equal to the quotient of (a) the

    product of (i) the difference between (1) such actual

    number of Pilot Flight Paid Hours per scheduled Pilot

    Block Hour during such month and (2) such assumed

    number of Pilot Flight Paid Hours per scheduled Pilot

    Block Hour during such month, multiplied by (ii) the

    number of scheduled Pilot Block Hours for such month,

    multiplied by (iii) the assumed amount payable for

    each Pilot Flight Paid Hour as set forth in Appendix

    19, divided by (b) the Cost Difference set forth in

    Appendix 23. If the actual number of Pilot Flight

    Paid Hours per scheduled Pilot Block Hour for a

    particular month is less than the number of assumed

    Pilot Flight Paid Hours per scheduled Pilot Block

    Hour in such month as set forth in Appendix 19, then

    Contractor shall pay an amount to Continental equal

    to the quotient of (a) the product of (i) the

    difference between (1) such assumed number of Pilot

    Flight Paid Hours per scheduled Pilot Block Hour

    during such month and (2) such actual number of Pilot

    Flight Paid Hours per scheduled Pilot Block Hour

    during such month, multiplied by (ii) the number of

    scheduled Pilot Block Hours for such month,

    multiplied by (iii) the assumed amount payable for

    each Pilot Flight Paid Hour as set forth in Appendix

    19, divided by (b) the Cost Difference set forth in

    Appendix 23. The reconciliation described in this

    Paragraph 8(d) will cease upon the earlier to occur

    of (1) Contractor hiring a New Contractor Pilot and

    (2) Contractor no longer employing any Continental

    Pilots.

    e. Pilot Seniority Reconciliation. Included in the

    Appendix 1 Expenses and the Appendix 3 Block Hour

    Rates is an assumed cost associated with an assumed

    number of Continental Pilots continuing to be

    employed by Contractor. If the aggregate number of

    Continental Pilots whose employment is actually

    terminated by Contractor in a particular month

    exceeds the aggregate number of Continental Pilots

    whose employment by Contractor is assumed to

     

     

     

    Schedule 3-24

     

     

    be terminated in such particular month as set forth

    in Appendix 20, then Contractor shall pay an amount

    to Continental equal to the quotient of (a) the

    product of (i) the difference between (1) such

    aggregate number of Continental Pilots whose

    employment is actually terminated by Contractor

    during such month and (2) such aggregate number of

    Continental Pilots whose employment is assumed to be

    terminated by Contractor during such month,

    multiplied by (ii) the assumed amount payable per

    Continental Pilot being terminated by Contractor as

    set forth in Appendix 20, divided by (b) the Cost

    Difference set forth on Appendix 23. If the aggregate

    number of Continental Pilots whose employment is

    assumed to be terminated by Contractor for a

    particular month as set forth in Appendix 20 exceeds

    the aggregate number of Continental Pilots whose

    employment is actually terminated by Contractor

    during such month, then Continental shall pay an

    amount to Contractor equal to the quotient of (a) the

    product of (i) the difference between (1) such

    aggregate number of Continental Pilots whose

    employment is assumed to be terminated by Contractor

    during such month and (2) such aggregate number of

    Continental Pilots whose employment is actually

    terminated by Contractor during such month,

    multiplied by (ii) the assumed amount payable per

    Continental Pilot being terminated by Contractor as

    set forth in Appendix 20, divided by (b) the Cost

    Difference set forth on Appendix 23. The

    reconciliation described in this Paragraph 8(e) will

    cease when Contractor no longer employs any

    Continental Pilots.

    f. Airport Agent Volume Reconciliation. Included in the

    Appendix 1 Expenses is an assumed cost associated

    with an assumed number of Agent Paid Hours. If the

    lower of the Staffing Model Agent Paid Hours or

    actual number of Agent Paid Hours for a particular

    month exceeds the assumed number of Agent Paid Hours

    as set forth in Appendix 21, then Continental shall

    pay an amount to Contractor equal to the quotient of

    (a) the product of (i) the difference between (1) the

    lower of such Staffing Model Agent Paid Hours or such

    actual number of Agent Paid Hours during such month

    and (2) such assumed Agent Paid Hours during such

    month, multiplied by (ii) the assumed amount payable

    per Agent Paid Hour as set forth in Appendix 21,

    multiplied by (iii) 1.1681, divided by (b) the Cost

    Difference forth on Appendix 23. If the lower of the

    Staffing Model Agent Paid Hours or actual number of

    Agent Paid Hours for a particular month is less than

    the assumed number of Agent Paid Hours as set forth

    in Appendix 21, then Contractor shall pay an amount

    to Continental equal to the quotient of (a) the

    product of (i) the difference between (1) such

    assumed Agent Paid Hours during such month and (2)

    the lower of such

     

     

     

     

     

    Schedule 3-25

     

     

    Staffing Model Agent Paid Hours or such actual number

    of Agent Paid Hours during such month, multiplied by

    (ii) the assumed amount payable per Agent Paid Hour

    as set forth in Appendix 21, multiplied by (iii)

    1.1681, divided by (b) the Cost Difference set forth

    on Appendix 23.

    9. Reconciliation of Other Expenses.

     

    a. Except to the extent that payments are made by

    Contractor to Continental pursuant to Paragraph

    B(6)(e) in respect of any of the following expenses

    for any Controllable Cancellation resulting solely

    from any Labor Strike or from a non-carrier specific

    airworthiness directive or other non-carrier specific

    regulatory order, the following expenses incurred in

    connection with Scheduled Flights, as allocated

    pursuant to Section 3.05(a), shall be reconciled

    monthly (except as specifically set forth below) to

    actual costs: (i) all payments made by Contractor

    under any Covered Aircraft Sublease, except for any

    Supplemental Rent (as defined therein) payable as a

    result of any action or inaction by Contractor, other

    than actions taken or not taken specifically at the

    direction of Continental; (ii) all payments made by

    Contractor for Incremental Passenger-Related

    Facilities; (iii) all employer-matching payments made

    by Contractor pursuant to any Contractor 401(K)

    (provided that, upon Continental owning less than 50%

    of the voting power of Holdings (the date upon which

    such event occurs being referred to herein as the

    "Distribution Date"), Continental shall not be

    required to reconcile any such payments made by

    Contractor to the extent that such payments are

    attributable to a change in the 401(K) or the

    company-match on or after the Distribution Date);

    (iv) property and ad valorem taxes, other similar

    taxes imposed specifically on property or assets,

    sales and use taxes and franchise taxes (but

    excluding all other taxes, such as income, profits,

    withholding, employment, social security, disability,

    occupation, severance, excise and fuel taxes); (v)

    subject to Paragraph B(7) of this Schedule 3,

    passenger liability, hull and war risk insurance

    costs; (vi) ARINC/SITA network expenses; (vii)

    landing fees; (viii) glycol, de-icing and snow

    removal costs; (ix) payments by Contractor to

    employees in respect of any profit-sharing and

    on-time performance plans of Contractor existing on

    or prior to the Distribution Date (provided that

    Continental shall not be required to reconcile actual

    profit-sharing and on-time performance expenses to

    the extent that such additional expenses are

    attributable to a change in target benchmarks or

    payment rates under such plans on or after the

    Distribution Date, and provided further that

    reconciliation for profit-sharing plans shall occur

    on a year-to-date basis at the end of each calendar

    month); (x) administrative fees paid to Continental

    under the Administrative Support and Information

    Services Provisioning Agreement; (xi)

     

     

     

     

    Schedule 3-26

     

     

    amounts paid for the provision of ground handling

    services pursuant to Paragraph B(4)(b); (xii)

    payments made by Contractor for "power-by-the-hour"

    services under the Flight Hour Agreement; (xiii) all

    expenses of Contractor associated with Extraordinary

    Hotel Stays during the Performance Period (provided

    that reconciliation for this item (xiii) shall occur

    quarterly at the end of each Performance Period);

    (xiv) depreciation expense (until December 31, 2004),

    excluding any expenditure not specifically approved

    by Continental or otherwise contemplated by a capital

    expenditure plan agreed to by Contractor and

    Continental; and (xv) third-party security and

    screening expense at Contractor Airports

    (collectively, the "Reconciled Expenses"). The Base

    Compensation includes allocations of the Reconciled

    Expenses as set forth in Appendix 22 and with respect

    to certain Reconciled Expenses, as further provided

    in Paragraph B(9)(f) below. If in any month the

    Contractor's actual Reconciled Expenses, in the

    aggregate, exceed the amount of Reconciled Expenses

    included in the Base Compensation in accordance with

    Appendix 22 and with respect to certain Reconciled

    Expenses as further provided in Paragraph B(9)(f)

    below for such month, Continental shall pay to

    Contractor an amount equal to the quotient of (i)

    such difference divided by (ii) the Cost Difference

    set forth on Appendix 23. If in any month the amount

    of Reconciled Expenses included in the Base

    Compensation in accordance with Appendix 22 and with

    respect to certain Reconciled Expenses as further

    provided in Paragraph B(9)(f) below for such month

    exceeds Contractor's actual Reconciled Expenses,

    Contractor shall pay to Continental an amount equal

    to the quotient of (i) such difference and (ii) the

    Cost Difference set forth on Appendix 23.

    b. Reconciliation amounts will include the payment to

    Continental, if any, provided in Section 4.05(a) of

    the Agreement.

    c. Incentive payments are paid as reconciliation

    amounts.

    d. At any time that Contractor or Continental reasonably

    believes the Prevailing Margin for the current or

    next Performance Period will be greater than 11.5% or

    less than 8.5%, then Continental and Contractor will

    meet and will adjust the Base Compensation for such

    Performance Period; provided that in no event will

    such calculation reduce the Base Compensation below

    an amount necessary so as to achieve an 11.5%

    Prevailing Margin for such Performance Period or

    increase Base Compensation above the rate necessary

    so as to achieve an 8.5% Prevailing Margin for such

    Performance Period. At the end of each Performance

    Period in respect of which adjustments were in

    effect, a calculation shall be

     

     

     

     

    Schedule 3-27

     

     

    made by Contractor not later than the sixth Business

    Day of the immediately succeeding month to calculate

    the Prevailing Margin for the previous Performance

    Period. For adjustments made as a result of a

    Prevailing Margin expected to exceed 11.5%: (i) if

    the actual resulting Prevailing Margin for such

    Performance Period was greater than 11.5%, then the

    Base Compensation for such Performance Period will be

    further decreased to the extent required to lower the

    actual Prevailing Margin for such Performance Period

    to 11.5% and Contractor shall make a payment to

    Continental in an amount equal to such reduction in

    Base Compensation within five Business Days of such

    calculation and (ii) if the actual resulting

    Prevailing Margin for such Performance Period was

    less than 11.5%, then the Base Compensation for such

    Performance Period will be increased (but only up to

    the Base Compensation in effect prior to its

    adjustment pursuant to the first sentence of this

    Paragraph B(9)(d) of Schedule 3) to the extent

    required to raise the actual Prevailing Margin for

    such Performance Period to 11.5% and Continental

    shall make a payment to Contractor in an amount equal

    to such increase in Base Compensation within five

    Business Days of such calculation. For adjustments

    made as a result of a Prevailing Margin expected to

    be less than 8.5%: (i) if the actual resulting

    Prevailing Margin for such Performance Period was

    less than 8.5%, then the Base Compensation for such

    Performance Period will be further increased to the

    extent required to raise the actual Prevailing Margin

    for such Performance Period to 8.5% and Continental

    shall make a payment to Contractor in an amount equal

    to such increase in Base Compensation within five

    Business Days of such calculation and (ii) if the

    Prevailing Margin for such Performance Period was

    greater than 8.5%, then the Base Compensation for

    such Performance Period will be decreased (but only

    down to the Base Compensation in effect prior to its

    adjustment pursuant to the first sentence of this

    Paragraph B(9)(d) of Schedule 3) to the extent

    required to lower the actual Prevailing Margin for

    such Performance Period to 8.5% and Contractor shall

    make a payment to Continental in an amount equal to

    such reduction in Base Compensation within five

    Business Days of such calculation.

    e. If any of the provisions set forth herein adjust the

    Base Compensation or the Appendix 1 Expenses,

    Continental will, within a reasonable period of time

    following such adjustment, deliver to Contractor

    revised Appendices, to the extent applicable, to this

    Schedule 3 to reflect such adjustment; provided that

    Contractor shall cooperate with Continental in

    providing to Continental any information required to

    prepare such Appendices.

     

     

     

     

    Schedule 3-28

     

     

    f. The Base Compensation, Flight Overfly Reconciliation,

    and Flight Cancellation Reconciliation for any

    particular month includes allocations of the

    following Reconciled Expenses as provided below:

    I. The amount of assumed employer-matching

    payments referred to in clause (iii) of the

    second sentence of Paragraph B(9)(a)

    included in the Base Compensation for any

    particular month will be equal to the

    product of (1) the sum of (a) the aggregate

    sum of the following products for each

    aircraft type set forth in the Final Monthly

    Schedule: (i) the First Implied Rate for

    such month for each aircraft type set forth

    on Appendix 22a, multiplied by (ii) the

    scheduled block hours for such month and

    aircraft type as set forth on the Final

    Monthly Schedule multiplied by the First

    Benchmark Factor for such month, (b) the

    aggregate sum of the following products for

    each aircraft type set forth in the Final

    Monthly Schedule: (i) the Second Implied

    Rate for such month for each aircraft type

    set forth on Appendix 22a, multiplied by

    (ii) the Appendix 7 Block Hours for such

    aircraft type set forth on Appendix 7,

    multiplied by (iii) the scheduled departures

    for such month and aircraft type as set

    forth on the Final Monthly Schedule

    multiplied by the First Benchmark Factor for

    such month, plus (c) the product of (i) the

    Third Implied Expenses for such month set

    forth in Appendix 22a, multiplied by (ii)

    1000, multiplied by (2) {CONFIDENTIAL

    MATERIAL OMITTED AND FILED SEPARATELY WITH

    THE SECURITIES AND EXCHANGE COMMISSION

    PURSUANT TO A REQUEST FOR CONFIDENTIAL

    TREATMENT}.

    II. The amount of assumed passenger liability

    costs referred to in clause (v) of the

    second sentence of Paragraph B(9)(a)

    included in the Base Compensation for any

    particular month will be equal to the

    product of (1) the rate for such month as

    set forth on Appendix 22 multiplied by (2)

    the Forecasted Passengers for such month.

    III. The amount of assumed ARINC/SITA network

    expenses referred to in clause (vi) of the

    second sentence of Paragraph B(9)(a)

    included in the Base Compensation for any

    particular month will be equal to the

    aggregate sum of the following products for

    each aircraft type set forth in the Final

    Monthly Schedule: (1) the Fourth Implied

    Rate for such month for each aircraft type

    as set forth on Appendix

     

     

     

    Schedule 3-29

     

     

    22b, multiplied by (2) the Appendix 7 Block

    Hours set forth on Appendix 7 for such

    aircraft type, multiplied by (3) the

    scheduled departures for such month and

    aircraft type as set forth on the Final

    Monthly Schedule, multiplied by (4) the

    First Benchmark Factor for such month.

    IV. The amount of assumed landing fees referred

    to in clause (vii) of the second sentence of

    Paragraph B(9)(a) included in the Base

    Compensation for any particular month will

    be equal to the aggregate sum of the

    following products for each aircraft type

    set forth in the Final Monthly Schedule: (1)

    the Fifth Implied Rate for such month for

    each aircraft type as set forth on Appendix

    22c, multiplied by (2) the Appendix 7 Block

    Hours set forth on Appendix 7 for such

    aircraft type, multiplied by (3) the

    scheduled departures for such month and

    aircraft type as set forth on the Final

    Monthly Schedule multiplied by (4) the First

    Benchmark Factor for such month.

    V. The amount of assumed variable ground

    handling expenses referred to in clause (xi)

    of the second sentence of Paragraph B(9)(a)

    included in the Base Compensation for any

    particular month will be equal to the

    aggregate sum of the following products for

    each aircraft type set forth in the Final

    Monthly Schedule: (1) the Third Adjusted

    Block Hour Rate for such aircraft type and

    such month, multiplied by (2), the Cost

    Difference set forth on Appendix 23,

    multiplied by (3) the number of scheduled

    block hours for such aircraft type during

    such month as set forth in the Final Monthly

    Schedule, multiplied by (4) the First

    Benchmark Factor for such month.

    VI. The amount of assumed expenses associated

    with Extraordinary Hotel Stays referred to

    in clause (xiii) of the second sentence of

    Paragraph B(9)(a) included in the Base

    Compensation for any particular month will

    be equal to (1) the product of (a) the sum

    of the Pilot Hotel Room Rate Per Block Hour

    for Extraordinary Hotel Stays set forth on

    Appendix 16a for the applicable month and

    the Flight Attendant Hotel Room Rate Per

    Block Hour for Extraordinary Hotel Stays set

    forth on Appendix 16b for the applicable

    month, multiplied by (2) the scheduled block

    hours for such month as set forth on the

    Final Monthly Schedule, multiplied by (3)

    the First Benchmark Factor for such month.

     

    Schedule 3-30

     

     

    VII. The amount of assumed expenses associated

    with "power-by-the-hour" services under the

    Flight Hour Agreement referred to in clause

    (xii) of the second sentence of Paragraph

    B(9)(a) included in the Base Compensation

    for any particular month will be equal to

    the aggregate sum of the following products

    for each aircraft type set forth in the

    Final Monthly Schedule: (1) the Sixth

    Implied Rate for such month for each

    aircraft type as set forth on Appendix 22d,

    multiplied by (2) the scheduled block hours

    for such month and aircraft type, multiplied

    by (3) the First Benchmark Factor for such

    month.

    VIII. The amount of assumed third-party security

    and screening costs at Contractor Airports

    referred to in clause (xv) of the second

    sentence of Paragraph B(9)(a) included in

    the Base Compensation for any particular

    month will be equal to the product of (1)

    the rate for such month as set forth on

    Appendix 22 multiplied by (2) the Forecasted

    Passengers for such month.

    10. No Reconciliation for Fines, Etc. Notwithstanding anything to the contrary contained in this Paragraph B, Continental shall not be required to make any reconciliation payment pursuant to this Paragraph B to the extent that such reconciliation payment is attributable to any costs, expenses or losses (including fines, penalties and any costs and expenses associated with any related investigation or defense) incurred by Contractor as a result of any violation by Contractor of any law, statute, judgment, decree, order, rule or regulation of any governmental or airport authority.

    11. Material Change in Underlying Assumptions. If there is a material change in the parties' underlying assumptions regarding the cost of providing Regional Airline Services, the parties hereto shall meet and confer to discuss such change and whether the Base Compensation, the Appendix 1 Expenses or any of the provisions of this Schedule 3 shall be adjusted; provided, however, that this provision shall not obligate the parties hereto to amend any of the provisions of the Agreement or this Schedule 3 nor shall it obligate the parties to adjust the Base Compensation or the Appendix 1 Expenses.

     

     

    Schedule 3-31

     

     

     

     

    Appendix 1 Appendix 1 Expenses

    Appendix 2 Benchmark Rates

    Appendix 3 Appendix 3 Block Hour Rates

    Appendix 4 Appendix 4 Block Hour Rates

    Appendix 5 Appendix 5 Block Hour Rates

    Appendix 6 Appendix 6 Block Hour Rates

    Appendix 7 Appendix 7 Block Hours

    Appendix 8 First Forecast Rates

    Appendix 9 Appendix 9 Rates Per Block Hour

    Appendix 10 Appendix 10 Fees

    Appendix 11 First Incremental Cost Rates

    Appendix 12 Second Incremental Cost Rates

    Appendix 13 Appendix 13 Incremental Cost Rates

    Appendix 14 Appendix 14 Block Hour Rates

    Appendix 15 Appendix 15 Incremental Cost Allocation

    Appendix 16 Hotel Volume

    Appendix 17 Pilot Training Volume

    Appendix 18 Per Diem

    Appendix 19 Pilot Soft Time

    Appendix 20 Pilot Seniority

    Appendix 21 Agent Volume

    Appendix 22 Reconciliation Of Expenses

    Appendix 23 Cost Difference

     

    Schedule 3-32

     

     

    APPENDIX 1

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

    APPENDIX 1 EXPENSES (000'S)

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

    COLUMN COLUMN COLUMN COLUMN COLUMN COLUMN COLUMN COLUMN COLUMN COLUMN COLUMN COLUMN COLUMN COLUMN COLUMN

    Date 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

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    XXX REPRESENTS CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

     

     

     

     

     

    APPENDIX 2

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

    2002 BENCHMARK RATES

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

    FIRST FIRST SECOND HEADSTART ONTIME BAGGAGE HANDLING

    DATE BENCHMARK FACTOR CANCELLATION RATE CANCELLATION RATE BENCHMARK BENCHMARK

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

    2001 ACTUAL RATES

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

    FIRST FIRST SECOND HEADSTART ONTIME BAGGAGE HANDLING

    DATE BENCHMARK FACTOR CANCELLATION RATE CANCELLATION RATE BENCHMARK BENCHMARK

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

    2000 ACTUAL RATES

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

    FIRST FIRST SECOND HEADSTART ONTIME BAGGAGE HANDLING

    DATE BENCHMARK FACTOR CANCELLATION RATE CANCELLATION RATE BENCHMARK BENCHMARK

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

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

    1999 ACTUAL RATES

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

    FIRST FIRST SECOND HEADSTART ONTIME BAGGAGE HANDLING

    DATE BENCHMARK FACTOR CANCELLATION RATE CANCELLATION RATE BENCHMARK BENCHMARK

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

    1998 ACTUAL RATES

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

    FIRST FIRST SECOND HEADSTART ONTIME BAGGAGE HANDLING

    DATE BENCHMARK FACTOR CANCELLATION RATE CANCELLATION RATE BENCHMARK BENCHMARK

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

    1997 ACTUAL RATES

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

    FIRST FIRST SECOND HEADSTART ONTIME BAGGAGE HANDLING

    DATE BENCHMARK FACTOR CANCELLATION RATE CANCELLATION RATE BENCHMARK BENCHMARK

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    XXX REPRESENTS CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

     

     

     

     

     

    APPENDIX 3

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

    APPENDIX 3 BLOCK HOUR RATES

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

    DATE B1900 ATR42 EMB120 RJ135 RJ145

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

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    XXX REPRESENTS CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

     

     

     

     

     

    APPENDIX 4

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

    APPENDIX 4 BLOCK HOUR RATES

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

    DATE B1900 ATR42 EMB120 RJ135 RJ145

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

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    XXX REPRESENTS CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

     

     

     

     

     

    APPENDIX 5

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

    APPENDIX 5 BLOCK HOUR RATES

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

    DATE B1900 ATR42 EMB120 RJ135 RJ145

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

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    APPENDIX 6

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

    APPENDIX 6 BLOCK HOUR RATES

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

    DATE B1900 ATR42 EMB120 RJ135 RJ145

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

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    XXX REPRESENTS CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

     

     

     

     

    APPENDIX 7

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

    APPENDIX 7 BLOCK HOURS

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

    DATE B1900 ATR42 EMB120 RJ135 RJ145

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

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    XXX REPRESENTS CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

     

     

     

     

     

     

     

     

     

     

     

    APPENDIX 8

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

    FIRST FORECAST FIRST FORECAST FIRST FORECAST

    DATE RATES RATE - COMPONENT 1 RATE - COMPONENT 2

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

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    Mar-02 XXX XXX XXX

    Apr-02 XXX XXX XXX

    May-02 XXX XXX XXX

    Jun-02 XXX XXX XXX

    Jul-02 XXX XXX XXX

    Aug-02 XXX XXX XXX

    Sep-02 XXX XXX XXX

    Oct-02 XXX XXX XXX

    Nov-02 XXX XXX XXX

    Dec-02 XXX XXX XXX

    Jan-03 XXX XXX XXX

    Feb-03 XXX XXX XXX

    Mar-03 XXX XXX XXX

    Apr-03 XXX XXX XXX

    May-03 XXX XXX XXX

    Jun-03 XXX XXX XXX

    Jul-03 XXX XXX XXX

    Aug-03 XXX XXX XXX

    Sep-03 XXX XXX XXX

    Oct-03 XXX XXX XXX

    Nov-03 XXX XXX XXX

    Dec-03 XXX XXX XXX

    Jan-04 XXX XXX XXX

    Feb-04 XXX XXX XXX

    Mar-04 XXX XXX XXX

    Apr-04 XXX XXX XXX

    May-04 XXX XXX XXX

    Jun-04 XXX XXX XXX

    Jul-04 XXX XXX XXX

    Aug-04 XXX XXX XXX

    Sep-04 XXX XXX XXX

    Oct-04 XXX XXX XXX

    Nov-04 XXX XXX XXX

    Dec-04 XXX XXX XXX

    XXX REPRESENTS CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

     

     

     

     

     

     

    APPENDIX 9

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

    APPENDIX 9 RATES PER BLOCK HOUR

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

    ATR42 B1900 EMB120 EMB135 EMB145

    STAGE GALLONS STAGE GALLONS STAGE GALLONS STAGE GALLONS STAGE GALLONS

    LENGTH PER BLK HR LENGTH PER BLK HR LENGTH PER BLK HR LENGTH PER BLK HR LENGTH PER BLK HR

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

    XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    XXX XXX XXX XXX XXX XXX XXX XXX

    XXX XXX XXX XXX XXX XXX XXX XXX

    XXX XXX XXX XXX XXX XXX XXX XXX

    XXX XXX XXX XXX XXX XXX XXX XXX

    XXX XXX XXX XXX

    XXX XXX XXX XXX

    XXX XXX XXX XXX

    * On January of each year (beginning January 2002), fuel burn rates increase XXX on a compounded basis

     

    XXX REPRESENTS CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

     

     

     

     

     

     

     

     

     

    APPENDIX 10

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

    APPENDIX 10 FEES

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

    DATE INVOICE RATE RECONCILIATION RATE

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

    Jan-01 XXX XXX

    Feb-01 XXX XXX

    Mar-01 XXX XXX

    Apr-01 XXX XXX

    May-01 XXX XXX

    Jun-01 XXX XXX

    Jul-01 XXX XXX

    Aug-01 XXX XXX

    Sep-01 XXX XXX

    Oct-01 XXX XXX

    Nov-01 XXX XXX

    Dec-01 XXX XXX

    Jan-02 XXX XXX

    Feb-02 XXX XXX

    Mar-02 XXX XXX

    Apr-02 XXX XXX

    May-02 XXX XXX

    Jun-02 XXX XXX

    Jul-02 XXX XXX

    Aug-02 XXX XXX

    Sep-02 XXX XXX

    Oct-02 XXX XXX

    Nov-02 XXX XXX

    Dec-02 XXX XXX

    Jan-03 XXX XXX

    Feb-03 XXX XXX

    Mar-03 XXX XXX

    Apr-03 XXX XXX

    May-03 XXX XXX

    Jun-03 XXX XXX

    Jul-03 XXX XXX

    Aug-03 XXX XXX

    Sep-03 XXX XXX

    Oct-03 XXX XXX

    Nov-03 XXX XXX

    Dec-03 XXX XXX

    Jan-04 XXX XXX

    Feb-04 XXX XXX

    Mar-04 XXX XXX

    Apr-04 XXX XXX

    May-04 XXX XXX

    Jun-04 XXX XXX

    Jul-04 XXX XXX

    Aug-04 XXX XXX

    Sep-04 XXX XXX

    Oct-04 XXX XXX

    Nov-04 XXX XXX

    Dec-04 XXX XXX

    XXX REPRESENTS CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

     

     

     

     

     

    APPENDIX 11

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

    FIRST INCREMENTAL COST RATES

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

    DATE B1900 ATR42 EMB120 RJ135 RJ145

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

    Jan-01 XXX XXX XXX XXX XXX

    Feb-01 XXX XXX XXX XXX XXX

    Mar-01 XXX XXX XXX XXX XXX

    Apr-01 XXX XXX XXX XXX XXX

    May-01 XXX XXX XXX XXX XXX

    Jun-01 XXX XXX XXX XXX XXX

    Jul-01 XXX XXX XXX XXX XXX

    Aug-01 XXX XXX XXX XXX XXX

    Sep-01 XXX XXX XXX XXX XXX

    Oct-01 XXX XXX XXX XXX XXX

    Nov-01 XXX XXX XXX XXX XXX

    Dec-01 XXX XXX XXX XXX XXX

    Jan-02 XXX XXX XXX XXX XXX

    Feb-02 XXX XXX XXX XXX XXX

    Mar-02 XXX XXX XXX XXX XXX

    Apr-02 XXX XXX XXX XXX XXX

    May-02 XXX XXX XXX XXX XXX

    Jun-02 XXX XXX XXX XXX XXX

    Jul-02 XXX XXX XXX XXX XXX

    Aug-02 XXX XXX XXX XXX XXX

    Sep-02 XXX XXX XXX XXX XXX

    Oct-02 XXX XXX XXX XXX XXX

    Nov-02 XXX XXX XXX XXX XXX

    Dec-02 XXX XXX XXX XXX XXX

    Jan-03 XXX XXX XXX XXX XXX

    Feb-03 XXX XXX XXX XXX XXX

    Mar-03 XXX XXX XXX XXX XXX

    Apr-03 XXX XXX XXX XXX XXX

    May-03 XXX XXX XXX XXX XXX

    Jun-03 XXX XXX XXX XXX XXX

    Jul-03 XXX XXX XXX XXX XXX

    Aug-03 XXX XXX XXX XXX XXX

    Sep-03 XXX XXX XXX XXX XXX

    Oct-03 XXX XXX XXX XXX XXX

    Nov-03 XXX XXX XXX XXX XXX

    Dec-03 XXX XXX XXX XXX XXX

    Jan-04 XXX XXX XXX XXX XXX

    Feb-04 XXX XXX XXX XXX XXX

    Mar-04 XXX XXX XXX XXX XXX

    Apr-04 XXX XXX XXX XXX XXX

    May-04 XXX XXX XXX XXX XXX

    Jun-04 XXX XXX XXX XXX XXX

    Jul-04 XXX XXX XXX XXX XXX

    Aug-04 XXX XXX XXX XXX XXX

    Sep-04 XXX XXX XXX XXX XXX

    Oct-04 XXX XXX XXX XXX XXX

    Nov-04 XXX XXX XXX XXX XXX

    Dec-04 XXX XXX XXX XXX XXX

    XXX REPRESENTS CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

     

     

     

     

     

     

    APPENDIX 12

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

    SECOND INCREMENTAL COST RATES

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

    DATE B1900 ATR42 EMB120 RJ135 RJ145

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

    Jan-01 XXX XXX XXX XXX XXX

    Feb-01 XXX XXX XXX XXX XXX

    Mar-01 XXX XXX XXX XXX XXX

    Apr-01 XXX XXX XXX XXX XXX

    May-01 XXX XXX XXX XXX XXX

    Jun-01 XXX XXX XXX XXX XXX

    Jul-01 XXX XXX XXX XXX XXX

    Aug-01 XXX XXX XXX XXX XXX

    Sep-01 XXX XXX XXX XXX XXX

    Oct-01 XXX XXX XXX XXX XXX

    Nov-01 XXX XXX XXX XXX XXX

    Dec-01 XXX XXX XXX XXX XXX

    Jan-02 XXX XXX XXX XXX XXX

    Feb-02 XXX XXX XXX XXX XXX

    Mar-02 XXX XXX XXX XXX XXX

    Apr-02 XXX XXX XXX XXX XXX

    May-02 XXX XXX XXX XXX XXX

    Jun-02 XXX XXX XXX XXX XXX

    Jul-02 XXX XXX XXX XXX XXX

    Aug-02 XXX XXX XXX XXX XXX

    Sep-02 XXX XXX XXX XXX XXX

    Oct-02 XXX XXX XXX XXX XXX

    Nov-02 XXX XXX XXX XXX XXX

    Dec-02 XXX XXX XXX XXX XXX

    Jan-03 XXX XXX XXX XXX XXX

    Feb-03 XXX XXX XXX XXX XXX

    Mar-03 XXX XXX XXX XXX XXX

    Apr-03 XXX XXX XXX XXX XXX

    May-03 XXX XXX XXX XXX XXX

    Jun-03 XXX XXX XXX XXX XXX

    Jul-03 XXX XXX XXX XXX XXX

    Aug-03 XXX XXX XXX XXX XXX

    Sep-03 XXX XXX XXX XXX XXX

    Oct-03 XXX XXX XXX XXX XXX

    Nov-03 XXX XXX XXX XXX XXX

    Dec-03 XXX XXX XXX XXX XXX

    Jan-04 XXX XXX XXX XXX XXX

    Feb-04 XXX XXX XXX XXX XXX

    Mar-04 XXX XXX XXX XXX XXX

    Apr-04 XXX XXX XXX XXX XXX

    May-04 XXX XXX XXX XXX XXX

    Jun-04 XXX XXX XXX XXX XXX

    Jul-04 XXX XXX XXX XXX XXX

    Aug-04 XXX XXX XXX XXX XXX

    Sep-04 XXX XXX XXX XXX XXX

    Oct-04 XXX XXX XXX XXX XXX

    Nov-04 XXX XXX XXX XXX XXX

    Dec-04 XXX XXX XXX XXX XXX

    XXX REPRESENTS CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

     

     

     

     

     

    APPENDIX 13

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

    APPENDIX 13 INCREMENTAL COST RATES

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

    DATE B1900 ATR42 EMB120 RJ135 RJ145

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

    Jan-01 XXX XXX XXX XXX XXX

    Feb-01 XXX XXX XXX XXX XXX

    Mar-01 XXX XXX XXX XXX XXX

    Apr-01 XXX XXX XXX XXX XXX

    May-01 XXX XXX XXX XXX XXX

    Jun-01 XXX XXX XXX XXX XXX

    Jul-01 XXX XXX XXX XXX XXX

    Aug-01 XXX XXX XXX XXX XXX

    Sep-01 XXX XXX XXX XXX XXX

    Oct-01 XXX XXX XXX XXX XXX

    Nov-01 XXX XXX XXX XXX XXX

    Dec-01 XXX XXX XXX XXX XXX

    Jan-02 XXX XXX XXX XXX XXX

    Feb-02 XXX XXX XXX XXX XXX

    Mar-02 XXX XXX XXX XXX XXX

    Apr-02 XXX XXX XXX XXX XXX

    May-02 XXX XXX XXX XXX XXX

    Jun-02 XXX XXX XXX XXX XXX

    Jul-02 XXX XXX XXX XXX XXX

    Aug-02 XXX XXX XXX XXX XXX

    Sep-02 XXX XXX XXX XXX XXX

    Oct-02 XXX XXX XXX XXX XXX

    Nov-02 XXX XXX XXX XXX XXX

    Dec-02 XXX XXX XXX XXX XXX

    Jan-03 XXX XXX XXX XXX XXX

    Feb-03 XXX XXX XXX XXX XXX

    Mar-03 XXX XXX XXX XXX XXX

    Apr-03 XXX XXX XXX XXX XXX

    May-03 XXX XXX XXX XXX XXX

    Jun-03 XXX XXX XXX XXX XXX

    Jul-03 XXX XXX XXX XXX XXX

    Aug-03 XXX XXX XXX XXX XXX

    Sep-03 XXX XXX XXX XXX XXX

    Oct-03 XXX XXX XXX XXX XXX

    Nov-03 XXX XXX XXX XXX XXX

    Dec-03 XXX XXX XXX XXX XXX

    Jan-04 XXX XXX XXX XXX XXX

    Feb-04 XXX XXX XXX XXX XXX

    Mar-04 XXX XXX XXX XXX XXX

    Apr-04 XXX XXX XXX XXX XXX

    May-04 XXX XXX XXX XXX XXX

    Jun-04 XXX XXX XXX XXX XXX

    Jul-04 XXX XXX XXX XXX XXX

    Aug-04 XXX XXX XXX XXX XXX

    Sep-04 XXX XXX XXX XXX XXX

    Oct-04 XXX XXX XXX XXX XXX

    Nov-04 XXX XXX XXX XXX XXX

    Dec-04 XXX XXX XXX XXX XXX

    XXX REPRESENTS CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

     

     

     

     

     

     

    APPENDIX 14

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

    APPENDIX 14 BLOCK HOUR RATES

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

    DATE B1900 ATR42 EMB120 RJ135 RJ145

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

    BENCHMARK SL XXX XXX XXX XXX XXX

    Jan-01 XXX XXX XXX XXX XXX

    Feb-01 XXX XXX XXX XXX XXX

    Mar-01 XXX XXX XXX XXX XXX

    Apr-01 XXX XXX XXX XXX XXX

    May-01 XXX XXX XXX XXX XXX

    Jun-01 XXX XXX XXX XXX XXX

    Jul-01 XXX XXX XXX XXX XXX

    Aug-01 XXX XXX XXX XXX XXX

    Sep-01 XXX XXX XXX XXX XXX

    Oct-01 XXX XXX XXX XXX XXX

    Nov-01 XXX XXX XXX XXX XXX

    Dec-01 XXX XXX XXX XXX XXX

    Jan-02 XXX XXX XXX XXX XXX

    Feb-02 XXX XXX XXX XXX XXX

    Mar-02 XXX XXX XXX XXX XXX

    Apr-02 XXX XXX XXX XXX XXX

    May-02 XXX XXX XXX XXX XXX

    Jun-02 XXX XXX XXX XXX XXX

    Jul-02 XXX XXX XXX XXX XXX

    Aug-02 XXX XXX XXX XXX XXX

    Sep-02 XXX XXX XXX XXX XXX

    Oct-02 XXX XXX XXX XXX XXX

    Nov-02 XXX XXX XXX XXX XXX

    Dec-02 XXX XXX XXX XXX XXX

    Jan-03 XXX XXX XXX XXX XXX

    Feb-03 XXX XXX XXX XXX XXX

    Mar-03 XXX XXX XXX XXX XXX

    Apr-03 XXX XXX XXX XXX XXX

    May-03 XXX XXX XXX XXX XXX

    Jun-03 XXX XXX XXX XXX XXX

    Jul-03 XXX XXX XXX XXX XXX

    Aug-03 XXX XXX XXX XXX XXX

    Sep-03 XXX XXX XXX XXX XXX

    Oct-03 XXX XXX XXX XXX XXX

    Nov-03 XXX XXX XXX XXX XXX

    Dec-03 XXX XXX XXX XXX XXX

    Jan-04 XXX XXX XXX XXX XXX

    Feb-04 XXX XXX XXX XXX XXX

    Mar-04 XXX XXX XXX XXX XXX

    Apr-04 XXX XXX XXX XXX XXX

    May-04 XXX XXX XXX XXX XXX

    Jun-04 XXX XXX XXX XXX XXX

    Jul-04 XXX XXX XXX XXX XXX

    Aug-04 XXX XXX XXX XXX XXX

    Sep-04 XXX XXX XXX XXX XXX

    Oct-04 XXX XXX XXX XXX XXX

    Nov-04 XXX XXX XXX XXX XXX

    Dec-04 XXX XXX XXX XXX XXX

    XXX REPRESENTS CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

     

     

     

     

     

     

    APPENDIX 15

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

    FIFTH INCREMENTAL COST RATE ALLOCATION

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

    EXPENSE ALLOCATION METHODOLOGY

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

    Aircraft Rent XXX

    Maintenance Overhead XXX

    Hull Insurance XXX

    Employee Incentives XXX

    Property Taxes XXX

    Depreciation XXX

    Management Fee XXX

    General & Administrative XXX

    Airport Overhead XXX

    CAL Fixed Pool of Expenses XXX

    Glycol XXX

    Snow Removal XXX

    De-icing XXX

    Airport Facility Rent XXX

    XXX REPRESENTS CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

     

     

     

     

     

     

    APPENDIX 16a

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

    PILOT HOTEL VOLUME

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

    COST PER CONTRACT CONTRACT HOTEL STAYS PER RATE PER BLOCK HOUR FOR

    DATE HOTEL STAY SCHEDULED BLOCK HOUR EXTRAORDINARY HOTEL STAYS

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

    Jan-01 XXX XXX XXX

    Feb-01 XXX XXX XXX

    Mar-01 XXX XXX XXX

    Apr-01 XXX XXX XXX

    May-01 XXX XXX XXX

    Jun-01 XXX XXX XXX

    Jul-01 XXX XXX XXX

    Aug-01 XXX XXX XXX

    Sep-01 XXX XXX XXX

    Oct-01 XXX XXX XXX

    Nov-01 XXX XXX XXX

    Dec-01 XXX XXX XXX

    Jan-02 XXX XXX XXX

    Feb-02 XXX XXX XXX

    Mar-02 XXX XXX XXX

    Apr-02 XXX XXX XXX

    May-02 XXX XXX XXX

    Jun-02 XXX XXX XXX

    Jul-02 XXX XXX XXX

    Aug-02 XXX XXX XXX

    Sep-02 XXX XXX XXX

    Oct-02 XXX XXX XXX

    Nov-02 XXX XXX XXX

    Dec-02 XXX XXX XXX

    Jan-03 XXX XXX XXX

    Feb-03 XXX XXX XXX

    Mar-03 XXX XXX XXX

    Apr-03 XXX XXX XXX

    May-03 XXX XXX XXX

    Jun-03 XXX XXX XXX

    Jul-03 XXX XXX XXX

    Aug-03 XXX XXX XXX

    Sep-03 XXX XXX XXX

    Oct-03 XXX XXX XXX

    Nov-03 XXX XXX XXX

    Dec-03 XXX XXX XXX

    Jan-04 XXX XXX XXX

    Feb-04 XXX XXX XXX

    Mar-04 XXX XXX XXX

    Apr-04 XXX XXX XXX

    May-04 XXX XXX XXX

    Jun-04 XXX XXX XXX

    Jul-04 XXX XXX XXX

    Aug-04 XXX XXX XXX

    Sep-04 XXX XXX XXX

    Oct-04 XXX XXX XXX

    Nov-04 XXX XXX XXX

    Dec-04 XXX XXX XXX

    XXX REPRESENTS CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

     

     

     

     

     

     

    APPENDIX 16b

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

    FLIGHT ATTENDANT HOTEL VOLUME

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

    COST PER CONTRACT CONTRACT HOTEL STAYS PER RATE PER BLOCK HOUR FOR

    DATE HOTEL STAY SCHEDULED BLOCK HOUR EXTRAORDINARY HOTEL STAYS

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

    Jan-01 XXX XXX XXX

    Feb-01 XXX XXX XXX

    Mar-01 XXX XXX XXX

    Apr-01 XXX XXX XXX

    May-01 XXX XXX XXX

    Jun-01 XXX XXX XXX

    Jul-01 XXX XXX XXX

    Aug-01 XXX XXX XXX

    Sep-01 XXX XXX XXX

    Oct-01 XXX XXX XXX

    Nov-01 XXX XXX XXX

    Dec-01 XXX XXX XXX

    Jan-02 XXX XXX XXX

    Feb-02 XXX XXX XXX

    Mar-02 XXX XXX XXX

    Apr-02 XXX XXX XXX

    May-02 XXX XXX XXX

    Jun-02 XXX XXX XXX

    Jul-02 XXX XXX XXX

    Aug-02 XXX XXX XXX

    Sep-02 XXX XXX XXX

    Oct-02 XXX XXX XXX

    Nov-02 XXX XXX XXX

    Dec-02 XXX XXX XXX

    Jan-03 XXX XXX XXX

    Feb-03 XXX XXX XXX

    Mar-03 XXX XXX XXX

    Apr-03 XXX XXX XXX

    May-03 XXX XXX XXX

    Jun-03 XXX XXX XXX

    Jul-03 XXX XXX XXX

    Aug-03 XXX XXX XXX

    Sep-03 XXX XXX XXX

    Oct-03 XXX XXX XXX

    Nov-03 XXX XXX XXX

    Dec-03 XXX XXX XXX

    Jan-04 XXX XXX XXX

    Feb-04 XXX XXX XXX

    Mar-04 XXX XXX XXX

    Apr-04 XXX XXX XXX

    May-04 XXX XXX XXX

    Jun-04 XXX XXX XXX

    Jul-04 XXX XXX XXX

    Aug-04 XXX XXX XXX

    Sep-04 XXX XXX XXX

    Oct-04 XXX XXX XXX

    Nov-04 XXX XXX XXX

    Dec-04 XXX XXX XXX

    XXX REPRESENTS CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

     

     

     

     

     

     

    APPENDIX 17a

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

    ASSUMED PILOT TRAINING COST PER CYCLE

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

    TRAINING CYCLE 2001 2002 2003 2004

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

    RJ

    Transitional XXX XXX XXX XXX

    Upgrade XXX XXX XXX XXX

    New Hire XXX XXX XXX XXX

    Recur Ground XXX XXX XXX XXX

    Recur Flight XXX XXX XXX XXX

    ATR

    Transitional XXX XXX XXX XXX

    Upgrade XXX XXX XXX XXX

    New Hire XXX XXX XXX XXX

    Recur Ground XXX XXX XXX XXX

    Recur Flight XXX XXX XXX XXX

    120

    Transitional XXX XXX XXX XXX

    Upgrade XXX XXX XXX XXX

    New Hire XXX XXX XXX XXX

    Recur Ground XXX XXX XXX XXX

    Recur Flight XXX XXX XXX XXX

    BEECH

    Transitional XXX XXX XXX XXX

    Upgrade XXX XXX XXX XXX

    New Hire XXX XXX XXX XXX

    Recur Ground XXX XXX XXX XXX

    Recur Flight XXX XXX XXX XXX

    TOTAL

    Transitional XXX XXX XXX XXX

    Upgrade XXX XXX XXX XXX

    New Hire XXX XXX XXX XXX

    Recur Ground XXX XXX XXX XXX

    Recur Flight XXX XXX XXX XXX

    XXX REPRESENTS CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

     

     

     

     

     

    APPENDIX 17b

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

    PILOT NEW HIRE TRAINING CYCLES

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

    DATE B1900 ATR EMB120 RJ

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

    Jan-01 XXX XXX XXX XXX

    Feb-01 XXX XXX XXX XXX

    Mar-01 XXX XXX XXX XXX

    Apr-01 XXX XXX XXX XXX

    May-01 XXX XXX XXX XXX

    Jun-01 XXX XXX XXX XXX

    Jul-01 XXX XXX XXX XXX

    Aug-01 XXX XXX XXX XXX

    Sep-01 XXX XXX XXX XXX

    Oct-01 XXX XXX XXX XXX

    Nov-01 XXX XXX XXX XXX

    Dec-01 XXX XXX XXX XXX

    Jan-02 XXX XXX XXX XXX

    Feb-02 XXX XXX XXX XXX

    Mar-02 XXX XXX XXX XXX

    Apr-02 XXX XXX XXX XXX

    May-02 XXX XXX XXX XXX

    Jun-02 XXX XXX XXX XXX

    Jul-02 XXX XXX XXX XXX

    Aug-02 XXX XXX XXX XXX

    Sep-02 XXX XXX XXX XXX

    Oct-02 XXX XXX XXX XXX

    Nov-02 XXX XXX XXX XXX

    Dec-02 XXX XXX XXX XXX

    Jan-03 XXX XXX XXX XXX

    Feb-03 XXX XXX XXX XXX

    Mar-03 XXX XXX XXX XXX

    Apr-03 XXX XXX XXX XXX

    May-03 XXX XXX XXX XXX

    Jun-03 XXX XXX XXX XXX

    Jul-03 XXX XXX XXX XXX

    Aug-03 XXX XXX XXX XXX

    Sep-03 XXX XXX XXX XXX

    Oct-03 XXX XXX XXX XXX

    Nov-03 XXX XXX XXX XXX

    Dec-03 XXX XXX XXX XXX

    Jan-04 XXX XXX XXX XXX

    Feb-04 XXX XXX XXX XXX

    Mar-04 XXX XXX XXX XXX

    Apr-04 XXX XXX XXX XXX

    May-04 XXX XXX XXX XXX

    Jun-04 XXX XXX XXX XXX

    Jul-04 XXX XXX XXX XXX

    Aug-04 XXX XXX XXX XXX

    Sep-04 XXX XXX XXX XXX

    Oct-04 XXX XXX XXX XXX

    Nov-04 XXX XXX XXX XXX

    Dec-04 XXX XXX XXX XXX

    XXX REPRESENTS CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

     

     

     

     

     

    APPENDIX 17c

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

    PILOT TRANSITIONAL TRAINING CYCLES

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

    DATE B1900 ATR EMB120 RJ

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

    Jan-01 XXX XXX XXX XXX

    Feb-01 XXX XXX XXX XXX

    Mar-01 XXX XXX XXX XXX

    Apr-01 XXX XXX XXX XXX

    May-01 XXX XXX XXX XXX

    Jun-01 XXX XXX XXX XXX

    Jul-01 XXX XXX XXX XXX

    Aug-01 XXX XXX XXX XXX

    Sep-01 XXX XXX XXX XXX

    Oct-01 XXX XXX XXX XXX

    Nov-01 XXX XXX XXX XXX

    Dec-01 XXX XXX XXX XXX

    Jan-02 XXX XXX XXX XXX

    Feb-02 XXX XXX XXX XXX

    Mar-02 XXX XXX XXX XXX

    Apr-02 XXX XXX XXX XXX

    May-02 XXX XXX XXX XXX

    Jun-02 XXX XXX XXX XXX

    Jul-02 XXX XXX XXX XXX

    Aug-02 XXX XXX XXX XXX

    Sep-02 XXX XXX XXX XXX

    Oct-02 XXX XXX XXX XXX

    Nov-02 XXX XXX XXX XXX

    Dec-02 XXX XXX XXX XXX

    Jan-03 XXX XXX XXX XXX

    Feb-03 XXX XXX XXX XXX

    Mar-03 XXX XXX XXX XXX

    Apr-03 XXX XXX XXX XXX

    May-03 XXX XXX XXX XXX

    Jun-03 XXX XXX XXX XXX

    Jul-03 XXX XXX XXX XXX

    Aug-03 XXX XXX XXX XXX

    Sep-03 XXX XXX XXX XXX

    Oct-03 XXX XXX XXX XXX

    Nov-03 XXX XXX XXX XXX

    Dec-03 XXX XXX XXX XXX

    Jan-04 XXX XXX XXX XXX

    Feb-04 XXX XXX XXX XXX

    Mar-04 XXX XXX XXX XXX

    Apr-04 XXX XXX XXX XXX

    May-04 XXX XXX XXX XXX

    Jun-04 XXX XXX XXX XXX

    Jul-04 XXX XXX XXX XXX

    Aug-04 XXX XXX XXX XXX

    Sep-04 XXX XXX XXX XXX

    Oct-04 XXX XXX XXX XXX

    Nov-04 XXX XXX XXX XXX

    Dec-04 XXX XXX XXX XXX

    XXX REPRESENTS CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

     

     

     

     

    APPENDIX 17d

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

    PILOT UPGRADE TRAINING CYCLES

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

    DATE B1900 ATR EMB120 RJ

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

    Jan-01 XXX XXX XXX XXX

    Feb-01 XXX XXX XXX XXX

    Mar-01 XXX XXX XXX XXX

    Apr-01 XXX XXX XXX XXX

    May-01 XXX XXX XXX XXX

    Jun-01 XXX XXX XXX XXX

    Jul-01 XXX XXX XXX XXX

    Aug-01 XXX XXX XXX XXX

    Sep-01 XXX XXX XXX XXX

    Oct-01 XXX XXX XXX XXX

    Nov-01 XXX XXX XXX XXX

    Dec-01 XXX XXX XXX XXX

    Jan-02 XXX XXX XXX XXX

    Feb-02 XXX XXX XXX XXX

    Mar-02 XXX XXX XXX XXX

    Apr-02 XXX XXX XXX XXX

    May-02 XXX XXX XXX XXX

    Jun-02 XXX XXX XXX XXX

    Jul-02 XXX XXX XXX XXX

    Aug-02 XXX XXX XXX XXX

    Sep-02 XXX XXX XXX XXX

    Oct-02 XXX XXX XXX XXX

    Nov-02 XXX XXX XXX XXX

    Dec-02 XXX XXX XXX XXX

    Jan-03 XXX XXX XXX XXX

    Feb-03 XXX XXX XXX XXX

    Mar-03 XXX XXX XXX XXX

    Apr-03 XXX XXX XXX XXX

    May-03 XXX XXX XXX XXX

    Jun-03 XXX XXX XXX XXX

    Jul-03 XXX XXX XXX XXX

    Aug-03 XXX XXX XXX XXX

    Sep-03 XXX XXX XXX XXX

    Oct-03 XXX XXX XXX XXX

    Nov-03 XXX XXX XXX XXX

    Dec-03 XXX XXX XXX XXX

    Jan-04 XXX XXX XXX XXX

    Feb-04 XXX XXX XXX XXX

    Mar-04 XXX XXX XXX XXX

    Apr-04 XXX XXX XXX XXX

    May-04 XXX XXX XXX XXX

    Jun-04 XXX XXX XXX XXX

    Jul-04 XXX XXX XXX XXX

    Aug-04 XXX XXX XXX XXX

    Sep-04 XXX XXX XXX XXX

    Oct-04 XXX XXX XXX XXX

    Nov-04 XXX XXX XXX XXX

    Dec-04 XXX XXX XXX XXX

    XXX REPRESENTS CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

     

     

     

     

     

     

     

     

    APPENDIX 17e

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

    PILOT RECURRENT FLIGHT TRAINING CYCLES

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

    DATE B1900 ATR EMB120 RJ

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

    Jan-01 XXX XXX XXX XXX

    Feb-01 XXX XXX XXX XXX

    Mar-01 XXX XXX XXX XXX

    Apr-01 XXX XXX XXX XXX

    May-01 XXX XXX XXX XXX

    Jun-01 XXX XXX XXX XXX

    Jul-01 XXX XXX XXX XXX

    Aug-01 XXX XXX XXX XXX

    Sep-01 XXX XXX XXX XXX

    Oct-01 XXX XXX XXX XXX

    Nov-01 XXX XXX XXX XXX

    Dec-01 XXX XXX XXX XXX

    Jan-02 XXX XXX XXX XXX

    Feb-02 XXX XXX XXX XXX

    Mar-02 XXX XXX XXX XXX

    Apr-02 XXX XXX XXX XXX

    May-02 XXX XXX XXX XXX

    Jun-02 XXX XXX XXX XXX

    Jul-02 XXX XXX XXX XXX

    Aug-02 XXX XXX XXX XXX

    Sep-02 XXX XXX XXX XXX

    Oct-02 XXX XXX XXX XXX

    Nov-02 XXX XXX XXX XXX

    Dec-02 XXX XXX XXX XXX

    Jan-03 XXX XXX XXX XXX

    Feb-03 XXX XXX XXX XXX

    Mar-03 XXX XXX XXX XXX

    Apr-03 XXX XXX XXX XXX

    May-03 XXX XXX XXX XXX

    Jun-03 XXX XXX XXX XXX

    Jul-03 XXX XXX XXX XXX

    Aug-03 XXX XXX XXX XXX

    Sep-03 XXX XXX XXX XXX

    Oct-03 XXX XXX XXX XXX

    Nov-03 XXX XXX XXX XXX

    Dec-03 XXX XXX XXX XXX

    Jan-04 XXX XXX XXX XXX

    Feb-04 XXX XXX XXX XXX

    Mar-04 XXX XXX XXX XXX

    Apr-04 XXX XXX XXX XXX

    May-04 XXX XXX XXX XXX

    Jun-04 XXX XXX XXX XXX

    Jul-04 XXX XXX XXX XXX

    Aug-04 XXX XXX XXX XXX

    Sep-04 XXX XXX XXX XXX

    Oct-04 XXX XXX XXX XXX

    Nov-04 XXX XXX XXX XXX

    Dec-04 XXX XXX XXX XXX

    XXX REPRESENTS CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

     

     

     

     

     

    APPENDIX 17f

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

    PILOT RECURRENT GROUND TRAINING CYCLES

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

    DATE B1900 ATR EMB120 RJ

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

    Jan-01 XXX XXX XXX XXX

    Feb-01 XXX XXX XXX XXX

    Mar-01 XXX XXX XXX XXX

    Apr-01 XXX XXX XXX XXX

    May-01 XXX XXX XXX XXX

    Jun-01 XXX XXX XXX XXX

    Jul-01 XXX XXX XXX XXX

    Aug-01 XXX XXX XXX XXX

    Sep-01 XXX XXX XXX XXX

    Oct-01 XXX XXX XXX XXX

    Nov-01 XXX XXX XXX XXX

    Dec-01 XXX XXX XXX XXX

    Jan-02 XXX XXX XXX XXX

    Feb-02 XXX XXX XXX XXX

    Mar-02 XXX XXX XXX XXX

    Apr-02 XXX XXX XXX XXX

    May-02 XXX XXX XXX XXX

    Jun-02 XXX XXX XXX XXX

    Jul-02 XXX XXX XXX XXX

    Aug-02 XXX XXX XXX XXX

    Sep-02 XXX XXX XXX XXX

    Oct-02 XXX XXX XXX XXX

    Nov-02 XXX XXX XXX XXX

    Dec-02 XXX XXX XXX XXX

    Jan-03 XXX XXX XXX XXX

    Feb-03 XXX XXX XXX XXX

    Mar-03 XXX XXX XXX XXX

    Apr-03 XXX XXX XXX XXX

    May-03 XXX XXX XXX XXX

    Jun-03 XXX XXX XXX XXX

    Jul-03 XXX XXX XXX XXX

    Aug-03 XXX XXX XXX XXX

    Sep-03 XXX XXX XXX XXX

    Oct-03 XXX XXX XXX XXX

    Nov-03 XXX XXX XXX XXX

    Dec-03 XXX XXX XXX XXX

    Jan-04 XXX XXX XXX XXX

    Feb-04 XXX XXX XXX XXX

    Mar-04 XXX XXX XXX XXX

    Apr-04 XXX XXX XXX XXX

    May-04 XXX XXX XXX XXX

    Jun-04 XXX XXX XXX XXX

    Jul-04 XXX XXX XXX XXX

    Aug-04 XXX XXX XXX XXX

    Sep-04 XXX XXX XXX XXX

    Oct-04 XXX XXX XXX XXX

    Nov-04 XXX XXX XXX XXX

    Dec-04 XXX XXX XXX XXX

    XXX REPRESENTS CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

     

     

     

     

     

    APPENDIX 18a

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

    PILOT PER DIEM

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

    AMOUNT PAYABLE PER DIEM HOURS PER

    DATE PER DIEM HOUR SCHEDULED BLOCK HOUR

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

    Jan-01 XXX XXX

    Feb-01 XXX XXX

    Mar-01 XXX XXX

    Apr-01 XXX XXX

    May-01 XXX XXX

    Jun-01 XXX XXX

    Jul-01 XXX XXX

    Aug-01 XXX XXX

    Sep-01 XXX XXX

    Oct-01 XXX XXX

    Nov-01 XXX XXX

    Dec-01 XXX XXX

    Jan-02 XXX XXX

    Feb-02 XXX XXX

    Mar-02 XXX XXX

    Apr-02 XXX XXX

    May-02 XXX XXX

    Jun-02 XXX XXX

    Jul-02 XXX XXX

    Aug-02 XXX XXX

    Sep-02 XXX XXX

    Oct-02 XXX XXX

    Nov-02 XXX XXX

    Dec-02 XXX XXX

    Jan-03 XXX XXX

    Feb-03 XXX XXX

    Mar-03 XXX XXX

    Apr-03 XXX XXX

    May-03 XXX XXX

    Jun-03 XXX XXX

    Jul-03 XXX XXX

    Aug-03 XXX XXX

    Sep-03 XXX XXX

    Oct-03 XXX XXX

    Nov-03 XXX XXX

    Dec-03 XXX XXX

    Jan-04 XXX XXX

    Feb-04 XXX XXX

    Mar-04 XXX XXX

    Apr-04 XXX XXX

    May-04 XXX XXX

    Jun-04 XXX XXX

    Jul-04 XXX XXX

    Aug-04 XXX XXX

    Sep-04 XXX XXX

    Oct-04 XXX XXX

    Nov-04 XXX XXX

    Dec-04 XXX XXX

    XXX REPRESENTS CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

     

     

     

     

     

     

    APPENDIX 18b

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

    FLIGHT ATTENDANT PER DIEM

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

    AMOUNT PAYABLE PER DIEM HOURS PER

    DATE PER DIEM HOUR SCHEDULED BLOCK HOUR

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

    Jan-01 XXX XXX

    Feb-01 XXX XXX

    Mar-01 XXX XXX

    Apr-01 XXX XXX

    May-01 XXX XXX

    Jun-01 XXX XXX

    Jul-01 XXX XXX

    Aug-01 XXX XXX

    Sep-01 XXX XXX

    Oct-01 XXX XXX

    Nov-01 XXX XXX

    Dec-01 XXX XXX

    Jan-02 XXX XXX

    Feb-02 XXX XXX

    Mar-02 XXX XXX

    Apr-02 XXX XXX

    May-02 XXX XXX

    Jun-02 XXX XXX

    Jul-02 XXX XXX

    Aug-02 XXX XXX

    Sep-02 XXX XXX

    Oct-02 XXX XXX

    Nov-02 XXX XXX

    Dec-02 XXX XXX

    Jan-03 XXX XXX

    Feb-03 XXX XXX

    Mar-03 XXX XXX

    Apr-03 XXX XXX

    May-03 XXX XXX

    Jun-03 XXX XXX

    Jul-03 XXX XXX

    Aug-03 XXX XXX

    Sep-03 XXX XXX

    Oct-03 XXX XXX

    Nov-03 XXX XXX

    Dec-03 XXX XXX

    Jan-04 XXX XXX

    Feb-04 XXX XXX

    Mar-04 XXX XXX

    Apr-04 XXX XXX

    May-04 XXX XXX

    Jun-04 XXX XXX

    Jul-04 XXX XXX

    Aug-04 XXX XXX

    Sep-04 XXX XXX

    Oct-04 XXX XXX

    Nov-04 XXX XXX

    Dec-04 XXX XXX

    XXX REPRESENTS CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

     

     

     

     

     

     

    APPENDIX 19

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

    PILOT SOFT TIME RECONCILIATION

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

    AMOUNT PAYABLE PER FLIGHT PAID HOURS PER SCHEDULED

    DATE FLIGHT PAID HOUR PILOT BLOCK HOUR

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

    Jan-01 XXX XXX

    Feb-01 XXX XXX

    Mar-01 XXX XXX

    Apr-01 XXX XXX

    May-01 XXX XXX

    Jun-01 XXX XXX

    Jul-01 XXX XXX

    Aug-01 XXX XXX

    Sep-01 XXX XXX

    Oct-01 XXX XXX

    Nov-01 XXX XXX

    Dec-01 XXX XXX

    Jan-02 XXX XXX

    Feb-02 XXX XXX

    Mar-02 XXX XXX

    Apr-02 XXX XXX

    May-02 XXX XXX

    Jun-02 XXX XXX

    Jul-02 XXX XXX

    Aug-02 XXX XXX

    Sep-02 XXX XXX

    Oct-02 XXX XXX

    Nov-02 XXX XXX

    Dec-02 XXX XXX

    Jan-03 XXX XXX

    Feb-03 XXX XXX

    Mar-03 XXX XXX

    Apr-03 XXX XXX

    May-03 XXX XXX

    Jun-03 XXX XXX

    Jul-03 XXX XXX

    Aug-03 XXX XXX

    Sep-03 XXX XXX

    Oct-03 XXX XXX

    Nov-03 XXX XXX

    Dec-03 XXX XXX

    Jan-04 XXX XXX

    Feb-04 XXX XXX

    Mar-04 XXX XXX

    Apr-04 XXX XXX

    May-04 XXX XXX

    Jun-04 XXX XXX

    Jul-04 XXX XXX

    Aug-04 XXX XXX

    Sep-04 XXX XXX

    Oct-04 XXX XXX

    Nov-04 XXX XXX

    Dec-04 XXX XXX

    XXX REPRESENTS CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

     

     

     

     

     

     

     

    APPENDIX 20

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

    PILOT SENIORITY RECONCILIATION

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

    AGGREGATE CONTINENTAL PILOTS AMOUNT PAYABLE PER AGGREGATE

    DATE TERMINATED BY CONTRACTOR CONTINENTAL PILOT TERMINATED

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

    Jan-01 XXX XXX

    Feb-01 XXX XXX

    Mar-01 XXX XXX

    Apr-01 XXX XXX

    May-01 XXX XXX

    Jun-01 XXX XXX

    Jul-01 XXX XXX

    Aug-01 XXX XXX

    Sep-01 XXX XXX

    Oct-01 XXX XXX

    Nov-01 XXX XXX

    Dec-01 XXX XXX

    Jan-02 XXX XXX

    Feb-02 XXX XXX

    Mar-02 XXX XXX

    Apr-02 XXX XXX

    May-02 XXX XXX

    Jun-02 XXX XXX

    Jul-02 XXX XXX

    Aug-02 XXX XXX

    Sep-02 XXX XXX

    Oct-02 XXX XXX

    Nov-02 XXX XXX

    Dec-02 XXX XXX

    Jan-03 XXX XXX

    Feb-03 XXX XXX

    Mar-03 XXX XXX

    Apr-03 XXX XXX

    May-03 XXX XXX

    Jun-03 XXX XXX

    Jul-03 XXX XXX

    Aug-03 XXX XXX

    Sep-03 XXX XXX

    Oct-03 XXX XXX

    Nov-03 XXX XXX

    Dec-03 XXX XXX

    Jan-04 XXX XXX

    Feb-04 XXX XXX

    Mar-04 XXX XXX

    Apr-04 XXX XXX

    May-04 XXX XXX

    Jun-04 XXX XXX

    Jul-04 XXX XXX

    Aug-04 XXX XXX

    Sep-04 XXX XXX

    Oct-04 XXX XXX

    Nov-04 XXX XXX

    Dec-04 XXX XXX

    XXX REPRESENTS CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

     

     

     

     

     

     

    APPENDIX 21

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

    AIRPORT AGENT VOLUME RECONCILIATION

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

    AMOUNT PAYABLE PER AGENT IMPLIED IMPLIED IMPLIED IMPLIED

    DATE AGENT PAID HOUR PAID HOURS SICK TIME % OVERTIME % HOLIDAY % VACATION %

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

    Jan-01 XXX XXX XXX XXX XXX XXX

    Feb-01 XXX XXX XXX XXX XXX XXX

    Mar-01 XXX XXX XXX XXX XXX XXX

    Apr-01 XXX XXX XXX XXX XXX XXX

    May-01 XXX XXX XXX XXX XXX XXX

    Jun-01 XXX XXX XXX XXX XXX XXX

    Jul-01 XXX XXX XXX XXX XXX XXX

    Aug-01 XXX XXX XXX XXX XXX XXX

    Sep-01 XXX XXX XXX XXX XXX XXX

    Oct-01 XXX XXX XXX XXX XXX XXX

    Nov-01 XXX XXX XXX XXX XXX XXX

    Dec-01 XXX XXX XXX XXX XXX XXX

    Jan-02 XXX XXX XXX XXX XXX XXX

    Feb-02 XXX XXX XXX XXX XXX XXX

    Mar-02 XXX XXX XXX XXX XXX XXX

    Apr-02 XXX XXX XXX XXX XXX XXX

    May-02 XXX XXX XXX XXX XXX XXX

    Jun-02 XXX XXX XXX XXX XXX XXX

    Jul-02 XXX XXX XXX XXX XXX XXX

    Aug-02 XXX XXX XXX XXX XXX XXX

    Sep-02 XXX XXX XXX XXX XXX XXX

    Oct-02 XXX XXX XXX XXX XXX XXX

    Nov-02 XXX XXX XXX XXX XXX XXX

    Dec-02 XXX XXX XXX XXX XXX XXX

    Jan-03 XXX XXX XXX XXX XXX XXX

    Feb-03 XXX XXX XXX XXX XXX XXX

    Mar-03 XXX XXX XXX XXX XXX XXX

    Apr-03 XXX XXX XXX XXX XXX XXX

    May-03 XXX XXX XXX XXX XXX XXX

    Jun-03 XXX XXX XXX XXX XXX XXX

    Jul-03 XXX XXX XXX XXX XXX XXX

    Aug-03 XXX XXX XXX XXX XXX XXX

    Sep-03 XXX XXX XXX XXX XXX XXX

    Oct-03 XXX XXX XXX XXX XXX XXX

    Nov-03 XXX XXX XXX XXX XXX XXX

    Dec-03 XXX XXX XXX XXX XXX XXX

    Jan-04 XXX XXX XXX XXX XXX XXX

    Feb-04 XXX XXX XXX XXX XXX XXX

    Mar-04 XXX XXX XXX XXX XXX XXX

    Apr-04 XXX XXX XXX XXX XXX XXX

    May-04 XXX XXX XXX XXX XXX XXX

    Jun-04 XXX XXX XXX XXX XXX XXX

    Jul-04 XXX XXX XXX XXX XXX XXX

    Aug-04 XXX XXX XXX XXX XXX XXX

    Sep-04 XXX XXX XXX XXX XXX XXX

    Oct-04 XXX XXX XXX XXX XXX XXX

    Nov-04 XXX XXX XXX XXX XXX XXX

    Dec-04 XXX XXX XXX XXX XXX XXX

    XXX REPRESENTS CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

     

     

     

     

     

     

    APPENDIX 22

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

    RECONCILIATION OF EXPENSES (000'S)

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

    B(9)(a) B(9)(a) B(9)(a) B(9)(a) B(9)(a) B(9)(a) B(9)(a) B(9)(a) B(9)(a) B(9)(a) B(9)(a) B(9)(a)

    DATE (i) (ii) (iii) (iv) (v) (v) (vi) (vii) (viii) (viii) (viii) (ix)

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

    Jan-01 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    Feb-01 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    Mar-01 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    Apr-01 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    May-01 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    Jun-01 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    Jul-01 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    Aug-01 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    Sep-01 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    Oct-01 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    Nov-01 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    Dec-01 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    Jan-02 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    Feb-02 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    Mar-02 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    Apr-02 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    May-02 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    Jun-02 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    Jul-02 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    Aug-02 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    Sep-02 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    Oct-02 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    Nov-02 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    Dec-02 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    Jan-03 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    Feb-03 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    Mar-03 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    Apr-03 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    May-03 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    Jun-03 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    Jul-03 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    Aug-03 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    Sep-03 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    Oct-03 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    Nov-03 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    Dec-03 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    Jan-04 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    Feb-04 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    Mar-04 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    Apr-04 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    May-04 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    Jun-04 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    Jul-04 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    Aug-04 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    Sep-04 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    Oct-04 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    Nov-04 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

    Dec-04 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

     

     

     

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

    RECONCILIATION OF EXPENSES (000'S)

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

    B(9)(a) B(9)(a) B(9)(a) B(9)(a) B(9)(a)

    DATE (x) (xi) (xii) (xiv) (xv)

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

    Jan-01 XXX XXX XXX XXX XXX

    Feb-01 XXX XXX XXX XXX XXX

    Mar-01 XXX XXX XXX XXX XXX

    Apr-01 XXX XXX XXX XXX XXX

    May-01 XXX XXX XXX XXX XXX

    Jun-01 XXX XXX XXX XXX XXX

    Jul-01 XXX XXX XXX XXX XXX

    Aug-01 XXX XXX XXX XXX XXX

    Sep-01 XXX XXX XXX XXX XXX

    Oct-01 XXX XXX XXX XXX XXX

    Nov-01 XXX XXX XXX XXX XXX

    Dec-01 XXX XXX XXX XXX XXX

    Jan-02 XXX XXX XXX XXX XXX

    Feb-02 XXX XXX XXX XXX XXX

    Mar-02 XXX XXX XXX XXX XXX

    Apr-02 XXX XXX XXX XXX XXX

    May-02 XXX XXX XXX XXX XXX

    Jun-02 XXX XXX XXX XXX XXX

    Jul-02 XXX XXX XXX XXX XXX

    Aug-02 XXX XXX XXX XXX XXX

    Sep-02 XXX XXX XXX XXX XXX

    Oct-02 XXX XXX XXX XXX XXX

    Nov-02 XXX XXX XXX XXX XXX

    Dec-02 XXX XXX XXX XXX XXX

    Jan-03 XXX XXX XXX XXX XXX

    Feb-03 XXX XXX XXX XXX XXX

    Mar-03 XXX XXX XXX XXX XXX

    Apr-03 XXX XXX XXX XXX XXX

    May-03 XXX XXX XXX XXX XXX

    Jun-03 XXX XXX XXX XXX XXX

    Jul-03 XXX XXX XXX XXX XXX

    Aug-03 XXX XXX XXX XXX XXX

    Sep-03 XXX XXX XXX XXX XXX

    Oct-03 XXX XXX XXX XXX XXX

    Nov-03 XXX XXX XXX XXX XXX

    Dec-03 XXX XXX XXX XXX XXX

    Jan-04 XXX XXX XXX XXX XXX

    Feb-04 XXX XXX XXX XXX XXX

    Mar-04 XXX XXX XXX XXX XXX

    Apr-04 XXX XXX XXX XXX XXX

    May-04 XXX XXX XXX XXX XXX

    Jun-04 XXX XXX XXX XXX XXX

    Jul-04 XXX XXX XXX XXX XXX

    Aug-04 XXX XXX XXX XXX XXX

    Sep-04 XXX XXX XXX XXX XXX

    Oct-04 XXX XXX XXX XXX XXX

    Nov-04 XXX XXX XXX XXX XXX

    Dec-04 XXX XXX XXX XXX XXX

    XXX REPRESENTS CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

     

     

     

    APPENDIX 22A

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

    FIRST IMPLIED RATES

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

    DATE B1900 ATR42 EMB120 RJ135 RJ145

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

    Jan-01 XXX XXX XXX XXX XXX

    Feb-01 XXX XXX XXX XXX XXX

    Mar-01 XXX XXX XXX XXX XXX

    Apr-01 XXX XXX XXX XXX XXX

    May-01 XXX XXX XXX XXX XXX

    Jun-01 XXX XXX XXX XXX XXX

    Jul-01 XXX XXX XXX XXX XXX

    Aug-01 XXX XXX XXX XXX XXX

    Sep-01 XXX XXX XXX XXX XXX

    Oct-01 XXX XXX XXX XXX XXX

    Nov-01 XXX XXX XXX XXX XXX

    Dec-01 XXX XXX XXX XXX XXX

    Jan-02 XXX XXX XXX XXX XXX

    Feb-02 XXX XXX XXX XXX XXX

    Mar-02 XXX XXX XXX XXX XXX

    Apr-02 XXX XXX XXX XXX XXX

    May-02 XXX XXX XXX XXX XXX

    Jun-02 XXX XXX XXX XXX XXX

    Jul-02 XXX XXX XXX XXX XXX

    Aug-02 XXX XXX XXX XXX XXX

    Sep-02 XXX XXX XXX XXX XXX

    Oct-02 XXX XXX XXX XXX XXX

    Nov-02 XXX XXX XXX XXX XXX

    Dec-02 XXX XXX XXX XXX XXX

    Jan-03 XXX XXX XXX XXX XXX

    Feb-03 XXX XXX XXX XXX XXX

    Mar-03 XXX XXX XXX XXX XXX

    Apr-03 XXX XXX XXX XXX XXX

    May-03 XXX XXX XXX XXX XXX

    Jun-03 XXX XXX XXX XXX XXX

    Jul-03 XXX XXX XXX XXX XXX

    Aug-03 XXX XXX XXX XXX XXX

    Sep-03 XXX XXX XXX XXX XXX

    Oct-03 XXX XXX XXX XXX XXX

    Nov-03 XXX XXX XXX XXX XXX

    Dec-03 XXX XXX XXX XXX XXX

    Jan-04 XXX XXX XXX XXX XXX

    Feb-04 XXX XXX XXX XXX XXX

    Mar-04 XXX XXX XXX XXX XXX

    Apr-04 XXX XXX XXX XXX XXX

    May-04 XXX XXX XXX XXX XXX

    Jun-04 XXX XXX XXX XXX XXX

    Jul-04 XXX XXX XXX XXX XXX

    Aug-04 XXX XXX XXX XXX XXX

    Sep-04 XXX XXX XXX XXX XXX

    Oct-04 XXX XXX XXX XXX XXX

    Nov-04 XXX XXX XXX XXX XXX

    Dec-04 XXX XXX XXX XXX XXX

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

    SECOND IMPLIED RATES THIRD IMPLIED

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

    DATE B1900 ATR42 EMB120 RJ135 RJ145 EXPENSES (000'S)

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

    Jan-01 XXX XXX XXX XXX XXX XXX

    Feb-01 XXX XXX XXX XXX XXX XXX

    Mar-01 XXX XXX XXX XXX XXX XXX

    Apr-01 XXX XXX XXX XXX XXX XXX

    May-01 XXX XXX XXX XXX XXX XXX

    Jun-01 XXX XXX XXX XXX XXX XXX

    Jul-01 XXX XXX XXX XXX XXX XXX

    Aug-01 XXX XXX XXX XXX XXX XXX

    Sep-01 XXX XXX XXX XXX XXX XXX

    Oct-01 XXX XXX XXX XXX XXX XXX

    Nov-01 XXX XXX XXX XXX XXX XXX

    Dec-01 XXX XXX XXX XXX XXX XXX

    Jan-02 XXX XXX XXX XXX XXX XXX

    Feb-02 XXX XXX XXX XXX XXX XXX

    Mar-02 XXX XXX XXX XXX XXX XXX

    Apr-02 XXX XXX XXX XXX XXX XXX

    May-02 XXX XXX XXX XXX XXX XXX

    Jun-02 XXX XXX XXX XXX XXX XXX

    Jul-02 XXX XXX XXX XXX XXX XXX

    Aug-02 XXX XXX XXX XXX XXX XXX

    Sep-02 XXX XXX XXX XXX XXX XXX

    Oct-02 XXX XXX XXX XXX XXX XXX

    Nov-02 XXX XXX XXX XXX XXX XXX

    Dec-02 XXX XXX XXX XXX XXX XXX

    Jan-03 XXX XXX XXX XXX XXX XXX

    Feb-03 XXX XXX XXX XXX XXX XXX

    Mar-03 XXX XXX XXX XXX XXX XXX

    Apr-03 XXX XXX XXX XXX XXX XXX

    May-03 XXX XXX XXX XXX XXX XXX

    Jun-03 XXX XXX XXX XXX XXX XXX

    Jul-03 XXX XXX XXX XXX XXX XXX

    Aug-03 XXX XXX XXX XXX XXX XXX

    Sep-03 XXX XXX XXX XXX XXX XXX

    Oct-03 XXX XXX XXX XXX XXX XXX

    Nov-03 XXX XXX XXX XXX XXX XXX

    Dec-03 XXX XXX XXX XXX XXX XXX

    Jan-04 XXX XXX XXX XXX XXX XXX

    Feb-04 XXX XXX XXX XXX XXX XXX

    Mar-04 XXX XXX XXX XXX XXX XXX

    Apr-04 XXX XXX XXX XXX XXX XXX

    May-04 XXX XXX XXX XXX XXX XXX

    Jun-04 XXX XXX XXX XXX XXX XXX

    Jul-04 XXX XXX XXX XXX XXX XXX

    Aug-04 XXX XXX XXX XXX XXX XXX

    Sep-04 XXX XXX XXX XXX XXX XXX

    Oct-04 XXX XXX XXX XXX XXX XXX

    Nov-04 XXX XXX XXX XXX XXX XXX

    Dec-04 XXX XXX XXX XXX XXX XXX

    XXX REPRESENTS CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

     

     

     

     

    APPENDIX 22b

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

    FOURTH IMPLIED RATES

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

    DATE B1900 ATR42 EMB120 RJ135 RJ145

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

    BENCHMARK SL XXX XXX XXX XXX XXX

    Jan-01 XXX XXX XXX XXX XXX

    Feb-01 XXX XXX XXX XXX XXX

    Mar-01 XXX XXX XXX XXX XXX

    Apr-01 XXX XXX XXX XXX XXX

    May-01 XXX XXX XXX XXX XXX

    Jun-01 XXX XXX XXX XXX XXX

    Jul-01 XXX XXX XXX XXX XXX

    Aug-01 XXX XXX XXX XXX XXX

    Sep-01 XXX XXX XXX XXX XXX

    Oct-01 XXX XXX XXX XXX XXX

    Nov-01 XXX XXX XXX XXX XXX

    Dec-01 XXX XXX XXX XXX XXX

    Jan-02 XXX XXX XXX XXX XXX

    Feb-02 XXX XXX XXX XXX XXX

    Mar-02 XXX XXX XXX XXX XXX

    Apr-02 XXX XXX XXX XXX XXX

    May-02 XXX XXX XXX XXX XXX

    Jun-02 XXX XXX XXX XXX XXX

    Jul-02 XXX XXX XXX XXX XXX

    Aug-02 XXX XXX XXX XXX XXX

    Sep-02 XXX XXX XXX XXX XXX

    Oct-02 XXX XXX XXX XXX XXX

    Nov-02 XXX XXX XXX XXX XXX

    Dec-02 XXX XXX XXX XXX XXX

    Jan-03 XXX XXX XXX XXX XXX

    Feb-03 XXX XXX XXX XXX XXX

    Mar-03 XXX XXX XXX XXX XXX

    Apr-03 XXX XXX XXX XXX XXX

    May-03 XXX XXX XXX XXX XXX

    Jun-03 XXX XXX XXX XXX XXX

    Jul-03 XXX XXX XXX XXX XXX

    Aug-03 XXX XXX XXX XXX XXX

    Sep-03 XXX XXX XXX XXX XXX

    Oct-03 XXX XXX XXX XXX XXX

    Nov-03 XXX XXX XXX XXX XXX

    Dec-03 XXX XXX XXX XXX XXX

    Jan-04 XXX XXX XXX XXX XXX

    Feb-04 XXX XXX XXX XXX XXX

    Mar-04 XXX XXX XXX XXX XXX

    Apr-04 XXX XXX XXX XXX XXX

    May-04 XXX XXX XXX XXX XXX

    Jun-04 XXX XXX XXX XXX XXX

    Jul-04 XXX XXX XXX XXX XXX

    Aug-04 XXX XXX XXX XXX XXX

    Sep-04 XXX XXX XXX XXX XXX

    Oct-04 XXX XXX XXX XXX XXX

    Nov-04 XXX XXX XXX XXX XXX

    Dec-04 XXX XXX XXX XXX XXX

    XXX REPRESENTS CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

     

     

     

     

     

    APPENDIX 22c

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

    FIFTH IMPLIED RATES

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

    DATE B1900 ATR42 EMB120 RJ135 RJ145

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

    BENCHMARK SL XXX XXX XXX XXX XXX

    Jan-01 XXX XXX XXX XXX XXX

    Feb-01 XXX XXX XXX XXX XXX

    Mar-01 XXX XXX XXX XXX XXX

    Apr-01 XXX XXX XXX XXX XXX

    May-01 XXX XXX XXX XXX XXX

    Jun-01 XXX XXX XXX XXX XXX

    Jul-01 XXX XXX XXX XXX XXX

    Aug-01 XXX XXX XXX XXX XXX

    Sep-01 XXX XXX XXX XXX XXX

    Oct-01 XXX XXX XXX XXX XXX

    Nov-01 XXX XXX XXX XXX XXX

    Dec-01 XXX XXX XXX XXX XXX

    Jan-02 XXX XXX XXX XXX XXX

    Feb-02 XXX XXX XXX XXX XXX

    Mar-02 XXX XXX XXX XXX XXX

    Apr-02 XXX XXX XXX XXX XXX

    May-02 XXX XXX XXX XXX XXX

    Jun-02 XXX XXX XXX XXX XXX

    Jul-02 XXX XXX XXX XXX XXX

    Aug-02 XXX XXX XXX XXX XXX

    Sep-02 XXX XXX XXX XXX XXX

    Oct-02 XXX XXX XXX XXX XXX

    Nov-02 XXX XXX XXX XXX XXX

    Dec-02 XXX XXX XXX XXX XXX

    Jan-03 XXX XXX XXX XXX XXX

    Feb-03 XXX XXX XXX XXX XXX

    Mar-03 XXX XXX XXX XXX XXX

    Apr-03 XXX XXX XXX XXX XXX

    May-03 XXX XXX XXX XXX XXX

    Jun-03 XXX XXX XXX XXX XXX

    Jul-03 XXX XXX XXX XXX XXX

    Aug-03 XXX XXX XXX XXX XXX

    Sep-03 XXX XXX XXX XXX XXX

    Oct-03 XXX XXX XXX XXX XXX

    Nov-03 XXX XXX XXX XXX XXX

    Dec-03 XXX XXX XXX XXX XXX

    Jan-04 XXX XXX XXX XXX XXX

    Feb-04 XXX XXX XXX XXX XXX

    Mar-04 XXX XXX XXX XXX XXX

    Apr-04 XXX XXX XXX XXX XXX

    May-04 XXX XXX XXX XXX XXX

    Jun-04 XXX XXX XXX XXX XXX

    Jul-04 XXX XXX XXX XXX XXX

    Aug-04 XXX XXX XXX XXX XXX

    Sep-04 XXX XXX XXX XXX XXX

    Oct-04 XXX XXX XXX XXX XXX

    Nov-04 XXX XXX XXX XXX XXX

    Dec-04 XXX XXX XXX XXX XXX

    XXX REPRESENTS CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

     

     

     

     

     

     

    APPENDIX 22d

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

    SIXTH IMPLIED RATES

    DATE B1900 ATR42 EMB120 RJ135 RJ145

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

    Jan-01 XXX XXX XXX XXX XXX

    Feb-01 XXX XXX XXX XXX XXX

    Mar-01 XXX XXX XXX XXX XXX

    Apr-01 XXX XXX XXX XXX XXX

    May-01 XXX XXX XXX XXX XXX

    Jun-01 XXX XXX XXX XXX XXX

    Jul-01 XXX XXX XXX XXX XXX

    Aug-01 XXX XXX XXX XXX XXX

    Sep-01 XXX XXX XXX XXX XXX

    Oct-01 XXX XXX XXX XXX XXX

    Nov-01 XXX XXX XXX XXX XXX

    Dec-01 XXX XXX XXX XXX XXX

    Jan-02 XXX XXX XXX XXX XXX

    Feb-02 XXX XXX XXX XXX XXX

    Mar-02 XXX XXX XXX XXX XXX

    Apr-02 XXX XXX XXX XXX XXX

    May-02 XXX XXX XXX XXX XXX

    Jun-02 XXX XXX XXX XXX XXX

    Jul-02 XXX XXX XXX XXX XXX

    Aug-02 XXX XXX XXX XXX XXX

    Sep-02 XXX XXX XXX XXX XXX

    Oct-02 XXX XXX XXX XXX XXX

    Nov-02 XXX XXX XXX XXX XXX

    Dec-02 XXX XXX XXX XXX XXX

    Jan-03 XXX XXX XXX XXX XXX

    Feb-03 XXX XXX XXX XXX XXX

    Mar-03 XXX XXX XXX XXX XXX

    Apr-03 XXX XXX XXX XXX XXX

    May-03 XXX XXX XXX XXX XXX

    Jun-03 XXX XXX XXX XXX XXX

    Jul-03 XXX XXX XXX XXX XXX

    Aug-03 XXX XXX XXX XXX XXX

    Sep-03 XXX XXX XXX XXX XXX

    Oct-03 XXX XXX XXX XXX XXX

    Nov-03 XXX XXX XXX XXX XXX

    Dec-03 XXX XXX XXX XXX XXX

    Jan-04 XXX XXX XXX XXX XXX

    Feb-04 XXX XXX XXX XXX XXX

    Mar-04 XXX XXX XXX XXX XXX

    Apr-04 XXX XXX XXX XXX XXX

    May-04 XXX XXX XXX XXX XXX

    Jun-04 XXX XXX XXX XXX XXX

    Jul-04 XXX XXX XXX XXX XXX

    Aug-04 XXX XXX XXX XXX XXX

    Sep-04 XXX XXX XXX XXX XXX

    Oct-04 XXX XXX XXX XXX XXX

    Nov-04 XXX XXX XXX XXX XXX

    Dec-04 XXX XXX XXX XXX XXX

    XXX REPRESENTS CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

     

     

     

    APPENDIX 23

     

     

     

    COST DIFFERENCE = XXX

    XXX REPRESENTS CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

     

     

     

     

     

     

    EXHIBIT A

    DEFINITIONS

     

    Actual Passengers - means, for any period, the actual Revenue Onboards on Scheduled Flights during such period.

    Adjusted Appendix 14 Block Hour Rate - is defined in Paragraph B(6)(c) of Schedule 3.

    Administrative Support and Information Services Provisioning Agreement - means that certain Administrative Support and Information Services Provisions Agreement, dated as of January 1, 2001, among Continental, Holdings and ExpressJet, in the form attached hereto as Exhibit E (or as otherwise agreed or amended).

    Agent Paid Hours - means the hours (including sick, holiday, overtime, and vacation) for which agents at Contractor Airports are paid to ground handle Scheduled Flights.

    Agreement - means the Amended and Restated Capacity Purchase Agreement, dated as of April 17, 2002, among Continental, Holdings, XJT and ExpressJet.

    Ancillary Agreements - means each of the agreements entered into by Continental and Contractor substantially in the form of Exhibits B, C, E, and F hereto, together with all amendments, exhibits, schedules and annexes thereto.

    Appendix 1 Expenses - are set forth on Appendix 1 to Schedule 3.

    Appendix 3 Block Hour Rate - is set forth for each aircraft type and month on Appendix 3 to Schedule 3.

    Appendix 4 Block Hour Rate - is set forth for each aircraft type and month on Appendix 4 to Schedule 3.

    Appendix 5 Block Hour Rate - is set forth for each aircraft type and month on Appendix 5 to Schedule 3.

    Appendix 6 Block Hour Rate - is set forth for each aircraft type on Appendix 6 to Schedule 3.

    Appendix 7 Block Hours - is set forth for each aircraft type on Appendix 7 to Schedule 3.

    Appendix 9 Rate Per Block Hour - is set forth for each aircraft type on Appendix 9 to Schedule 3.

    Appendix 13 Incremental Cost Rate - is set forth for each aircraft type and month on Appendix 13 to Schedule 3.

    Appendix 14 Block Hour Rate - is set forth for each aircraft type and month on Appendix 14 to Schedule 3.

     

     

     

    Exhibit A-1

     

     

    Average Peer Group Rates - means, with respect to any insurance coverage, the average cost of such insurance coverage to the five regional airlines with annual revenues closest to those of Contractor, as determined by available information obtained from public sources or reputable insurance brokers.

    Baggage Handling Benchmark - means, for any applicable month, the number of bags that were not properly handled (as measured by claims filed for mishandled baggage) at Contractor Airports, per 1,000 Enplanements at Contractor Airports during the last five full calendar years immediately preceding such month for which such calculations are available as of such date of determination (but excluding from these calculations all data for September 2001 and for any month in which a Labor Strike shall have occurred); provided that in no event shall the Baggage Handling Benchmark be above {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}.

    Base Compensation - is defined in Paragraph A(1) of Schedule 3.

    Base Term - is defined in Section 9.01.

    Block Hour Rate - means, for any month, the Base Compensation for such month divided by the total number of block hours comprising the Scheduled Flights during such month.

    Business Day - means each Monday, Tuesday, Wednesday, Thursday and Friday unless such day shall be a day when financial institutions in New York, New York or Houston, Texas are authorized by law to close.

    Cause - means (i) bankruptcy of ExpressJet, XJT or Holdings, (ii) the suspension or revocation of Contractor's authority to operate as a scheduled airline, (iii) the ceasing of Contractor's operations as a scheduled airline, other than as a result of a Labor Strike and other than any temporary cessation not exceeding 14 days in length, (iv) the occurrence of a Labor Strike that shall have continued for 90 days or (v) a willful or intentional material breach of this Agreement by ExpressJet, XJT or Holdings that substantially deprives Continental of the benefits of this Agreement, which breach shall have continued for 90 days after notice thereof is delivered to ExpressJet, XJT or Holdings, as the case may be.

    Change of Control - means:

    (i) ExpressJet, XJT or Holdings consolidates with, or merges with or into,

    another Person or conveys, transfers, leases or otherwise disposes of

    all or substantially all of its assets to any Person, or any Person

    consolidates with, or merges with or into, ExpressJet, XJT or Holdings,

    in any such event pursuant to a transaction in which the voting

    securities of ExpressJet, XJT or Holdings are converted into or

    exchanged for cash or securities, except where the holders of voting

    securities of ExpressJet, XJT or Holdings immediately prior to such

    transaction own not less than a majority of the voting securities of

    the surviving or transferee corporation

     

     

     

     

    Exhibit A-2

     

     

    immediately after such transaction, in each case other than any such

    transaction between ExpressJet, XJT and/or Holdings, on the one hand,

    and Continental and/or any of its Subsidiaries on the other;

    (ii) a transaction, other than one described in clause (i) above, as a

    result of which ExpressJet, XJT or Holdings and a Major Carrier (other

    than Continental) are legally combined;

    (iii) a transaction, other than one described in clause (i) above, as a

    result of which ExpressJet, XJT or Holdings acquires, directly or

    indirectly, beneficial ownership of 10% or more of the capital stock or

    voting power of an air carrier (other than Continental and its

    successors and any Subsidiary thereof), the consolidated annual

    revenues of which for the most recently completed fiscal year for which

    audited financial statements are available are in excess of $1 billion

    as of the date of determination (or the U.S. dollar equivalent

    thereof);

    (iv) the direct or indirect acquisition by a Major Carrier (other than

    Continental) or any Person directly or indirectly controlling a Major

    Carrier of beneficial ownership of 10% or more of the capital stock or

    voting power of ExpressJet, XJT or Holdings;

    (v) the direct or indirect acquisition by any "person" or "group" (as such

    terms are used in Section 13(d) of the Securities Exchange Act of 1934)

    not described in clause (iv) above, of beneficial ownership of more

    than 25% of the capital stock or voting power of ExpressJet, XJT or

    Holdings, other than (A) Continental or its Subsidiaries or (B) any

    "person" or "group" that is a Person who has a Schedule 13G on file

    with the Securities and Exchange Commission pursuant to the

    requirements of Rule 13d-1 under the Securities Exchange Act of 1934

    (the "Exchange Act") with respect to its holdings of ExpressJet's,

    XJT's or Holdings' voting securities (a "13G Person"), so long as (1)

    such 13G Person is principally engaged in the business of managing

    investment funds for unaffiliated securities investors and, as part of

    such 13G Person's duties as agent for fully managed accounts, holds or

    exercises voting or dispositive power over ExpressJet's, XJT's or

    Holdings' voting securities, (2) such 13G Person acquires and continues

    to have beneficial ownership of ExpressJet's, XJT's or Holdings' voting

    securities pursuant to trading activities undertaken in the ordinary

    course of such 13G Person's business and not with the purpose nor the

    effect, either alone or in concert with any 13G Person, of exercising

    the power to direct or cause the direction of the management and

    policies of ExpressJet, XJT or Holdings or of otherwise changing or

    influencing the control of ExpressJet, XJT or Holdings, nor in

    connection with or as a participant in any transaction having such

    purpose or effect, including any transaction subject to Rule 13d-3(b)

    of the Exchange Act and (3) such 13G Person is not obligated to, and

    does not, file a Schedule 13D with respect to the securities of

    ExpressJet, XJT or Holdings; provided, that a "Change of Control" shall

    not occur pursuant to this clause (v) if such "person" or "group"

    reduces its ownership of the capital stock or voting power of

    ExpressJet,

     

     

     

     

    Exhibit A-3

     

     

    XJT or Holdings, as the case may be, to less than 25% within 30 days of

    the acquisition of ownership of at least 25% of such capital stock or

    voting power;

    (vi) the liquidation or dissolution of ExpressJet, XJT or Holdings in

    connection with which Contractor ceases operations as an air carrier;

    (vii) the sale, transfer or other disposition of all or substantially all of

    the airline assets of ExpressJet, XJT or Holdings on a consolidated

    basis directly or indirectly to a Major Carrier (other than

    Continental) or its affiliate, whether in a single transaction or a

    series of related transactions;

    (viii) the direct or indirect acquisition, whether in a single transaction or

    a series of related transactions, by ExpressJet, XJT or Holdings of

    airline assets and associated employees, which airline assets on a

    stand-alone basis would have pro forma annual passenger revenues for

    the most recently completed four fiscal quarters for which financial

    statements can be reasonably prepared in excess of the Revenue

    Threshold;

    (ix) individuals who constitute the Board of Directors of ExpressJet, XJT or

    Holdings as of March 1, 2002 (each such individual, an "Incumbent

    Director") cease for any reason to constitute at least a majority of

    the applicable Board of Directors (each such board constituted of a

    majority of Incumbent Directors, an "Incumbent Board"); provided that

    any individual becoming a director subsequent to March 1, 2002 whose

    appointment to fill a vacancy or to fill a new position on an Incumbent

    Board or whose nomination for election by the shareholders of

    ExpressJet, XJT or Holdings, as the case may be, was approved by a vote

    of at least a majority of the directors of the applicable Incumbent

    Board shall be considered as though such individual were an Incumbent

    Director; or

    (x) the execution by ExpressJet, XJT or Holdings of bona fide definitive

    agreements, the consummation of the transactions contemplated by which

    would result in a transaction described in the immediately preceding

    clauses (i), (ii), (iii), (iv), (v), (vi), (vii), (viii) or (ix).

    Continental - means Continental Airlines, Inc., a Delaware corporation, and its successors and permitted assigns.

    Continental Airport - means any airport at which Continental provides or arranges for the provision of ground handling services pursuant to the Continental Ground Handling Agreement.

    Continental Ground Handling Agreement - means that certain IATA Standard Ground Handling Agreement (April 1993 version) between Continental and Contractor, together with Annex A thereto (Ground Handling Services, April 1993 version) and Annex B thereto substantially in the form of Exhibit C to the Master Facility and Ground Handling Agreement (or as otherwise agreed or amended) providing for the provision by or on

     

     

     

     

     

    Exhibit A-4

     

     

    behalf of Continental to Contractor of ground handling services at the airports specified therein.

    Continental Marks - is defined in Exhibit G.

    Continental Pilot - means a pilot who was employed by Continental as a pilot on September 10, 2001.

    Continental Premium Surcharge Amount - is defined in Paragraph B(7)(d)(III) of Schedule 3.

    Contract Fuel Rate - means the sum of the aircraft fuel capped rate of $0.6110 per gallon for 2002 and $0.6600 per gallon thereafter, the intoplane capped rate of $0.0571 per gallon, and tax capped rate of $0.0520 per gallon.

    Contract Hotel Stay - means a 24 hour or less stay in a hotel room by a pilot or flight attendant that was contracted for by Contractor no less than 12 hours in advance of such stay in connection with a Scheduled Flight, in accordance with current practices as of the date hereof; provided that in no event shall a Contract Hotel Stay include an Extraordinary Hotel Stay or include a hotel stay as a result of pilot or flight attendant training.

    Contractor - means, collectively, ExpressJet, XJT and Holdings.

    Contractor Airport - means (i) any airport at which Contractor provides or arranges for the provision of ground handling services pursuant to the Contractor Ground Handling Agreement, and (ii) any other airport into or out of which Contractor operates any Scheduled Flight and which is not a Continental Airport.

    Contractor Ground Handling Agreement - means that certain IATA Standard Ground Handling Agreement (April 1993 version) between Continental and Contractor, together with Annex A thereto (Ground Handling Services, April 1993 version) and Annex B thereto substantially in the form of Exhibit D to the Master Facility and Ground Handling Agreement (or as otherwise agreed or amended) providing for the provision by or on behalf of Continental to Contractor of ground handling services at the airports specified therein

    Contractor Marks - is defined in Exhibit H.

    Contractor Premium Surcharge Amount - is defined in Paragraph B(7)(e)(IV) of Schedule 3.

    Contractor Premium Surcharge Limit - is defined in Paragraph B(7)(e)(III) of Schedule 3.

    Contractor Premium Surcharge Overflow Amount - is defined in Paragraph B(7)(e)(V) of Schedule 3.

     

     

     

     

    Exhibit A-5

     

     

    Contractor Services - is defined in the Master Facility and Ground Handling Agreement.

    Controllable Cancellation - means a cancellation of a Scheduled Flight that is not an Uncontrollable Cancellation.

    Cost Factor - means 0.10 (or, where such term is to be expresses as a percentage, 10%).

    Cost Difference - is defined in Appendix 23 to Schedule 3.

    Covered Aircraft - means all aircraft listed on Schedule 1 acquired or to be acquired under the Embraer Contract, as adjusted from time to time for additional aircraft pursuant to Section 2.05 and for early withdrawals pursuant to Section 2.02.

    Covered Aircraft Sublease - means a sublease (or lease) substantially in the form of Exhibit B (or as otherwise agreed or amended) between Continental and Contractor pursuant to which Contractor subleases (or leases) a Covered Aircraft from Continental.

    Delivered Covered Aircraft - means, as of any date of determination, the Covered Aircraft that have been delivered to Contractor, excluding all Turboprop Aircraft.

    DOT - means the United States Department of Transportation.

    Early Withdrawal Schedule - means the schedule, determined as provided in Section 2.02 of this Agreement, for Covered Aircraft to become Uncovered Aircraft.

    Effective Date - means, with respect to any initial notice of reduction delivered by Continental pursuant to Section 2.02 hereunder, the date selected by Continental that is not more than 18 and not less than 12 months after the date of such notice.

    Eighth Implied Rate - is set forth for each aircraft type and month on Appendix 22f.

    Embraer - means Empresa Brasileira de Aeronautica S.A., a Brazilian corporation with its principal place of business in Sao Paulo, Brazil.

    Embraer Contract - means, collectively, Purchase Agreement No. GPJ-003/96 between Embraer and XJT dated August 5, 1996, Letter of Agreement No. GPJ-004/96 between Embraer and XJT dated August 5, 1996, Letter of Agreement No. PCJ-004A/96 among Embraer, Continental and XJT dated August 31, 1996, Purchase Agreement No. DCT-054/98, between Embraer and XJT dated December 23, 1998, Letter of Agreement No. DCT-059/2000 between Embraer and XJT dated October 27, 2000, Letter of Agreement No. DCT-055/98 between Embraer and XJT dated December 23, 1998, Letter of Agreement No. DCT-058/2000 between Embraer and XJT dated October 27, 2000, and EMB-135 Financing Letter of Agreement among Continental, Embraer and XJT dated March 23, 2000, in each case including such amendments and supplements as incorporated by reference in Holding's registration statement on Form S-1 (Registration No. 333-64808) as Exhibits 10.12 - 10.19.

    Embraer ERJ-145 Fleet - means all Covered Aircraft that are ERJ-145 aircraft.

     

     

    Exhibit A-6

     

     

    Embraer ERJ-135 Fleet - means all Covered Aircraft that are ERJ-135 aircraft.

    Embraer Fleets - means any of the Embraer ERJ-135 Fleet, the Embraer ERJ-145 Fleet or the Embraer XRJ-145 Fleet

    Embraer Option Aircraft - means any of the 100 Embraer regional jet aircraft that Contractor has an option to purchase under the Embraer Contract as of the date hereof.

    Embraer XRJ-145 Fleet - means all Covered Aircraft that are XRJ-145 aircraft.

    Engine - means any jet aircraft engine that constitutes an "Engine," as such term is defined in a Covered Aircraft Sublease for a jet aircraft, under such Covered Aircraft Sublease.

    Enplanement - means one passenger for such passenger's entire one-way flight itinerary, regardless of how many Scheduled Flights or flight segments comprise such itinerary.

    Excess Insurance Costs - means, in respect of any insurance policy obtained by Contractor, the cost of such insurance coverage, if any, in excess of the amount such insurance coverage would have cost if Contractor and Continental had participated in a combined placement pursuant to Section 7.04.

    Excess Inventory - means, at any time of determination, the spare engines and other rotable parts, repairable parts, expendable parts and other miscellaneous spare parts comprising components of the Covered Aircraft that are, in the reasonable judgment of Contractor and as a result of a reduction in the number of Covered Aircraft, in excess of the needs of Contractor for the provision of Regional Airline Services at such time of determination.

    Excluded Costs - means, for any Performance Period, (i) labor costs (including all wages, salaries and other benefits to all Contractor officers and other employees, including contract employees) incurred in such period in excess of those for which Contractor is entitled to reimbursement pursuant to the Block Hour Rates then in effect and, with respect to certain benefits, the reconciliation provisions of Schedule 3, (ii) all costs allocable to Scheduled Flights cancelled during such period as a result of strikes and other labor actions, disputes or interruptions, and other costs incurred during such period outside of the ordinary course of business in connection with such events, (iii) costs resulting from allocable to Scheduled Flights cancelled during such period as a result of an event constituting Cause, and other costs incurred during such period outside of the ordinary course of business in connection with such event, (iv) costs of litigation and threatened litigation (including investigations, attorney's fees, adverse judgments and settlements not covered by insurance) incurred during such period and (v) other expenses incurred during such period that do not comprise a portion of the Block Hour Rates reflected in Schedule 3 and are not reasonable and customary in the industry, or were not otherwise approved in advance by Continental (it being understood that the expenses reimbursed pursuant to reconciliation provisions of Schedule 3 constitute expenses that comprise a portion of the Block Hour Rates reflected in Schedule 3).

     

     

     

     

    Exhibit A-7

     

     

    Excluded Revenue - means, for any Performance Period, all incentive compensation payable in respect of such period pursuant to Paragraph A(2)(a) and Paragraph A(2)(b) of Schedule 3, and all Incentive Amounts payable pursuant to Paragraph B(6)(c) and Paragraph B(6)(d) of Schedule 3 in respect of such period.

    Existing Hub Airports - means George Bush Intercontinental Airport in Houston, Texas, Hopkins International Airport in Cleveland, Ohio and Newark International Airport in Newark, New Jersey.

    ExpressJet - means ExpressJet Airlines, Inc., a Delaware corporation (formerly New ExpressJet Airlines, Inc.), and its successors and permitted assigns.

    Extension Term - is defined in Section 9.02.

    Extraordinary Hotel Stay - means a 24 hour or less stay in a hotel room by a pilot or flight attendant that was reserved by Contractor no more than 12 hours in advance of such stay as a result of an unexpected event in connection with a Scheduled Flight, in accordance with current practices as of the date hereof, such as a cancellation or delay of the Scheduled Flight as a result of weather or air traffic control; provided that in no event shall an Extraordinary Hotel Stay include a Contract Hotel Stay or include a hotel stay as a result of pilot or flight attendant training.

    Fifth Implied Rate - is set forth for each aircraft type and month on Appendix 22c.

    Fifth Incremental Cost Rate - is defined in Paragraph B(6)(c) of Schedule 3.

    Final Monthly Schedule - means the final schedule of Scheduled Flights for the next calendar month delivered by Continental to Contractor pursuant to Section 2.01(b).

    FINAME - means Agencia Especial de Financiamento Industrial, a Brazilian federal public company with its principal place of business in Rio de Janeiro, Brazil.

    First Adjusted Block Hour Rate - is defined in Paragraph A(1) of Schedule 3.

    First Benchmark Factor - is defined in Paragraph A(1) of Schedule 3.

    First Cancellation Number - is defined in Paragraph B(6)(a) of Schedule 3.

    First Cancellation Rate - means for any calendar month, the average percentage (expressed as a decimal fraction) of Contractor's Scheduled Flights (or, for all periods prior to the date hereof, scheduled flights) which constituted Uncontrollable Cancellations during such month in each of the last five full calendar years for which such calculations are available as of such date of calculation (but excluding from these calculations all data for September 2001 and for any month in which a Labor Strike shall have occurred).

    First Forecast Rate-Component 1 - is set forth for each month on Appendix 8 to Schedule 3.

     

     

     

     

    Exhibit A-8

     

     

    First Forecast Rate-Component 2 - is set forth for each month on Appendix 8 to Schedule 3.

    First Implied Rate - is set forth for each aircraft type and month on Appendix 22a.

    First Incremental Cost Rate - is set forth for each aircraft type and month on Appendix 11 to Schedule 3.

    First Weighted Average Number - is defined in Paragraph A(1) of Schedule 3.

    Flight Attendant Per Diem Hour - means each hour that a flight attendant accrues the right to receive a per diem payment as a result of a Scheduled Flight.

    Flight Cancellation Reconciliation - is defined in Paragraph B(6) of Schedule 3.

    Flight Hour Agreement - means that certain AE3007A Series Engine Fleet Hour Agreement, dated as of March 6, 2000, between Allison Engine Company, Inc., doing business as Rolls-Royce Allison, and XJT.

    Flight Overfly Reconciliation - is defined in Paragraph B(5) of Schedule 3.

    Forecasted Passengers - means, for any month, the forecasted Revenue Onboards derived from the Final Monthly Schedule for the previous month.

    Fourth Block Hour Rate - is defined in Paragraph A(1) of Schedule 3.

    Fourth Cancellation Number - is defined in Paragraph B(6)(d) of Schedule 3.

    Fourth Implied Rate - is set forth for each aircraft type and month on Appendix 22b.

    Fourth Incremental Cost Rate - is defined in Paragraph B(6)(c) of Schedule 3.

    Fuel Price - means Contractor's cost of fuel, exclusive of costs associated with intoplane and fuel taxes.

    Fuel Purchasing Agreement - means that certain Fuel Purchasing Agreement, dated as of January 1, 2001, between Continental and Contractor, in the form attached hereto as Exhibit F (or as otherwise agreed or amended).

    Fuel-Related Component - means any of the three components of fuel-related expense: (i) fuel, (ii) intoplane and (iii) fuel tax.

    Fuel-Related Component Expense - means the expense, on a component-by-component basis, of any of the Fuel-Related Components.

    Fuel-Related Expense - means, collectively, fuel, intoplane and fuel tax expenses.

    Funding Agreement - means the Funding Agreement, dated as of October 27, 2000, among Continental, XJT and FINAME, as amended and supplemented from time to time.

     

     

     

    Exhibit A-9

     

     

    Headstart Flight - means a flight that is the first departure of the day for an aircraft; provided that such departure is before 10am local time and that the aircraft has been on the ground for at least four hours prior to departure.

    Headstart On-time Benchmark - means, for any month on or prior to December 31, 2001, the percentage (expressed as a decimal fraction) of Contractor's Headstart Flights that were On-time Headstart Flights during the years 1997 through 2000, and for any month on or after January 1, 2002, the percentage (expressed as a decimal fraction) of Contractor's Headstart Flights that were On-time Headstart Flights in the last five full calendar years immediately preceding such month for which such calculations are available as of such date of determination (but excluding from these calculations all data for September 2001 and for any month in which a Labor Strike shall have occurred); provided that in no event shall the Headstart On-time Benchmark be lower than {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}.

    Holdings - means ExpressJet Holdings, Inc., a Delaware corporation, and its successors and permitted assigns.

    Hub Airports - means (i) the Existing Hub Airports and (ii) any other airport at which Continental, together with its Subsidiaries and all other regional jets operating under Continental's code, operates an average of more than 50 flights/day during a relevant Performance Period.

    Identification - means the Continental Marks, the aircraft livery set forth on Exhibit H, the Continental flight code and other trade names, trademarks, service marks, graphics, logos, employee uniform designs, distinctive color schemes and other identification selected by Continental in its sole discretion for the Regional Airline Services to be provided by Contractor, whether or not such identification is copyrightable or otherwise protected or protectable under federal law.

    Immediate Withdrawal Election - is defined in Section 9.04(b)(i).

    Incremental Passenger-Related Facilities - means Passenger-Related Terminal Facilities used by Contractor for the provision of Contractor Services, but only to the extent that such facilities are incremental to the facilities required by Continental at such airport, it being understood that facilities used by Continental for scheduled flights (including seasonally-scheduled flights and scheduled charter service) shall be deemed not to be incremental to Continental's requirements, notwithstanding the availability of alternative facilities for Continental's use.

    Incentive Amount - means either (1) the portion of the reconciliation amount payable from Continental to Contractor pursuant to Paragraph B(6)(c) of Schedule 3 for a particular month and aircraft type equal to the product of (a) the difference between the Third Incremental Cost Rate and the First Incremental Cost Rate for such month and aircraft type, multiplied by (b) the Third Cancellation Number for such aircraft type, multiplied by (c) the actual number of block hours per flight for such aircraft type and

     

     

     

     

    Exhibit A-10

     

     

    calendar month, or (2) the portion of the reconciliation amount payable from Contractor to Continental pursuant to Paragraph B(6)(d) of Schedule 3 for a particular month and aircraft type equal to the product of (a) the difference between the Third Incremental Cost Rate and the First Incremental Cost Rate for such month and aircraft type, multiplied by (b) the Fourth Cancellation Number for such aircraft type, multiplied by (c) the average number of block hours per Scheduled Flight for such aircraft type and calendar month.

    Labor Strike - means a labor dispute, as such term is defined in 29 U.S.C. Section 113(c) involving Contractor and some or all of its employees, which dispute results in a union-authorized strike occurring after the National Mediation Board has released the Contractor and such employees to self-help and the 30-day "cooling-off" period relating thereto shall have expired.

    LIBOR - means, with respect to any Interest Period (as defined below), the rate of interest per annum appearing on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period; provided, however, if more than one rate is specified on Telerate Page 3750, the applicable rate shall be the arithmetic mean of all such rates. If, for any reason, such rate is not available, the term "LIBOR" shall mean, with respect to any Interest Period, the rate of interest per annum appearing on such other service as may be nominated by the British Bankers' Association as the London interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period; provided, however, if more than one rate is specified, the applicable rate shall be the arithmetic mean of all such rates. For purposes of this definition, the term "Interest Period" means a period of one, two, three or six months' duration, as Continental may elect, commencing, in each case, on the date of the relevant borrowing (including continuations and conversions of borrowings); provided, however, (a) if any Interest Period would end on a day which is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day (except that where the next succeeding Business Day falls in the next succeeding calendar month, then on the next preceding Business Day), (b) no Interest Period shall extend beyond any applicable maturity date and (c) where an Interest Period begins on a day for which there is no numerically corresponding day in the calendar month in which the Interest Period is to end, such Interest Period shall end on the last Business Day of such calendar month.

    Major Carrier - means an air carrier (other than Continental and its successors and any Subsidiary thereof), the consolidated annual revenues of which for the most recently completed fiscal year for which audited financial statements are available are in excess of the Revenue Threshold as of the date of determination (or the U.S. dollar equivalent thereof).

    Major Loss - means an aviation-related accident or incident that results in the combined policy insurance providers establishing a reserve in an amount greater than the aggregate combined base premium amount for the year in which such accident or incident occurs, net of contribution from or subrogation against any third parties.

     

     

     

    Exhibit A-11

     

     

    Master Facility and Ground Handling Agreement - means that certain Master Facility and Ground Handling Agreement, dated as of January 1, 2001, between Continental and Contractor, in the form attached hereto as Exhibit C (or as otherwise agreed or amended).

    New Contractor Pilot - means any Person actively employed by Contractor as a pilot whose employment began after January 1, 2002.

    Original Capacity Purchase Agreement - means that certain Capacity Purchase Agreement, dated as of January 1, 2001, among Continental, Holdings and XJT.

    On-time Headstart Flight - means a Headstart Flight that departed at or before the scheduled departure time.

    Passenger-Related Terminal Facilities - is defined in the Master Facility and Ground Handling Agreement.

    Performance Period - means a fiscal quarter.

    Person - means an individual, partnership, limited liability company, corporation, joint stock company, trust, estate, joint venture, association or unincorporated organization, or any other form of business or professional entity.

    Pilot Block Hours - means the product of scheduled block hours as set forth on the Final Monthly Schedule, multiplied by two.

    Pilot Flight Paid Hours - means the hours for which Contractor's pilots are paid in connection with providing Regional Airline Services, excluding hours associated with training.

    Pilot New Hire Training Cycle - means the training required to be provided by Contractor to qualify a newly-hired pilot to commence flying (whether as a first officer or a captain) an aircraft on behalf of Contractor as recorded in such pilot's training records pursuant to the requirements of the FAA.

    Pilot Per Diem Hour - means each hour that a pilot accrues the right to receive a per diem payment as a result of a Scheduled Flight, excluding any per diem payments that are accrued as a result of pilot training.

    Pilot Recurrent Flight Training Cycle - means the cycle of in-flight training required to be provided by Contractor to an existing pilot to maintain such pilot's qualifications to fly the aircraft type such pilot flies immediately before such training as recorded in such pilot's records pursuant to the requirements of the FAA.

     

     

     

     

    Exhibit A-12

     

     

    Pilot Recurrent Ground Training Cycle - means the cycle of on-the-ground training required to be provided by Contractor to an existing pilot to maintain such pilot's qualifications to fly the aircraft type such pilot flies immediately before such training as recorded in such pilot's records pursuant to the requirements of the FAA.

    Pilot Transitional Training Cycle - means the training required to be provided by Contractor to qualify an existing pilot to fly another type of aircraft as recorded in such pilot's training records pursuant to the requirements of the FAA.

    Pilot Upgrade Training Cycle - means the training required to be provided by Contractor to qualify a first officer as a captain in the aircraft type such pilot flies immediately before such training as recorded in such pilot's training records pursuant to the requirements of the FAA.

    Prevailing Margin - means, for any Performance Period, the decimal fraction (in any event not less than zero) equal to Contractor's earnings before interest, taxes and extraordinary items derived from the Scheduled Flights (as determined by the separate books maintained by Contractor for the Regional Airline Services pursuant to Section 3.05(a)), divided by Contractor's aggregate revenues allocable to Scheduled Flights, in each case as reflected on the books and records of Contractor after giving effect to the provisions of Section 3.06(b), except for any reconciliation pursuant to Paragraph B(9)(d) of Schedule 3, and excluding Excluded Costs and Excluded Revenue.

    Reasonable Operating Constraints - means the reasonable constraints on the operation of Scheduled Flights imposed by the aircraft type, maintenance requirements, crew training requirements, aircraft rotation requirements, and route authorities, slots and other applicable regulatory restrictions on flight schedules.

    Reconciled Expenses - is defined in Paragraph B(9)(a) of Schedule 3.

    Regional Airline Services - means the provisioning by Contractor to Continental of Scheduled Flights using the Covered Aircraft in accordance with this Agreement.

    Replacement Aircraft - means an aircraft that is the same aircraft type, is substantially the same age (or newer), has substantially the same passenger configuration and is in substantially the same operating condition (or better) as the aircraft that is being so replaced.

    Revenue Onboard - means one revenue-generating passenger on one flight segment, regardless of whether such flight segment is all or part of such passenger's entire one-way flight itinerary.

    Revenue Threshold - means five hundred million dollars ($500,000,000), as such amount may be increased based on the amount by which, for any date of determination, the most recently published Consumer Price Index for all-urban consumers published by the Department of Labor (the "CPI") has increased to such date above the CPI for calendar year 2000. For purposes hereof, the CPI for calendar year 2000 is the monthly average of the CPI for the 12 months ending on December 31, 2000.

    Scheduled ASMs - means, for any period of calculation, the available seat miles for all Scheduled Flights during such period of calculation.

     

     

    Exhibit A-13

     

     

    Scheduled Flight - means a flight by a Covered Aircraft as determined by Continental pursuant to Section 2.01(b).

    Second Block Hour Rate - is defined in Paragraph A(1) of Schedule 3.

    Second Cancellation Number - is defined in Paragraph B(6)(b) of Schedule 3.

    Second Cancellation Rate - means for any calendar month, the average percentage (expressed as a decimal fraction) of Contractor's Scheduled Flights (or, for all periods prior to the date hereof, scheduled flights) which constituted Controllable Cancellations during such month in each of the last five full calendar years for which such calculations are available as of such date of calculation (but excluding from these calculations all data for September 2001 and for any month in which a Labor Strike shall have occurred); provided that in no event shall the Second Cancellation Rate be above {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT}.

    Second Forecast Rate - is defined in Paragraph B(2) of Schedule 3.

    Second Implied Rate - is set forth for each aircraft type and month on Appendix 22a.

    Second Incremental Cost Rate - is set forth for each aircraft type and month on Appendix 12 to Schedule 3.

    Second Weighted Average Number - is defined in Paragraph A(1) of Schedule 3.

    Seventh Implied Rate - is set forth for each aircraft type and month on Appendix 22e.

    Sixth Implied Rate - is set forth for each aircraft type and month on Appendix 22d.

    Staffing Model - means the mathematical model used by Continental to predict the number of ground handling employee man-hours necessary to provide ground handling services for Scheduled Flights at Contractor Stations for a particular calendar month.

    Staffing Model Agent Paid Hours - means, for any calendar month, the product of the base hours obtained from the Staffing Model for such month, multiplied by 1 plus the percentage amounts for sick time, overtime, holiday time, and vacation time set forth in Appendix 21 for such month.

    Subsidiary - means, as to any Person, (a) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time, any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person directly or indirectly through Subsidiaries and (b) any partnership, association, joint venture, limited liability company, joint stock company or any other form of business or professional

     

     

     

    Exhibit A-14

     

     

    entity, in which such Person directly or indirectly through Subsidiaries has more than 50% equity interest at any time.

    System Flight Disruption - means the failure by Contractor to complete at least 90% of the aggregate Scheduled ASMs in any three consecutive calendar months, or at least 75% of the aggregate Scheduled ASMs in any consecutive 45-day period, in each case excluding the effect of Uncontrollable Cancellations and flight cancellations caused solely by non-carrier specific airworthiness directives or other non-carrier specific regulatory order; provided, that if the average number of Block Hours flown per Covered Aircraft during such period is more than the Trailing Utilization Rate, then the calculation for purposes of this definition shall disregard that number of Scheduled ASMs for such period as is necessary to reduce the average number of Block Hours flown per Covered Aircraft during such period to such Trailing Utilization Rate; provided further, that a System Flight Disruption shall be deemed to continue until the next occurrence of a single calendar month in which Contractor completes at least 90% of the aggregate Scheduled ASMs; and provided further, that completions and cancellations of Scheduled Flights on any day during which a Labor Strike is continuing shall not be taken into account in the foregoing calculations.

    Term - means the Base Term and any Extension Terms as set forth in Sections 9.01 and 9.02, as earlier terminated pursuant to Section 9.03, and any Wind-Down Period.

    Termination Date - means the date of early termination of this Agreement, as provided in a notice delivered from one party to the others pursuant to Section 9.03, or, if no such early termination shall have occurred and the Term shall not have been further extended pursuant to Section 9.02, the date of the end of the Base Term or the then-occurring Extension Term, as the case may be.

    Third Block Hour Rate - is defined in Paragraph A(1) of Schedule 3.

    Third Cancellation Number - is defined in Paragraph B(6)(c) of Schedule 3.

    Third Implied Expenses - are set forth for each aircraft type and month on Appendix 22a.

    Third Incremental Cost Rate - is defined in Paragraph B(6)(c) of Schedule 3.

    Trailing Utilization Rate - means, as of any date of determination, the average number of Block Hours flown per Covered Aircraft for the last completed Performance Period.

    Turboprop Aircraft - means any of the aircraft identified as turboprop aircraft on Schedule 1.

    Uncontrollable Cancellation - means a cancellation of a Scheduled Flight that is solely weather-related, air traffic control-related or described in Paragraph B(6)(f) of Schedule 3, in each case as coded on Contractor's operations reports in accordance with Continental's standard coding policies and consistent with Contractor's past practices.

     

     

     

     

    Exhibit A-15

     

     

    Uncovered Aircraft - means aircraft owned, leased or operated by Contractor, other than Covered Aircraft.

    Uncovered Aircraft Sublease - means a sublease (or lease) substantially in the form of Exhibit B (or as otherwise agreed or amended) between Continental and Contractor pursuant to which Contractor subleases (or leases) an Uncovered Aircraft from Continental for an increased lease rate (over the lease rate for a Covered Aircraft) equal to amount calculated pursuant to Schedule 2.

    Undelivered Covered Aircraft - means, as of any date of determination, the Covered Aircraft that have not yet been delivered to Contractor.

    Weighted Departure Number- is defined in Paragraph A(1) of Schedule 3.

    Wind-Down Period - means the period after the Termination Date and until the time when the last Covered Aircraft has become an Uncovered Aircraft or has been returned to Continental (or its designee), as applicable.

    Wind-Down Schedule - means the schedule, determined as provided in Article IX of this Agreement, for Covered Aircraft to become Uncovered Aircraft or be returned to Continental (or its designee), as applicable.

    XJT - means XJT Holdings, Inc., a Delaware corporation (formerly ExpressJet Airlines, Inc.), and its successor and permitted assigns.

     

     

     

    Exhibit A-16

     

     

     

     

    EXHIBIT B

    FORM OF AIRCRAFT SUBLEASE

     

     

     

     

     

     

    Exhibit B-1

     

     

     

     

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

    FORM OF

    [AMENDED AND RESTATED]

    AIRCRAFT SUBLEASE AGREEMENT (XJT-___)

    DATED AS OF ___________, 20__

    BETWEEN

    CONTINENTAL AIRLINES, INC.

    SUBLESSOR,

     

    AND

    EXPRESSJET AIRLINES, INC.

    SUBLESSEE

     

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

    The right, title and interest of Sublessor in and to, among other things, this Sublease Agreement has been assigned to and is subject to a security interest in favor of [___________], a [___________], as Security Trustee, under the Aircraft Security Agreement (XJT-___), dated as of [___________], for the benefit of the holders of the Notes referred to in such Aircraft Security Agreement, all to the extent provided in such Aircraft Security Agreement. This Sublease Agreement has been executed in multiple counterparts; to the extent, if any, that this Sublease Agreement constitutes chattel paper (as defined in the Uniform Commercial Code as in effect in any applicable jurisdiction), no security interest in Sublessor's right, title and interest in and to this Sublease Agreement may be perfected through the delivery or possession of any counterpart of this Sublease Agreement other than the counterpart of this Sublease Agreement that contains the original receipt executed by [___________], as Security Trustee.

     

     

     

    Exhibit B-2

     

     

     

     

     

     

    FORM OF

    [AMENDED AND RESTATED]

    AIRCRAFT SUBLEASE AGREEMENT (XJT-___)

    This Amended and Restated Aircraft Sublease Agreement (XJT-___) dated as of ______________, 200__ (the "Sublease") by and between CONTINENTAL AIRLINES, INC., a Delaware corporation, as sublessor ("Sublessor"), and EXPRESSJET AIRLINES, INC., a Delaware corporation, as sublessee ("Sublessee").

    RECITALS

    Sublessor leases the airframe, engines and related equipment described in Exhibit A hereto pursuant to a lease agreement that is also described in Exhibit A.

    [Include if subleased prior to 1/1/01: Sublessor and Sublessee entered into a sublease agreement of such airframe, engines and equipment described on Exhibit A (the "Original Sublease"). The parties desire to amend and restate the original sublease agreement as set forth herein.]

    NOW THEREFORE, in consideration of the premises and the mutual promises herein contained, the parties hereto agree as follows:

    1. Definitions. As used in this Sublease, the following terms shall have the following definitions, and each such definition shall be equally applicable to the singular and plural forms of such term:

    "Aircraft" means the Airframe and the Engines.

    "Airframe" means the airframe described on Exhibit A hereto.

    "Basic Rent" means the rental amount payable at the times and

    in the amounts set forth in Schedule 1 hereto under the caption "Basic

    Rent" subject to adjustment as provided in the proviso to the first

    sentence of Section 3.

    "Capacity Purchase Agreement" means that certain Capacity

    Purchase Agreement dated as of January 1, 2001, as amended, modified

    and supplemented from time, among Sublessor and Sublessee and certain

    affiliates of Sublessee, and any agreement between Sublessor and

    Sublessee that by its terms replaces such capacity purchase agreement.

    "Covered Aircraft" has the meaning specified in the Capacity

    Purchase Agreement.

    "Delivery Date" means [include if subleased prior to 1/1/01:

    the date of the Original Sublease] [include if subleased on or after

    1/1/01: _____________].

     

     

     

     

    Exhibit B-3

     

     

    "Engine" means any of the engines described on Exhibit A

    hereto or any engine substituted for any such engine by Sublessee

    hereunder but pursuant to the terms of the Head Lease as if Sublessee

    were "lessee" thereunder.

    "Head Lease" means the lease agreement described on Exhibit A

    hereto as the same may be amended or modified from time to time.

    "Head Lessor" means at any time, the entity then serving as

    the "Lessor" under the Head Lease.

    "Operative Agreements" means all agreements or documents

    defined as "Operative Agreements" or "Operative Documents" in or as

    provided by the Head Lease, and all letter agreements pertaining

    thereto, and all other similar agreements or documents entered into in

    connection with and specifically relating to the Head Lease.

    [Include if subleased prior to 1/1/01: "Original Sublease" has

    the meaning specified in the recitals to this Sublease.]

    [Include if aircraft is BNDES-financed and subleased while

    Sublessee remains a Specified Affiliate of Sublessor: "Revised Basic

    Rent" the monthly rental amount payable at the times and in the amounts

    set forth in Schedule 1 hereto opposite the caption "Revised Basic

    Rent", subject to adjustment as provided in the proviso to the second

    sentence of Section 3.]

    "Sublease" means this Sublease Agreement as the same may be

    amended or modified from time to time.

    "Sublessee" means ExpressJet Airlines, Inc., a Delaware

    corporation, and its successors and assigns.

    "Sublessor" means Continental Airlines, Inc., a Delaware

    corporation, and its successors and assigns.

    "Supplemental Rent" means an amount equal to (i) all amounts

    payable under the Head Lease as "Supplemental Rent" thereunder, (ii)

    without duplication, all other amounts payable by the Sublessor under

    any other Operative Agreement and (iii) without duplication, all

    amounts payable by the Sublessee under this Sublease other than Basic

    Rent [Include if aircraft is BNDES-financed and subleased while

    Sublessee remains a Specified Affiliate of Sublessor: and Supplemental

    Rent].

    "Uncovered Aircraft" means aircraft owned, leased or operated

    by Sublessee, other than Covered Aircraft.

    All other capitalized terms used herein and not otherwise defined shall have the meaning provided therefor in the Head Lease.

    2. Sublease. On the terms and subject to the conditions of this Sublease, the Sublessor agrees to sublease the Aircraft to the Sublessee, and the Sublessee agrees to sublease the Aircraft from the Sublessor, for a term beginning on the Delivery Date and ending on the date on which the term of the Head Lease terminates in accordance with its terms, whether as a

     

     

     

     

    Exhibit B-4

     

    result of the expiration of the term thereof, or as a result of earlier termination following the occurrence of a Lease Event of Default thereunder or otherwise, unless this Sublease is terminated earlier pursuant to the Capacity Purchase Agreement. If the Sublessor has the right, by exercise of a renewal or similar option, to extend the term of the Head Lease, Sublessor shall, at the request of the Sublessee, exercise any such right so as to extend the term of this Sublease; provided that Sublessee may not request such an extension and Sublessor shall have no obligation to exercise any such renewal or similar option to extend the term of the Head Lease if, on or prior to the date on which Sublessor would otherwise exercise such renewal or similar option, (A) an Event of Default under Section 7 of this Sublease shall have occurred and be continuing, (B) the Aircraft has become, or Sublessor has notified Sublessee that the Aircraft is scheduled to become, an Uncovered Aircraft pursuant to the terms of the Capacity Purchase Agreement, (C) Sublessor has notified Sublessee that this Sublease will be terminated pursuant to the terms of the Capacity Purchase Agreement, or (D) Sublessor and Sublessee shall not have agreed on the amount of Basic Rent [Include if aircraft is BNDES-financed and subleased while Sublessee remains a Specified Affiliate of Sublessor: or Revised Basic Rent, as the case may be] applicable during such extension of the term. Notwithstanding the foregoing, if the Sublessor is not entitled to possession of the Aircraft under the Head Lease for any reason, the right of the Sublessee to possession of the Aircraft under this Sublease shall likewise terminate and the Sublessee shall immediately redeliver possession of the Aircraft to the Sublessor, or if required under the Head Lease, to the Head Lessor. This Sublease shall be for all purposes a sublease of the Aircraft, and not an assignment of the Head Lease to the Sublessee.

    3. Rent. The Sublessee shall pay as rent under this Sublease Basic Rent to Sublessor, which shall be paid at the times provided on Schedule 1, [Include if aircraft is BNDES-financed and subleased while Sublessee remains a Specified Affiliate of Sublessor: for so long as Sublessee shall be a Specified Affiliate,] and Supplemental Rent to the person entitled thereto immediately upon demand thereof, to the end that the Sublessee will pay directly to the party entitled thereto any and all Supplemental Rent amounts payable by the Sublessor; provided, that if the Aircraft shall become an Uncovered Aircraft under the terms of the Capacity Purchase Agreement, then from and after the date on which the Aircraft becomes an Uncovered Aircraft, the amount of Basic Rent payable under this Sublease shall be recalculated by increasing the relevant interest rate used in the original calculations of Basic Rent on the Delivery Date by the number of basis points set forth in Schedule 2 hereto opposite the caption "Uncovered Aircraft Basic Rent Adjustment". [Include if aircraft is BNDES-financed and subleased while Sublessee remains a Specified Affiliate of Sublessor: If Sublessee shall cease to be a Specified Affiliate, then Sublessee shall pay as rent under this Sublease Revised Basic Rent, which shall be paid at the times provided on Schedule 1; provided, that if the Aircraft shall become an Uncovered Aircraft under the terms of the Capacity Purchase Agreement, then from and after the date on which the Aircraft becomes an Uncovered Aircraft, the amount of Revised Basic Rent payable under this Sublease shall be recalculated by increasing the relevant interest rate used in the original calculations of Revised Basic Rent by the number of basis points set forth in Schedule 2 hereto opposite the caption "Uncovered Aircraft Basic Rent Adjustment".]

    4. Terms of the Sublease. Except as expressly provided in this Sublease, the obligations of the Sublessee under this Sublease to the Sublessor or in respect of the Aircraft shall be identical in all respects to the obligations of the Sublessor as "Lessee" under the Head Lease to the Head Lessor or in respect of the Aircraft. In furtherance thereof, except as set forth in Section 5(c) below:

    (a) The Sublessee shall take or cause to be taken any and all

    actions required of the "Lessee" under the Head Lease as if the

    Sublessee was Lessee thereunder, and

    (b) The Sublessee will refrain from taking, and shall cause

    any other person to refrain from taking, any action which the "Lessee"

    under the Head Lease is prohibited from taking or is required to

    prohibit any party from taking, in each case as if the Sublessee was

    "Lessee" thereunder.

     

     

     

    Exhibit B-5

     

     

    The terms of the Head Lease are incorporated herein by reference in their entirety with the same effect as if such terms were set out herein and, unless the context in the Head Lease otherwise requires, as if the Sublessor were "Lessor" and the Sublessee were "Lessee" thereunder, and Sublessee agrees to be bound by the same as though the same were set forth herein in full. Without intending to limit the scope of the foregoing provisions of this Section 4, the Sublessee agrees (i) to maintain the aircraft (including the Airframe and Engines) and cause the Aircraft to be registered as required by the Head Lease, (ii) to operate and possess the Aircraft only as permitted by the Head Lease, (iii) to provide inspection rights and the insurance required by the Head Lease, which policies of insurance shall name, in addition to any parties required by the Head Lease, Sublessor as an additional named insured and as an additional recipient of all notices to be received by the Head Lessor with respect to any such policies of insurance, (iv) to keep the Aircraft free of any and all Liens as required by the Head Lease, (v) to return the Aircraft in the condition required by the Head Lease, including any provisions relating to time or cycles remaining on any time or cycle controlled parts, at the termination of this Sublease, except as set forth in Section 5(c) below, and (vi) not to permit a Lease Default or Lease Event of Default to occur under the Head Lease, and the Sublessor shall have all of the rights of the "Lessor" under the Head Lease with respect to enforcement of such rights. Notwithstanding any other provision hereof, this Sublease and Sublessee's rights hereunder shall be subject and subordinate to all the terms of the Head Lease, including, without limitation, the Lessor's (or, acting as Lessor's assignee under the Security Agreement, Security Trustee's) right to repossession under Section 15 of the Head Lease and the Lessor's (or, acting as Lessor's assignee under the Security Agreement, the Security Trustee's) rights to avoid this Sublease for any reason upon the occurrence and during the continuance of a Lease Event of Default under the Head Lease. Sublessee shall not be permitted to take any action hereunder not permitted to be taken by Sublessor under the Head Lease. Sublessee agrees to execute such further documents confirming such subordination of this Sublease as may be reasonably requested by Sublessor. In addition, the Sublessee agrees to perform all other obligations of the Sublessor under the Operative Agreements, except for those obligations of the Sublessor thereunder that are not capable of being performed or satisfied by the Sublessee, including without limitation those obligations that pertain to the maintenance of the Sublessor's status as a corporation and as a certificated United States air carrier, the Sublessor's qualification as a foreign corporation in good standing, financial reporting obligations that depend for their fulfillment the provision of information pertaining to the Sublessor and similar obligations. Sublessee acknowledges receipt of an executed copy of the Head Lease and the Operative Agreements (as in effect on the date of this Sublease).

    5. Delivery Acceptance and Return.

    (a) Sublessor hereby delivers and Sublessee hereby accepts

    delivery of the Aircraft and the Aircraft is hereby subject to the

    terms and conditions of this Sublease.

    (b) At the termination of this Sublease, the Aircraft shall be

    delivered in the condition required by the Head Lease, except as set

    forth below in clause (c) to this Section 5, at a location designated

    by Sublessor.

    (c) Notwithstanding the provisions of clause (v) of the fourth

    sentence of the last paragraph of Section 4 and the preceding clause

    (b) of this Section 5, if this

     

     

     

     

     

    Exhibit B-6

     

     

    Sublease is terminated prior to its then current scheduled expiration

    date pursuant to the Capacity Purchase Agreement for any reason other

    than the exercise of remedies by Sublessor under Section 8 of this

    Sublease, the return conditions applicable to the Aircraft upon return

    shall be as provided in Annex A to this Sublease. For the avoidance of

    doubt, if (I) this Sublease is not terminated prior to its then current

    scheduled expiration date pursuant to the Capacity Purchase Agreement,

    or (II) this Sublease is terminated pursuant to the exercise of

    remedies by Sublessor under Section 8 of this Sublease, or (III)

    Sublessee retains the Aircraft as an Uncovered Aircraft in accordance

    with the terms of the Capacity Purchase Agreement, then in any such

    case, at the time when the Aircraft is required hereunder to be

    returned, Sublessee shall be required to meet the return conditions

    applicable to the Aircraft under clause (v) of the fourth sentence of

    the last paragraph of Section 4, including those conditions and

    financial adjustments relating to time or cycles remaining between

    maintenance events or to any time- or cycle-controlled part.

    6. NO REPRESENTATIONS OR WARRANTIES AS TO CONDITION BY SUBLESSOR. SUBLESSEE ACKNOWLEDGES THAT THE AIRCRAFT HAS BEEN SELECTED FOR USE BY IT, THAT IT HAS HAD AMPLE OPPORTUNITY TO INSPECT, AND IN FACT HAS INSPECTED, THE AIRCRAFT AND THAT IT TAKES THE AIRCRAFT "AS IS". SUBLESSEE FURTHER ACKNOWLEDGES THAT SUBLESSOR MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND, WHETHER EXPRESS OR IMPLIED, AS TO THE AIRWORTHINESS, VALUE, CONDITION, DESIGN, OPERATION OR FITNESS FOR ANY USE OR PURPOSE OF THE AIRCRAFT.

    7. Defaults. The following events shall constitute Events of Default hereunder:

    (a) The Sublessee shall fail to make any payment of Basic

    Rent, Renewal Rent, Stipulated Loss Value or Termination Value within

    three (3) Business Days after the same shall have become due; or the

    Sublessee shall fail to pay any Supplemental Rent (other than

    Stipulated Loss Value or Termination Value) when due and such failure

    shall continue for a period in excess of five (5) Business Days from

    and after the date of any written notice to Sublessee from Sublessor.

    (b) The Sublessee shall fail to perform or observe any

    covenant or agreement of the "Lessee" under the Head Lease as if the

    Sublessee were "Lessee" and the Sublessor were "Lessor" thereunder (all

    of which covenants and agreements are incorporated herein by reference

    pursuant to Section 4 hereof) and any applicable grace period contained

    in the Head Lease shall have expired.

    (c) Any other "Lease Event of Default" shall occur under the

    Head Lease as if the Sublessee were "Lessee" and the Sublessor were

    "Lessor" thereunder.

    (d) The Sublessee shall fail to perform or observe any

    covenant or agreement of Sublessee under this Sublease or any

    representation or warranty of the Sublessee contained in this Sublease

    shall be false or misleading in any material respect and shall remain

    uncured for a period in excess of 15 days from and after the date of

    written notice thereof from Sublessor to Sublessee.

     

     

    Exhibit B-7

     

     

    8. Remedies. Upon the occurrence of an Event of Default under this Sublease, Sublessor shall have the rights and remedies with respect to the Sublessee and this Sublease enjoyed by the Head Lessor under the Head Lease as if the Sublessor were "Lessor" and the Sublessee were "Lessee" thereunder, and the remedies provisions of the Head Lease are incorporated herein by reference and made a part hereof.

    9. Entire Agreement, Waivers and Amendments. This Sublease constitutes the entire understanding of the parties hereto with respect to the subject matter hereof, superseding all prior discussions and agreements, written or oral; provided that, except for the obligations of the Sublessee pursuant to Section 4 above (which are not subordinate in any respect), the rights of the Sublessee under this Sublease are subject in all respects to the provisions of the Capacity Purchase Agreement. This Sublease may not be amended, nor may any of its provisions be waived, except by writing signed by both parties. No delay on the part of any party hereto in exercising any right, power or privilege hereunder shall operate as a waiver hereof, nor shall any waiver operate as a continuing waiver of any right, power or privilege.

    10. Notices. All notices given hereunder shall be in writing delivered by hand, certified mail, or telecopy to the parties hereto at the following addresses:

    If to Sublessor:

    Continental Airlines, Inc. Telephone No.: 713-324-2544

    1600 Smith Street, Dept. HQSFN Telecopier No.: 713-324-2447

    Houston, Texas 77002

    Attention: Senior Vice President-Finance & Treasurer

    If to Sublessee:

    ExpressJet Airlines, Inc. Telephone No.: 713-324-3958

    1600 Smith Street, Dept. HQSCE Telecopier No.: 713-324-4420

    Houston, Texas 77002

    Attention: Chief Financial Officer

    11. Successors and Assigns. Neither party may assign its rights or delegate its duties under this Sublease without the prior written consent of the other party, or in a manner inconsistent with the Head Lease.

    12. Severability. Any provision of this Sublease which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provision hereof, and any prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

    13. Headings. The headings in this Sublease are for convenience of reference only and shall not define or limit any of the terms or provisions hereof.

     

     

     

    Exhibit B-8

     

     

    14. Counterparts. This Sublease may be executed in counterparts, all of which taken together shall constitute one agreement.

    15. Governing Law. This Sublease shall be governed by and construed in accordance with the laws of the State of New York.

     

     

    [Remainder of this page is blank.]

     

     

     

    Exhibit B-9

     

     

     

    IN WITNESS WHEREOF, the parties hereto have cause this Sublease to be executed as of the date first above written.

    CONTINENTAL AIRLINES, INC. EXPRESSJET AIRLINES, INC.

    By: By:

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

    Vice President Vice President

     

     

     

    Exhibit B-10

     

     

     

     

     

     

    IN WITNESS WHEREOF, the parties hereto have cause this Sublease to be executed as of the date first above written.

    CONTINENTAL AIRLINES, INC. EXPRESSJET AIRLINES, INC.

    By: By:

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

    Vice President Vice President

     

     

     

    Receipt of this original counterpart of the foregoing Sublease is hereby acknowledged on this ____ day of _________, 20__.

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

    as Security Trustee

    By

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

    Name:

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

    Title:

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

     

    Exhibit B-11

     

     

    EXHIBIT A

    LEASE

    Lease Agreement (XJT-___), dated as of _______, 20__, between ___________________, not in its individual capacity except as expressly provided but solely as Owner Trustee, as lessor, and Continental Airlines, Inc., as lessee, as supplemented by Supplement No. 1 thereto, dated as of _______, 20___, [and amended by Amendment No. ___ thereto among ___________________, not in its individual capacity but solely as Owner Trustee, as lessor, Continental Airlines, Inc., as lessee, and ExpressJet Airlines, Inc., as sublessee, dated as of _______, 20__,] which were recorded as a single instrument with the FAA on _______, 20__, as conveyance no. ______.

    SUBLEASE

    Sublease Agreement (XJT-___), dated as of _______, 20__ between Continental Airlines, Inc., as sublessor, and ExpressJet Airlines, Inc., as sublessee, which was recorded with the FAA on _______, 20__, as conveyance no._____

    AIRCRAFT

     

    Airframe Embraer Model EMB-_____

    U.S. Registration No.: ______

    Manufacturer's Serial No.: _____

    Engines: Two Allison Model AE3007A Engines

    bearing Engine Manufacturer's Serial

    Nos: ______ and ______

    Each of the above engines has take-off horsepower of 750 or more of the equivalent of such horsepower.

     

     

     

    Exhibit B-12

     

     

     

    Annex A

    To Aircraft Sublease Agreement (XJT-___)

    Alternative Return Conditions

     

     

    If this Sublease is terminated prior to its then current scheduled expiration date pursuant to the Capacity Purchase Agreeme