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PROSPECTUS
Continental Airlines, Inc.
8,543,868 Shares of
Class A Common Stock
21,669,759 Shares of
Class B Common Stock
3,039,468 Class A Warrants
6,765,264 Class B Warrants
Continental Airlines, Inc., a Delaware corporation
("Continental" or the "Company") may offer from time to time up
to 2,500,000 shares (the "Company Shares") of its Class B common
stock, par value $.01 per share (the "Class B common stock"), in
amounts, at prices and on terms to be determined at the time of
the offering thereof in connection with its obligations under a
Warrant Purchase Agreement dated May 2, 1996 (the "Warrant
Purchase Agreement") with one of its principal stockholders. The
Company Shares may be issued in one or more issuances, the
aggregate net proceeds of which (the net proceeds being the
aggregate offering price decreased by any underwriting discounts
and commissions, any selling discounts and any expenses
incidental to the sale of the Company Shares) will not exceed
$50,000,000. See "Use of Proceeds."
The Selling Securityholders (as defined below) may
offer from time to time up to 8,543,868 shares (3,039,468 shares
of which are issuable pursuant to the exercise of Class A Warrants (as
defined below)) of Class A common stock, par value $.01 per share
(the "Class A common stock" and together with the Class B common
stock, the "Common Stock"), up to 19,169,759 shares (6,765,264
shares of which are issuable pursuant to the exercise of Class B
Warrants (as defined below)) of Class B common stock (collectively,
the "Selling Securityholder Shares"), up to 2,298,134 warrants, each
entitling the holder thereof to purchase one share of Class A
common stock for $7.50 per share and up to 741,334 warrants, each
entitling the holder thereof to purchase one share of Class A
common stock for $15.00 per share (collectively, the "Class A
Warrants"), and up to 5,115,200 warrants, each entitling the
holder thereof to purchase one share of Class B common stock for
$7.50 per share, and up to 1,650,064 warrants, each entitling the
holder thereof to purchase one share of Class B common stock for
$15.00 per share, (collectively, the "Class B Warrants" and
together with the Class A Warrants, the "Warrants"). The
Warrants will expire if not exercised by April 27, 1998. The
Selling Securityholder Shares and the Warrants may also be
offered and sold from time to time by certain principal
stockholders of the Company and their respective partners
and affiliates, certain officers and directors of the Company
and affiliates of any of the foregoing, each as named herein
(collectively, the "Selling Securityholders") pursuant to this
Prospectus. The shares of Class A common stock and Class B
common stock, other than the Company Shares, are listed on the
New York Stock Exchange ("NYSE") under the symbols CAI.A
and CAI.B, respectively. The Company expects to apply for
listing of the Company Shares at such time as the company
Shares are proposed to be issued. The Company has applied
for listing of the Warrants on the NYSE; however, the
Company has been informed by the NYSE that unless and until
the Warrants are held by the requisite number of holders, they
will not be approved for listing. See "Description of Warrants
- -- Listing." The Company does not expect an active trading
market to develop for the Warrants at this time. The Company
Shares, the Selling Securityholder Shares and the Warrants are
collectively referred to herein as the "Offered Securities."
The Offered Securities may be sold by the Company or
the Selling Securityholders from time to time directly to
purchasers or through agents, underwriters or dealers. See "Plan
of Distribution" and "Selling Securityholders." If required, the
names of any such agents or underwriters involved in the sale of
the Offered Securities and the applicable agent's commission,
dealer's purchase price or underwriter's discount, if any, will
be set forth in an accompanying supplement to this Prospectus
(the "Prospectus Supplement"). The Selling Securityholders will
receive all of the net proceeds from their sales of the Offered
Securities and will pay all underwriting discounts and selling
commissions, if any, applicable to any such sale. The Company is
responsible for payment of all other expenses incident to the
offer and sale of the Offered Securities. The Selling
Securityholders and any broker-dealers, agents or underwriters
that participate in the distribution of the Offered Securities
may be deemed to be "underwriters" within the meaning of the
Securities Act, and any commission received by them and any
profit on the resale of the Offered Securities purchased by them
may be deemed to be underwriting commissions or discounts under
the Securities Act of 1933, as amended (the "Securities Act").
See "Plan of Distribution" for a description of indemnification
arrangements.
Prospective investors should carefully consider the
matters discussed under the caption "Risk Factors" commencing on
page 3.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is August 15, 1996.
AVAILABLE INFORMATION
The Company is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith files reports,
proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at
the following public reference facilities maintained by the
Commission: Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549; Suite 1300, Seven World Trade Center, New
York, New York 10048; and The Citicorp Center, Suite 1400, 500
West Madison Street, Chicago, Illinois 60661. Copies of such
material may also be obtained from the Public Reference Section
of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, upon payment of prescribed
rates. The Commission maintains a Web site at http://www.sec.gov
containing reports, proxy and information statements and other
information regarding registrants that file electronically with
the Commission, including the Company. In addition, reports,
proxy statements and other information concerning Continental may
be inspected and copied at the offices of the NYSE, 20 Broad
Street, New York, New York 10005.
Continental is the successor to Continental Airlines
Holdings, Inc. ("Holdings"), which merged with and into
Continental on April 27, 1993. Holdings had also been subject to
the informational requirements of the Exchange Act.
This Prospectus constitutes a part of a registration
statement on Form S-3 (together with all amendments and exhibits,
the "Registration Statement") filed by Continental with the
Commission under the Securities Act with respect to the
securities offered hereby. This Prospectus omits certain of the
information contained in the Registration Statement, and
reference is hereby made to the Registration Statement for
further information with respect to Continental and Holdings and
the securities offered hereby. Although statements concerning and
summaries of certain documents are included herein, reference is
made to the copy of such document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission.
These documents may be inspected without charge at the office of
the Commission at Judiciary Plaza, 450Fifth Street, N.W.,
Washington, D.C. 20549, and copies may be obtained at fees and
charges prescribed by the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission (File
No. 0-9781) are hereby incorporated by reference in this
Prospectus: (i) Continental's Annual Report on Form 10-K for the
year ended December 31, 1995 (as amended by Forms 10-K/A1 and 10-
K/A2 filed on March 8, 1996 and April 10, 1996, respectively),
(ii) the description of Common Stock contained in
Continental's registration statement (Registration No.
0-21542) on Form 8-A, and any amendment or report filed for the
purpose of updating such description, (iii) Continental's
Quarterly Reports on Form 10-Q for the quarters ended March 31,
1996 and June 30, 1996 and (iv) Continental's Current Reports on
Form 8-K, filed on January 31, 1996, March 26, 1996, May 7, 1996,
June 27, 1996 and July 22, 1996.
All reports and any definitive proxy or information
statements filed by Continental pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of the
Offered Securities shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated herein by
reference, or contained in this Prospectus, shall be deemed to be
modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute a
part of this Prospectus.
Continental will provide without charge to each person
to whom this Prospectus is delivered, upon the written or oral
request of such person, a copy of any or all documents
incorporated herein by reference, other than exhibits to such
documents (unless such exhibits are specifically incorporated by
reference into such documents). Requests for such documents
should be directed to Continental Airlines, Inc., 2929 Allen
Parkway, Suite 2010, Houston, Texas 77019, Attention: Secretary,
telephone (713) 834-2950.
RISK FACTORS
PROSPECTIVE PURCHASERS OF THE OFFERED SECURITIES SHOULD
CAREFULLY REVIEW THE INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS AND SHOULD PARTICULARLY CONSIDER THE FOLLOWING
MATTERS.
Risk Factors Relating to the Company
Continental's History of Operating Losses
Although Continental recorded net income of $224
million in 1995 and $255 million in the six months ended June 30,
1996, it had experienced significant operating losses in the
previous eight years. In the long term, Continental's viability
depends on its ability to sustain profitable results of
operations.
Leverage and Liquidity
Continental has successfully negotiated a variety of
agreements to increase its liquidity during 1995 and 1996.
Nevertheless, Continental remains more leveraged and has
significantly less liquidity than certain of its competitors,
several of whom have available lines of credit and/or significant
unencumbered assets. Accordingly, Continental may be less able
than certain of its competitors to withstand a prolonged
recession in the airline industry.
As of June 30, 1996, Continental and its consolidated
subsidiaries had approximately $1.7 billion (including current
maturities) of long-term indebtedness and capital lease
obligations and had approximately $867 million of minority
interest, Continental-obligated mandatorily redeemable
preferred securities of subsidiary trust, redeemable
warrants, redeemable preferred stock and common stockholders'
equity. Common stockholders' equity reflects the adjustment of
the Company's balance sheet and the recording of assets and
liabilities at fair market value as of April 27, 1993 in
accordance with fresh start reporting.
During the first and second quarters of 1995, in
connection with negotiations with various lenders and lessors,
Continental ceased or reduced contractually required payments
under various agreements, which produced a significant number of
events of default under debt, capital lease and operating lease
agreements. Through agreements reached with the various lenders
and lessors, Continental has cured all of these events of default.
The last such agreement was put in place during the fourth
quarter of 1995.
As of June 30, 1996, Continental had approximately $825
million of cash and cash equivalents, including restricted cash
and cash equivalents of $104 million. Continental does not have
general lines of credit and has significant encumbered assets.
Continental had firm commitments with The Boeing
Company ("Boeing") to take delivery of 43 new jet aircraft during
the years 1997 through 2002 with an estimated aggregate cost of
$2.6 billion. Continental has recently amended the terms of its
commitments with Boeing to take delivery of a total of 61 jet
aircraft during the years 1997 through 2003 with options for an
additional 23 aircraft. The estimated aggregate cost of the
firm-committment aircraft is $2.7 billion. These amendments changed
the aircraft mix and timing of delivery of aircraft, in order to
more closely match Continental's anticipated future aircraft needs.
Inaddition, the Company took delivery of three Beech 1900-D
aircraft in the second quarter of 1996 and an additional four
such aircraft are scheduled to be delivered later in 1996. The
Company currently anticipates that the firm financing commitments
available to it with respect to its acquisition of new aircraft
from Boeing and Beech Acceptance Corporation ("Beech") will be
sufficient to fund all new aircraft deliveries scheduled during
1996, and that it will have remaining financing commitments from
aircraft manufacturers of $676 million for jet aircraft
deliveries beyond 1996. However, the Company believes that
further financing will be needed to satisfy the remaining amount
of such capital commitments. There can be no assurance that
sufficient financing will be available for all aircraft and other
capital expenditures not covered by firm financing commitments.
Continental has also entered into letters of intent or agreements
with several outside parties to lease four DC10-30 aircraft and
to purchase three DC10-30 aircraft. These seven aircraft are
expected to be delivered by mid-year 1997, and Continental
expects to finance the aircraft to be purchased from available
cash or from third party sources. The Company's wholly-owned
subsidiary, Continental Express, Inc. ("Express"), is in
discussions with aircraft manufacturers regarding the leasing by
Express of regional jet aircraft, which the Company anticipates
would be accounted for as operating leases.
For 1996, Continental expects to incur cash
expenditures under operating leases relating to aircraft
of approximately $568 million, compared with $521 million for 1995,
and approximately $229 million relating to facilities and other
rentals, the same amount as for 1995. In addition, Continental
has capital requirements relating to compliance with regulations
that are discussed below. See "--Regulatory Matters."
Continental's 91%-indirect owned subsidiary,
Continental Micronesia, Inc. ("CMI"), recently consummated a $320
million secured term loan financing with a group of banks and
other financial institutions. The loan was made in two tranches -
- - a $180 million five-year amortizing term loan and a $140
million seven-year amortization extended loan. Each tranche bears
interest at a floating rate. The loan is secured by the stock of
CMI and substantially all its unencumbered assets, consisting
primarily of CMI's route authorities, and is guaranteed by
Continental and Air Micronesia, Inc. (CMI's parent company).
CMI used the net proceeds of the financing to prepay
$160 million in principal amount of indebtedness to an affiliate
of General Electric Company (General Electric Company and
affiliates, collectively "GE") and to pay transaction costs, and
Continental used the $136 million in proceeds received by it as
an indirect dividend from CMI, together with approximately $28
million of cash on hand, to prepay approximately $164 million in
principal amount of indebtedness to GE. The bank financing does
not contain any restrictive covenants at the Continental parent
level, and none of the assets of Continental Airlines, Inc.
(other than its stock in Air Micronesia, Inc.) is pledged in
connection with the new financing.
The bank financing contains significant financial
covenants relating to CMI, including maintenance of a minimum
fixed charge coverage ratio, a minimum consolidated net worth and
minimum liquidity, and covenants restricting CMI's leverage, its
incurrence of certain indebtedness and its pledge of assets. The
financial covenants also limit the ability of CMI to pay
dividends to Continental.
On July 2, 1996, the Company announced its plan to
expand its gates and related facilities in Terminal B as well as
planned improvements at Terminal C at Continental's Houston
Intercontinental Airport hub. The expansion is expected to cost
approximately $115 million, which the Company expects will be
funded principally by the issuance of tax-exempt debt by the
applicable municipal authority. In connection therewith, the
Company expects to enter into long-term leases (or amendments to
existing leases) with the applicable municipal authority
containing rental payments sufficient to service the related tax-
exempt debt.
Aircraft Fuel
Since fuel costs constitute a significant portion of
Continental's operating costs (approximately 12.5% for the year
ended December 31, 1995 and 12.8% for the six months ended June
30, 1996), significant changes in fuel costs would materially
affect the Company's operating results. Fuel prices continue to
be susceptible to international events, and the Company cannot
predict near or longer-term fuel prices. The Company has entered
into petroleum option contracts to provide some short-term
protection (currently approximately six months) against a sharp
increase in jet fuel prices. In the event of a fuel supply
shortage resulting from a disruption of oil imports or otherwise,
higher fuel prices or curtailment of scheduled service could
result.
Certain Tax Matters
The Company's United States federal income tax return
reflects net operating loss carryforwards ("NOLs") of $2.5
billion, subject to audit by the Internal Revenue Service, of
which $1.2 billion are not subject to the limitations of Section
382 of the Internal Revenue Code ("Section 382"). As a result,
the Company will not pay United States federal income taxes
(other than alternative minimum tax) until it has recorded
approximately an additional $1.2 billion of taxable income
following December 31, 1995. For financial reporting purposes,
Continental began accruing tax expense on its income statement
during the second quarter of 1996. Section 382 imposes
limitations on a corporation's ability to utilize NOLs if it
experiences an "ownership change." In general terms, an
ownership change may result from transactions increasing the
ownership of certain stockholders in the stock of a corporation
by more than 50 percentage points over a three-year period. The
sale of the Company's common stock in the Secondary Offering (as
defined in and described under "Recent Developments") gave rise
to an increase in percentage ownership by certain stockholders
for this purpose. Based upon the advice of its counsel, Cleary,
Gottlieb, Steen & Hamilton, the Company believes that such
percentage increase did not give rise to an ownership change
under Section 382. However, no assurance can be given that
future transactions, whether within or outside the control of the
Company, will not cause a change in ownership, thereby
substantially limiting the potential utilization of the NOLs in a
given future year. In the event that an ownership change should
occur, utilization of Continental's NOLs would be subject to an
annual limitation under Section 382 determined by multiplying the
value of the Company's stock (including both common and preferred
stock) at the time of the ownership change by the applicable
long-term tax exempt rate (which was 5.78% for June 1996).
Unused annual limitations may be carried over to later years, and
the amount of the limitation may under certain circumstances be
increased by the built-in gains in assets held by the Company at
the time of the change that are recognized in the five-year
period after the change. Under current conditions, if an
ownership change were to occur, Continental's NOL utilization
would be limited to approximately $100 million per year.
In connection with the Company's 1993 reorganization
under Chapter 11 of the U.S. bankruptcy code effective April 27,
1993 (the "Reorganization") and the recording of assets and
liabilities at fair market value under the American Institute of
Certified Public Accountants' Statement of Position 90-7--
"Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code" ("SOP 90-7"), the Company recorded a deferred
tax liability at April 27, 1993, net of the amount of the
Company's estimated realizable NOLs as required by Statement of
Financial Accounting Standards No. 109--"Accounting for Income
Taxes." Realization of a substantial portion of the Company's
NOLs will require the completion during the five-year period
following the Reorganization of transactions resulting in
recognition of built-in gains for federal income tax purposes.
The Company has consummated one such transaction, which had the
effect of realizing approximately 40% of the built-in gains
required to be realized over the five-year period, and currently
intends to consummate one or more additional transactions. If the
Company were to determine in the future that not all such
transactions will be completed, an adjustment to the net deferred
tax liability of up to $116 million would be charged to income in
the period such determination was made.
CMI
CMI's operating profit margins have consistently been
greater than the Company's margins overall. In addition to its
non-stop service between Honolulu and Tokyo, CMI's operations
focus on the neighboring islands of Guam and Saipan, resort
destinations that cater primarily to Japanese travelers. Because
the majority of CMI's traffic originates in Japan, its results of
operations are substantially affected by the Japanese economy and
changes in the value of the yen as compared to the dollar.
Appreciation of the yen against the dollar during 1993 and 1994
increased CMI's profitability and a decline of the yen against
the dollar may be expected to decrease it. To reduce the
potential negative impact on CMI's dollar earnings, CMI from time
to time purchases average rate options as a hedge against a
portion of its expected net yen cash flow position. Any
significant and sustained decrease in traffic or yields to and
from Japan could materially adversely affect Continental's
consolidated profitability.
Principal Stockholders
As of July 31, 1996, Air Canada held approximately
10.0% of the common equity interests and 4.0% of the general
voting power of the Company, and Air Partners, L.P. ("Air
Partners") held approximately 9.8% of the common equity interests
and 39.3% of the general voting power of the Company. In
addition, assuming exercise of all of the warrants held by Air
Partners, approximately 23.3% of the common equity interests and
52.1% of the general voting power would be held by Air Partners.
As discussed in "Recent Developments," Air Canada has announced
its intention to divest its interest in the Company during December
1996 or early 1997, subject to market conditions. At any time after
January 1, 1997, shares of Class A common stock may be freely converted
into an equal number of shares of Class B common stock. Such conversion
would effectively increase the relative voting power of those Class A
stockholders who do not convert. See "Recent Developments,"
"Principal Stockholders," "Selling Securityholders" and
"Description of Capital Stock."
Various provisions in the Company's Amended and
Restated Certificate of Incorporation (the "Certificate of
Incorporation") and Bylaws (the "Bylaws") currently provide Air
Partners with the right to elect one-third of the directors in
certain circumstances; these provisions could have the effect of
delaying, deferring or preventing a change in control of the
Company. See "Recent Developments" and "Description of Capital
Stock."
Risk Factors Relating to the Airline Industry
Industry Conditions and Competition
The airline industry is highly competitive and
susceptible to price discounting. The Company has in the past
both responded to discounting actions taken by other carriers and
initiated significant discounting actions itself. Continental's
competitors include carriers with substantially greater financial
resources, as well as smaller carriers with lower cost
structures. Airline profit levels are highly sensitive to, and
during recent years have been severely impacted by, changes in
fuel costs, fare levels (or "average yield") and passenger
demand. Passenger demand and yields have been adversely affected
by, among other things, the general state of the economy,
international events and actions taken by carriers with respect
to fares. From 1990 to 1993, these factors contributed to the
domestic airline industry's incurring unprecedented losses.
Although fare levels have increased recently, significant
industry-wide discounts could be reimplemented at any time, and
the introduction of broadly available, deeply discounted fares by
a major United States airline would likely result in lower yields
for the entire industry and could have a material adverse effect
on the Company's operating results.
The airline industry has consolidated in past years as
a result of mergers and liquidations and may further consolidate
in the future. Among other effects, such consolidation has
allowed certain of Continental's major competitors to expand (in
particular) their international operations and increase their
market strength. Furthermore, the emergence in recent years of
several new carriers, typically with low cost structures, has
further increased the competitive pressures on the major United
States airlines. In many cases, the new entrants have initiated
or triggered price discounting. Aircraft, skilled labor and gates
at most airports continue to be readily available to start-up
carriers. Although management believes that Continental is better
able than some of its major competitors to compete with fares
offered by start-up carriers because of its lower cost structure,
competition with new carriers or other low cost competitors on
Continental's routes could negatively impact Continental's
operating results.
Regulatory Matters
In the last several years, the United States Federal
Aviation Administration (the "FAA") has issued a number of
maintenance directives and other regulations relating to, among
other things, retirement of older aircraft, collision avoidance
systems, airborne windshear avoidance systems, noise abatement,
commuter aircraft safety and increased inspections and
maintenance procedures to be conducted on older aircraft. The
Company expects to continue incurring expenses for the purpose of
complying with the FAA's noise and aging aircraft regulations. In
addition, several airports have recently sought to increase
substantially the rates charged to airlines, and the ability of
airlines to contest such increases has been restricted by federal
legislation, U.S. Department of Transportation regulations and
judicial decisions.
Management believes that the Company benefited
significantly from the expiration of the aviation trust fund tax
(the "ticket tax") on December 31, 1995, although the amount of
any such benefit resulting directly from the expiration of the
ticket tax cannot precisely be determined. In early August 1996,
the Congress had approved legislation which would reinstate the
ticket tax until December 31, 1996, and such legislation was
being enrolled for submission to the President of the United
States for his signature. Reinstatement of the ticket tax will
occur seven days after the President signs the authorizing
legislation. Management believes that the reimposition of the
ticket tax will have a negative impact on the Company, although
the amount of such negative impact directly resulting from the
reimposition of the ticket tax cannot be precisely determined.
Additional laws and regulations have been proposed from
time to time that could significantly increase the cost of
airline operations by imposing additional requirements or
restrictions on operations. Laws and regulations have also been
considered that would prohibit or restrict the ownership and/or
transfer of airline routes or takeoff and landing slots. Also,
the availability of international routes to United States
carriers is regulated by treaties and related agreements between
the United States and foreign governments that are amendable.
Continental cannot predict what laws and regulations may be
adopted or their impact, but there can be no assurance that laws
or regulations currently proposed or enacted in the future will
not adversely affect the Company.
THE COMPANY
Continental Airlines, Inc. is a major United States air
carrier engaged in the business of transporting passengers, cargo
and mail. Continental is the fifth largest United States airline
(as measured by revenue passenger miles in the first six months
of 1996) and, together with Express and CMI, serves 190 airports
worldwide.
The Company operates its route system primarily through
domestic hubs at Newark, Houston Intercontinental and Cleveland,
and a Pacific hub on Guam and Saipan. Each of Continental's
three U.S. hubs is located in a large business and population
center, contributing to a high volume of "origin and destination"
traffic. The Guam/Saipan hub is strategically located to provide
service from Japanese and other Asian cities to popular resort
destinations in the western Pacific. Continental is the primary
carrier at each of these hubs, accounting for 52%, 79%, 53% and
72% of all daily jet departures, respectively.
Continental directly serves 131 U.S. cities, with
additional cities (principally in the western and southwestern
United States) connected to Continental's route system under
agreements with America West Airlines, Inc. ("America West").
Internationally, Continental flies to 59 destinations and offers
additional connecting service through alliances with foreign
carriers. Continental operates 66 weekly departures to six
European cities and markets service to four other cities through
code-sharing agreements. Continental recently announced new
service from Newark to Lisbon, Portugal which is scheduled to
commence May 1, 1997. Continental is one of the leading airlines
providing service to Mexico and Central America, serving more
destinations in Mexico than any other United States airline. In
addition, Continental flies to four cities in South America.
Through its Guam/Saipan hub, Continental provides extensive
service in the western Pacific, including service to more
Japanese cities than any other United States carrier.
The Company is a Delaware corporation. Its executive
offices are located at 2929 Allen Parkway, Suite 2010, Houston,
Texas 77019, and its telephone number is (713) 834-2950.
RECENT DEVELOPMENTS
Stock Split
On June 26, 1996, the Board of Directors of the Company
declared a two-for-one stock split (the "Stock Split") pursuant
to which (a) one share of the Company's Class A common stock was
issued for each share of Class A common stock outstanding on July
2, 1996 (the "Record Date") and (b) one share of the Company's
Class B common stock was issued for each share of Class B common
stock outstanding on the Record Date. Shares issuable pursuant
to the Stock Split were distributed on or about July 16, 1996.
Corporate Governance
On June 26, 1996, at the Company's annual meeting of
stockholders (the "Annual Meeting"), the Company's stockholders
approved changes proposed by the Company to its Certificate of
Incorporation, which, together with amendments to the Company's
Bylaws previously approved by the Company's Board of Directors
(collectively, the "Amendments"), generally eliminate special
classes of directors (except for Air Partners' right to elect
one-third of the directors in certain circumstances as described
below) and supermajority provisions, and make a variety of other
modifications aimed at streamlining the Company's corporate
governance structure. The amendments to the Company's
Certificate of Incorporation included elimination of Class C
common stock, par value $.01 per share (the "Class C common stock"),
of the Company as an authorized class of capital stock and changed
the rights of holders of Class D common stock, par value $.01
per share(the"Class D common stock"), with respect to election of
directors--holders of Class D common stock will now be entitled to
elect one-third of the directors. Pursuant to the Certificate of
Incorporation, Class D common stock is solely issuable to Air
Partners and certain of its affiliates. There is currently no
Class D common stock outstanding. The Amendments, as a whole,
reflect the reduction of Air Canada's equity interest in the
Company, as described below, and the decision of the former
directors designated by Air Canada not to stand for reelection,
along with the expiration of various provisions of the Company's
Certificate of Incorporation and Bylaws specifically included at
the time of the Company's reorganization in 1993.
The Amendments also provide that, at any time after
January 1, 1997, shares of Class A common stock may be freely
converted into an equal number of shares of Class B common stock.
Under agreements put in place at the time of the Company's
reorganization in 1993 and designed in part to ensure compliance
with the foreign ownership limitations applicable to United
States air carriers, in light of the substantial stake in the
Company then held by Air Canada, holders of Class A common stock
were not permitted under the Company's Certificate of
Incorporation to convert their shares to Class B common stock.
In recent periods, the market price of Class A common stock has
generally been below the market price of Class B common stock,
which the Company believes is attributable in part to the reduced
liquidity present in the trading market for Class A common stock.
A number of Class A stockholders requested that the Company
provide for free convertibility of Class A common stock into
Class B common stock, and in light of the reduction of Air
Canada's equity stake, the Company determined that the
restriction was no longer necessary. Any such conversion would
effectively increase the relative voting power of those Class A
stockholders who do not convert.
On April 19, 1996, the Company's Board of Directors
approved certain agreements (the "Agreements") with its two major
stockholders, Air Canada and Air Partners. The Agreements
contain a variety of arrangements intended generally to reflect
the intention that Air Canada has expressed to the Company of
divesting its investment in Continental during December 1996 or
early 1997, subject to market conditions. Air Canada has indicated
to the Company that its original investment in Continental has become
less central to Air Canada in light of other initiatives it has
undertaken --particularly expansion within Canada and exploitation of
the 1995 Open Skies agreement to expand Air Canada's own flights into
theU.S. Because of these initiatives Air Canada has determined it
appropriate to redeploy the funds invested in the Company into
other uses in Air Canada's business. The Agreements also reflect
the distribution by Air Partners, effective March 29, 1996, to
its investors (the "AP Investors") of all of the shares of the
Class B common stock held by Air Partners and the desire of some
of the AP Investors to realize the increase in value of their
investment in the Company by selling all or a portion of their
shares of Class B common stock.
Among other things, the Agreements required the Company
to file a registration statement under the Securities Act to
permit the sale by Air Canada of 2,200,000 shares of Class B
common stock held by it and by certain of the AP Investors of an
aggregate of 1,730,240 (each on a pre-Stock Split basis) such
shares pursuant to an underwritten public offering arranged by
the Company (the "Secondary Offering"). The Secondary Offering
was completed on May 14, 1996. The Agreements provided for the
following additional steps to be taken in connection with the
completion of the Secondary Offering:
o in light of its reduced equity stake in the Company,
Air Canada was no longer entitled to designate nominees
to the Board of Directors of the Company, caused the
four then-present or former members of the Air Canada
board who served as directors of Continental to decline
nomination for reelection as directors and converted
all of its Class A common stock to Class B common
stock;
o Air Canada and Air Partners entered into a number of
agreements restricting, prior to December 16, 1996,
further disposition of the common stock of the Company
held by either of them; and
o each of the existing Stockholders' Agreement and the
registration rights agreement (the ("Original
Registration Rights Agreement") among the parties was
modified in a number of respects to reflect, among
other matters, the changing composition of the
respective equity interests of the parties.
After such sale and the conversion by Air Canada of its
Class A common stock into Class B common stock, Air Canada holds
approximately 10.0% of the common equity interests and 4.0% of
the general voting power of the Company, and Air Partners holds
approximately 9.8% of the common equity interests and 39.3% of
the general voting power of the Company. If all of the warrants
held by Air Partners were exercised, approximately 23.3% of the
common equity interests and 52.1% of the general voting power
would be held by Air Partners.
The Company and Air Canada also entered into a
memorandum of understanding, subject to the fulfillment of
certain conditions, regarding modifications to certain of
the Company's existing "synergy" agreements with Air Canada,
which covered items such as maintenance and ground facilities,
and resolved certain outstanding commercial issues under the
agreements. In May 1996, the Company entered into an agreement
with Air Partners for the sale by Air Partners to the Company
from time to time at Air Partners' election for the one-year
period beginning August 15, 1996, of up to an aggregate of $50
million in intrinsic value (then-current Class B common stock
price minus exercise price) of Air Partners' Class B Warrants
pursuant to the Warrant Purchase Agreement. The purchase price
would be payable in cash. The Board of Directors has authorized
the Company to publicly issue up to $50 million in net proceeds of
Class B common stock in connection with any such purchase.
The Registration Statement of which this Prospectus forms a part
registers the Company Shares for that purpose. In connection
with this agreement, the Company has reclassified $50 million
from common equity to redeemable warrants.
Because certain aspects of the Agreements raised issues
under the change in control provisions of certain of the
Company's employment agreements and employee benefit plans, these
agreements and plans were modified to provide a revised change of
control definition that the Company believes is appropriate in
light of the prospective changes to its equity ownership
structure. In connection with the modifications, payments were
made to certain employees, benefits were granted to certain
employees and options equal to 10% of the amount of the options
previously granted to each optionee were granted (subject to
certain conditions) to substantially all employees holding
outstanding options.
USE OF PROCEEDS
Except as may otherwise be set forth in the applicable
Prospectus Supplement, the net proceeds from the sale of the
Company Shares will be used by the Company to purchase any Class
B Warrants put to the Company under the Warrant Purchase
Agreement. The Company will not receive any of the proceeds from
the sale of the Offered Securities by the Selling
Securityholders.
MARKET PRICE OF COMMON STOCK AND DIVIDENDS
The Class A common stock and the Class B common stock
are listed for trading on the NYSE, which is its principal
market. As of July 31, 1996, there were approximately 3,740 and
12,431 holders of record of Continental's Class A common stock
and Class B common stock, respectively.
The Company has not paid any cash dividends on its
common stock and has no current intention of paying dividends on
its common stock.
The table below shows the quarterly high and low sales
prices for the Company's Class A common stock and Class B common
stock as reported on the NYSE since January 1, 1994. All such
prices have been adjusted for the Company's Stock Split.
Class A Common Class B Common
Stock Price Stock Price
-------------- --------------
Period High Low High Low
- ------ ---- --- ---- ---
1994
First Quarter $15-3/8 $9-3/8 $13-5/8 $8-7/16
Second Quarter 10-1/2 6-3/4 9-7/8 5-5/8
Third Quarter 11-1/8 7 10-3/4 6-1/2
Fourth Quarter 9-1/4 4-1/16 9-1/16 3-3/4
1995
First Quarter 6-1/16 3-1/2 6-1/8 3-1/4
Second Quarter 12-7/8 5-3/16 12-7/8 5-5/16
Third Quarter 19-7/8 11-9/16 20-1/16 11-11/16
Fourth Quarter 23-7/16 17-3/16 23-3/4 17-3/8
1996
First Quarter 27 19-1/8 28-3/16 19-7/16
Second Quarter 31-1/16 25-7/8 31-7/16 26-9/16
Third Quarter (through 31 22-1/4 31-1/8 22-1/4
August 13)
The last reported sale prices for the Company's Class A
common stock and Class B common stock on the NYSE on August 13,
1996 were $23-1/4 and $23-5/8, respectively.
SELECTED FINANCIAL DATA
The following tables set forth selected financial data
of (i) the Company for the three and six months ended
June 30, 1996 and 1995, the years ended December 31, 1995 and
1994 and the period from April 28, 1993 through December 31, 1993
and (ii) Holdings for the period from January 1, 1993 through
April 27, 1993. The consolidated financial data of both the
Company, for the years ended December 31, 1995 and 1994 and for
the period from April 28, 1993 through December 31, 1993, and
Holdings, for the period from January 1, 1993 through April 27,
1993, are derived from their respective audited consolidated
financial statements. On April 27, 1993, in connection with the
Reorganization, the Company adopted fresh start reporting in
accordance with SOP 90-7. A vertical black line is shown in the
table below to separate Continental's post-reorganized
consolidated financial data from the pre-reorganized consolidated
financial data of Holdings since they have not been prepared on a
consistent basis of accounting. The consolidated financial data
of the Company for the three and six months ended June
30, 1996 and 1995 are derived from its unaudited consolidated
financial statements, which include all adjustments (consisting
solely of normal recurring accruals) that the Company considers
necessary for the presentation of the financial position and
results of operations for these periods. Operating results for
the six months ended June 30, 1996 are not necessarily indicative
of the results that may be expected for the year ending December
31, 1996. The Company's selected consolidated financial data
should be read in conjunction with, and are qualified in their
entirety by reference to, the consolidated financial statements,
including the notes thereto, incorporated by reference herein.
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
1996 1995 1996 1995
---- ---- ---- ----
(In millions of dollars, except
per share data)
Statement of Operations Data: (unaudited) (unaudited)
Operating Revenue:
Passenger $1,519 $1,355 $2,894 $2,595
Cargo, mail and other 120 123 234 292
----- ----- ----- -----
1,639 1,478 3,128 2,887
----- ----- ----- -----
Operating Expenses:
Wages, salaries and
related costs 378 357 742 723
Aircraft fuel 180 168 357 337
Aircraft rentals 127 124 251 247
Commissions 137 131 263 250
Maintenance, materials
and repairs 119 101 231 198
Other rentals and landing 85 93 169 185
fees
Depreciation and 67 65 132 129
amortization
Other 317 330 634 680
----- ----- ----- -----
1,410 1,369 2,779 2,749
----- ----- ----- -----
Operating Income (Loss) 229 109 349 138
----- ----- ----- -----
Nonoperating Income (Expense):
Interest expense (42) (56) (89) (110)
Interest capitalized -- 3 1 4
Interest income 10 8 19 13
Reorganization items, net -- -- -- --
Other, net 9 117 21 108
----- ----- ----- -----
(23) 72 (48) 15
----- ----- ----- -----
Income (Loss) before Income
Taxes, Minority Interest and
Extraordinary Gain 206 181 301 153
Net Income (Loss) $167 $102 $255 $72
Earnings (Loss) per Common and
Common Equivalent Share(4) $2.53 $1.51 $3.90 $1.15
===== ===== ===== =====
Earnings (Loss) per Common
Share Assuming Full Dilution(4)
$2.04 $1.49 $3.25 $1.10
===== ===== ===== =====
Period Period
from from
(April 28, January 1,
1993 1993
Year Ended through through
December 31, December 31, April 27,
------------- ------------ ----------
1995 1994 1993) 1993
---- ---- ----- ----
(In millions of dollars, except per
share data)
Statement of Operations Data:
Operating Revenue:
Passenger $5,302 $5,036 $3,493 $1,622
Cargo, mail and other 523 634 417 235
----- ------- ----- -----
5,825 5,670 3,910 1,857
----- ------- ----- -----
Operating Expenses:
Wages, salaries and
related costs 1,432(1) 1,532 1,000 502
Aircraft fuel 681 741 540 272
Aircraft rentals 497 433 261 154
Commissions 489 439 378 175
Maintenance, materials
and repairs 429 495 363 184
Other rentals and landing 356 392 258 120
fees
Depreciation and 253 258 162 77
amortization
Other 1,303 1,391 853 487
----- ------- ----- -----
5,440 5,681 3,815 1,971
-----
Operating Income (Loss) 385 (11) 95 (114)
----- ------- ----- -----
Nonoperating Income
(Expense):
Interest expense (213) (241) (165) (52)
Interest capitalized 6 17 8 2
Interest income 31 23 14 --
Reorganization items, net -- -- -- (818)
Other, net 101 (439)(2) (4) 5
----- ------- ----- -----
(75) (640) (147) (863)
----- ------- ----- -----
Income (Loss) before Income
Taxes, Minority Interest
and Extraordinary Gain 310 (651) (52) (977)
Net Income (Loss) $224 $(613) $(39) $2,640(3)
Earnings (Loss) per Common
and Common Equivalent $3.60 $(11.88) $(1.17) N.M.(5)
Share(4) ===== ======= =====
Earnings (Loss) per Common
Share Assuming Full
Dilution(4) $3.15 $(11.88) $(1.17) N.M.(5)
===== ======= =====
As of As of
June 30, December 31,
-------- ------------
1996 1995
---- ----
Balance Sheet Data: (In millions of dollars)
(unaudited)
Cash and Cash Equivalents,
including restricted Cash
and Cash Equivalents of
$104 and $144,
respectively(6) $825 $747
Other Current Assets 702 568
Total Property and Equip-
ment, Net 1,436 1,461
Routes, Gates and Slots, Net 1,502 1,531
Other Assets, Net 485 514
------ ------
Total Assets $4,950 $4,821
====== ======
Current Liabilities $2,108 $1,984
Long-term Debt and Capital
Leases 1,435 1,658
Deferred Credits and Other
Long-term Liabilities 540 564
Minority Interest 28 27
Continental-Obligated
Mandatorily Redeemable
Preferred Securities of
Subsidiary Trust holding
solely Convertible Subord-
inated Debentures(7) 242 242
Redeemable Warrants(8) 50 --
Redeemable Preferred Stock 43 41
Common Stockholders' Equity 504 305
------ ------
Total Liabilities and
Stockholders' Equity $4,950 $4,821
====== ======
- ----------------
(1) Includes a $20 million cash payment in 1995 by the Company
in connection with a 24-month collective bargaining
agreement entered into by the Company and the Independent
Association of Continental Pilots.
(2) Includes a provision of $447 million recorded in the fourth
quarter of 1994 associated with the planned early retirement
of certain aircraft and closed or underutilized airport and
maintenance facilities and other assets.
(3) Reflects a $3.6 billion extraordinary gain from
extinguishment of debt.
(4) On June 26, 1996, the Company announced the Stock Split with
respect to the Company's Class A common stock and Class B
common stock. Accordingly, the earnings per share
information has been restated to give effect to the Stock
Split.
(5) Historical per share data for Holdings is not meaningful
since the Company has been recapitalized and has adopted
fresh start reporting as of April 27, 1993.
(6) Restricted cash and cash equivalents agreements relate
primarily to workers' compensation claims and the terms of
certain other agreements. In addition, CMI is required by
loan agreements to maintain certain minimum consolidated net
worth and liquidity levels, which effectively restrict the
amount of cash available to Continental from CMI.
(7) The sole assets of the Trust are Convertible Subordinated
Debentures, with an aggregate principal amount of $250
million, which bear interest at the rate of 8 % per annum
and mature on December 1, 2020. Upon repayment, the
Continental-Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trust will be mandatorily redeemed.
(8) The Company has agreed to repurchase up to $50 million of
intrinsic value (then-current Class B common stock price minus
excercise price) of Class B Warrants at the election of Air
Partners during the one year period commencing August 15,
1996.
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of July 31, 1996,
certain information with respect to the beneficial ownership of
the outstanding common stock of the Company by persons owning
beneficially (to the knowledge of the Company) more than five
percent of any class of the Company's voting securities. The
table also sets forth the respective general voting power of such
persons. Information set forth in the table is based on reports
filed with the Commission pursuant to the Exchange Act, and
information furnished to the Company by certain of such holders.
In accordance with regulations promulgated by the Commission, the
table reflects for each beneficial owner the exercise of warrants
or the conversion of convertible securities (exercisable or
convertible within 60 days after July 31, 1996) owned by such
beneficial owners, but, in determining the percentage ownership
of such person, does not assume the exercise of warrants or the
conversion of convertible securities owned by any other person.
Amount
and Nature
Name and Address of Beneficial
of Beneficial Holder Title of Class Ownership
- -------------------- -------------- -------------
Air Canada Class B common stock 5,600,000
Air Canada Center
Montreal Int'l Airport
(Dorval)
P.O. Box 14000
Postal Station, St. Laurent
Canada H4Y 1H4
Air Partners, L.P.(2) Class A common stock 8,519,468(3)
2420 Texas Commerce Tower Class B common stock 6,765,264(4)
201 Main Street
Fort Worth, TX 75102
American General Corporation(5) Class A common stock 1,548,992(6)
2929 Allen Parkway Class B common stock 1,230,614(7)
Houston, TX 77019
FMR Corp. Class B common stock 6,875,320(8)
82 Devonshire Street
Boston, MA 02109
General
Name and Address Percent Voting
of Beneficial Holder of Class Power(1)
- -------------------- -------- --------
Air Canada 12.0% 4.0%
Air Canada Center
Montreal Int'l Airport
(Dorval)
P.O. Box 14000
Postal Station, St. Laurent
Canada H4Y 1H4
Air Partners, L.P.(2) 69.2% 52.1%
2420 Texas Commerce Tower 12.7%
201 Main Street
Fort Worth, TX 75102
American General Corporation(5) 15.8% 11.4%
2929 Allen Parkway 2.6%
Houston, TX 77019
FMR Corp. 14.3% 4.9%
82 Devonshire Street
Boston, MA 02109
__________________
(1) Each share of Class A common stock is entitled to ten votes,
and each share of Class B common stock is entitled to one
vote. General Voting Power includes the combined total of
the votes attributable to Class A common stock and Class B
common stock. The persons listed have the sole power to
vote and dispose of the shares beneficially owned by them
except as otherwise indicated.
(2) Based on reports filed with the Commission pursuant to the
Exchange Act, the general partners of Air Partners are 1992
Air GP, managing general partner, and Air II General, Inc.
The general partners of 1992 Air GP are 1992 Air, Inc.,
majority general partner, and Air Saipan, Inc. David
Bonderman is the controlling shareholder of Air II General,
Inc. and 1992 Air, Inc. and accordingly may be deemed the
beneficial owner of shares held by Air Partners. In
addition, Mr. Bonderman holds, directly and indirectly,
limited partnership interests in Air Partners. Mr. Bonderman
also holds director stock options to purchase 9,000 shares
of Class B common stock and may be deemed to own 127,304
shares of Class B common stock owned by 1992 Air, Inc. that
are not included in the amounts shown. Bonderman Family
Limited Partnership, of which David Bonderman is the general
partner, holds 16,400 shares of Class A common stock and
882,450 shares of Class B common stock that are not included
in the amounts shown. The holders of limited partnership
interests in Air Partners, together with Air Partners, may
be deemed to be acting as a group for purposes of the
federal securities laws. Bonderman Family Limited
Partnership holds limited partnership interests in Air
Partners. On the basis of certain provisions of the limited
partnership agreement of Air Partners, Bonderman Family
Limited Partnership may be deemed to beneficially own the
shares of Class A common stock and any Class B common stock
beneficially owned by Air Partners that are attributable to
such limited partnership interests. However, Bonderman
Family Limited Partnership, pursuant to Rule 13d-4 under the
Exchange Act, disclaims beneficial ownership of all such
shares. The estate of Larry L. Hillblom, solely in its
capacity as the sole shareholder of Air Saipan, Inc., may be
deemed the beneficial owner of the shares of Class A common
stock and any Class B common stock held by Air Partners. In
addition, the estate of Mr. Hillblom also holds limited
partnership interests in Air Partners. On the basis of
certain provisions of the limited partnership agreement of
Air Partners, the estate of Mr. Hillblom may be deemed to
beneficially own the shares of Class A common stock and any
Class B common stock beneficially owned by Air Partners that
are attributable to such limited partnership interests.
Bondo Air Limited Partnership ("Bondo Air"), solely in its
capacity as a limited partner of Air Partners, may be deemed
to beneficial own the shares of Class A common stock and any
Class B common stock held by Air Partners that are
attributable to such limited partnership interest. However,
Bondo Air, pursuant to Rule 13d-4 under the Exchange Act,
disclaims beneficial ownership of all such shares. Mr.
Alfredo Brener, through a limited partnership whose
corporate general partner he controls, owns warrants to
purchase a 98.5% limited partnership interest in Bondo Air,
and on the basis of certain provisions of the limited
partnership agreement of Bondo Air, Mr. Brener may be deemed
to beneficially own such limited partnership interests and,
in turn, the shares attributable to Bondo Air's limited
partnership interest in Air Partners. However, Mr. Brener,
pursuant to Rule 13d-4 under the Exchange Act, disclaims
beneficial ownership of all such shares. Donald Sturm, a
director of the Company, holds a limited partnership
interest in Air Partners. On the basis of certain provisions
of the limited partnership agreement of Air Partners, Mr.
Sturm may be deemed to beneficially own the shares of Class
A common stock and any Class B common stock beneficially
owned by Air Partners that are attributable to such limited
partnership interest. However, Mr. Sturm, pursuant to Rule
13d-4 under the Exchange Act, disclaims beneficial ownership
of all such shares.
(3) Includes 3,039,468 shares issuable upon exercise of Class
A Warrants.
(4) Represents shares issuable upon the exercise of
Class B Warrants held by Air Partners.
(5) American General Corporation ("American General") holds
a limited partnership interest in Air Partners. On
the basis of certain provisions of the limited partnership
agreement of Air Partners, American General may be deemed to
beneficially own the shares of Class A common stock and any
Class B common stock beneficially owned by Air Partners that
are attributable to such limited partnership interest. However,
American General, pursuant to Rule 13d-4 under the Exchange
Act, disclaims beneficial ownership of all such shares.
(6) Based upon reports filed with the Commission under the
Exchange Act, the shares reported represent the
proportionate interest in shares beneficially owned by Air
Partners, of which American General is a limited partner,
including 552,630 shares issuable upon exercise of Class A
Warrants held by Air Partners. American General may be
deemed to share voting and dispositive power with respect
to all such shares.
(7) Based on reports filed with the Commission under the
Exchange Act, the reported shares include 566 shares held by
an indirect wholly owned subsidiary of American General and
1,230,048 shares issuable upon exercise of Class B Warrants held
by Air Partners and attributable to the limited partnership
interest of American General in Air Partners. American General
may be deemed to share voting and dispositive power with
respect to all such shares.
(8) Based on reports filed with the Commission under the
Exchange Act, the shares reported include 331,180 shares of
Class B common stock issuable upon conversion of the
Company's 6-3/4% Convertible Subordinated Notes due April
15, 2006 and 1,065,640 shares of Class B common stock
issuable upon conversion of the Continental-Obligated Mandatorily
Redeemable Preferred Securities of Subsidiary Trust. FMR Corp.
("FMR"), together with its wholly owned subsidiaries, Fidelity
Management & Research Company and Fidelity Management Trust
Company, has sole dispositive power with respect to all of the
shares beneficially owned by it and sole voting power with
respect to 4,663,980 of such shares. FMR has no shared voting
or dispositive power. Members of the Edward D. Johnson 3d
family own approximately 49% of the voting power of FMR.
Stockholders' Agreement
Pursuant to the Stockholders' Agreement each of Air
Partners and Air Canada has agreed to certain restrictions on its
ability to enter into transactions before December 16, 1996 that
would, pursuant to Section 382 of the Internal Revenue Code, have
an adverse effect on the Company's ability to fully utilize its
NOLs, if effected prior to that date. Additionally the
Stockholders' Agreement includes certain agreements among the
Company, Air Partners and Air Canada relating to the exercise of
registration rights under the Amended and Restated Registration
Rights Agreement, dated April 19, 1996, among the Company, Air
Partners and Air Canada (the "Registration Rights Agreement").
See "--Certain Rights of Air Partners and Air Canada."
Warrants
In connection with the Reorganization, Air Partners and
Air Canada acquired warrants to purchase shares of Class A common
stock and Class B common stock at exercise prices of $15 and $30
per share, which prices have been adjusted to $7.50 and $15.00,
respectively, as a result of the Stock Split. The warrants held
by Air Canada were repurchased and canceled by the Company on
September 29, 1995. The warrants held by Air Partners expire if
not exercised on or before April 27, 1998. The Company and Air
Partners have entered into the Warrant Purchase Agreement under
which Air Partners, for the one-year period commencing August 15,
1996, can cause the Company to repurchase up to $50 million in
intrinsic value (then-current Class B common stock price minus
exercise price) of Air Partners' Class B Warrants and, at any
time after December 16, 1996, to amend the terms of the Class B
Warrants to permit the "cashless exercise" of Air Partners' Class
B Warrants. Cashless exercise represents the exercise of
warrants and the corresponding delivery by Air Partners to
Continental of warrants with an aggregate intrinsic value equal
to the aggregate exercise price of the warrants so exercised, in
consideration therefor. See "Recent Developments."
Anti-dilution Rights of Air Partners
Air Partners has the right to purchase additional
shares of Class B common stock to preserve its current
proportional ownership of such stock. See "Description of Capital
Stock--Corporate Governance and Control--Anti-dilution Rights of
Air Partners."
Certain Conversion Rights
In specified limited circumstances, Air Partners has
the right to convert its shares of Class A common stock into
Class D common stock. See "Description of Capital Stock--Special Class of
Common Stock" regarding the terms of the Class D common stock, and the
conversion of such stock back into Class A common stock.
Certain Rights of Air Partners and Air Canada
Pursuant to the Registration Rights Agreement, the
Company has granted extensive demand and incidental registration
rights to Air Partners and Air Canada to have their common stock
registered under the Securities Act in connection with proposed
sales of such stock. See "Recent Developments."
SELLING SECURITYHOLDERS
The following table sets forth as of July 31, 1996 the
name of each Selling Securityholder and the amount of Selling
Securityholder Shares and Warrants owned by each such Selling
Securityholder which are subject to being offered hereby from
time to time. The number of Offered Securities subject to
offering and sale by the Selling Securityholders pursuant hereto
constitute all the holdings of such securities by the Selling
Securityholders (including Common Stock issuable upon exercise of
currently outstanding Warrants and options), except as disclosed
in the footnotes to the table. For the respective percentages of
the Company's securities beneficially owned by certain of the
Selling Securityholders (including such ownership as may be
attributed to such securityholders) prior to the offering, see
"Principal Stockholders" and "Description of Capital Stock--
Class B Common Stock and Class A Common Stock."
Each of Air Canada, Air Partners and each of the Selling
Securityholders which is a partner of Air Partners has agreed to
certain restrictions on its ability to enter into transactions
before December 16, 1996 that would, pursuant to Section 382 of
the Internal Revenue Code, have an adverse effect on the
Company's ability to fully utilize its NOLs, if effected prior to
that date.
Securities Owned Prior to the Offering
------------------------------------------------------------------
Selling Securityholder Class of Securities Number
Air Canada Class B common stock 5,600,000
Air Partners(2) Class A common stock 5,480,000
Class A Warrants(3) 2,298,134
($7.50 exercise price)
Class A Warrants(3) 741,334
($15.00 exercise price)
Class B Warrants(4) 5,115,200
($7.50 exercise price)
Class B Warrants(4) 1,650,064
($15.00 exercise price)
American General Corporation Class B common stock 566(5)(6)
Bonderman Family Limited Class A common stock 16,400(5)(6)
Partnership
Class B common stock 882,450(5)(6)
Estate of Larry L. Hillblom (5)(7)(8)
DHL Management Services, Inc. Class B common stock 645,940(5)(8)
SunAmerica Inc. (5)
Eli Broad Class B common stock 57,892(5)
Donald L. Sturm Class B common stock 715,128(5)(9)
Conair Limited Partners, L.P. (5)
Bondo Air, L.P. (5)
Air Saipan, Inc. (11)
1992 Air, Inc. Class B common stock 127,304(11)
Air II General, Inc. (12)
Lectair Partners Class B common stock 449,186(5)
David Bonderman Class A common stock (5)(13)
Class B common stock 194,368(5)(13)(14)
Thomas J. Barrack, Jr. Class B common stock 14,600(15)
Patrick Foley Class B common stock 9,000(16)(17)
Douglas H. McCorkindale Class B common stock 9,000(16)
George G.C. Parker Class B common stock 3,400(18)
Richard W. Pogue Class A common stock 6,000
Class B common stock 9,000(16)
William S. Price III Class B common stock 12,000(19)
Karen Hastie Williams Class B common stock 9,000(16)
Charles A. Yamarone Class B common stock 14,000(20)
Gordon M. Bethune Class B common stock 926,180(21)
Gregory D. Brenneman Class B common stock 873,450(21)
B. Ben Baldanza Class B common stock 224,600(21)
Mark A. Erwin Class B common stock 136,918(21)
Lawrence W. Kellner Class B common stock 326,616(21)
C.D. McLean Class B common stock 244,396(21)
Bonnie S. Reitz Class B common stock 187,986(21)
Barry P. Simon Class B common stock 227,983(21)
David N. Siegel Class B common stock 251,565(21)
Jeffery A. Smisek Class A common stock 2,000
Class B common stock 251,967(21)
Relationship
with the Securities
Selling Securityholder Company Offered Hereby
Air Canada (1) 5,600,000
Air Partners(2) (1) 5,480,000
2,298,134
741,334
5,115,200
1,650,064
American General Corporation (1)(5)(6) 566(5)
Bonderman Family Limited (5)(6) 16,400(5)
Partnership
(5)(6) 882,450(5)
Estate of Larry L. Hillblom (5)(7)(8) (5)
DHL Management Services, Inc. (5)(8) 645,940(5)
SunAmerica, Inc. (5) (5)
Eli Broad (5) 57,892(5)
Donald L. Sturm (5)(10) 715,128(5)
Conair Limited Partners, L.P. (5) (5)
Bondo Air, L.P. (5) (5)
Air Saipan, Inc. (11) (11)
1992 Air, Inc. (11) 127,304(11)
Air II General, Inc. (12) (12)
Lectair Partners (5) 449,186(5)
David Bonderman (5)(6)(10) (5)
194,368(5)
Thomas J. Barrack, Jr. (10) 14,600
Patrick Foley (10) 9,000
Douglas H. McCorkindale (10) 9,000
George G.C. Parker (10) 3,400
Richard W. Pogue (10) 6,000
9,000
William S. Price III (10) 12,000
Karen Hastie Williams (10) 9,000
Charles A. Yamarone (10) 14,000
Gordon M. Bethune (10) (22) 926,180
Gregory D. Brenneman (10) (22) 873,450
B. Ben Baldanza (22) 224,600
Mark A. Erwin (22) 136,918
Lawrence W. Kellner (22) 326,616
C.D. McLean (22) 244,396
Bonnie S. Reitz (22) 187,986
Barry P. Simon (22) 227,983
David N. Siegel 251,565
Jeffery A. Smisek (22) 2,000
251,967
- -------------------
(1) See "Principal Stockholders."
(2) The Offered Securities beneficially owned by Air Partners
may be distributed to its partners. In such event, the
portion of the Offered Securities
attributable to such partner's partnership interest so distributed
may be offered and sold by such partner pursuant to this
Prospectus and any applicable Prospectus Supplement.
(3) 3,039,468 shares of Class A common stock issuable upon
exercise of the Class A Warrants held by Air Parnters
also may be offered and sold pursuant to this Prospectus.
(4) 6,765,264 shares of Class B common stock issuable upon
exercise of the Class B Warrants held by Air Partners
also may be offered and sold pursuant to this Prospectus.
(5) A limited partner of Air Partners. On the basis of certain
provisions of the limited partnership agreement of Air
Partners, such securityholder may be deemed beneficially to own
a portion of the shares of Class A
common stock held by Air Partners, and the Class A common
stock and Class B common stock issuable pursuant to the
Warrants held by Air Partners, that are attributable to such
limited partnership interests. The table above
assumes that all such securities are offered by Air
Partners, however, and no beneficial
interest in the Offered Securities attributable to such
limited partnership interest is shown. See Note (2)
above.
(6) See Note (2) under "Principal Stockholders."
(7) The estate of Larry L. Hillblom is the sole shareholder of Air Saipan,
Inc., which is a general partner of 1992 Air GP, the
managing general partner of Air Partners. See Note (2)
under "Principal Stockholders."
(8) The estate Larry L. Hillblom owns 60.6 percent of one class
of shares and 100 percent of another class of shares of DHL
Corporation. DHL Corporation, in turn, owns 100 percent of
the outstanding shares of DHL Management Services, Inc.
("DHL Management"). Accordingly, the estate of Mr. Hillblom may be
deemed to own beneficially the 645,940 shares of Class B common
stock of the Company held by DHL Management.
(9) Includes 9,000 shares subject to vested director stock options.
Also includes 60,400 shares held in trusts for the
benefit of Mr. Sturm's children, 30,200 shares held in a charitable
trust for which Mr. Sturm acts as trustee, and 8,600 shares held by a
corporation of which Mr. Sturm is the principal stockholder.
(10) Director of the Company.
(11) General partner of 1992 Air GP, one of the general partners
of Air Partners. See Note(2) above and Note (2) under "Principal
Stockholders."
(12) General partner of Air Partners. See Note (2)
above and Note (2) under "Principal Stockholders."
(13) Mr. Bonderman may be deemed to beneficially own the Offered Securities
held by Bonderman Family Limited Partnership, for which he
acts as general partner, and Air II General, Inc. and 1992
Air, Inc., for which he is, in each case, the controlling
shareholder. By virtue of his position as controlling
shareholder of Air II General, Inc. and 1992 Air, Inc., he
also may be deemed to beneficially own the Offered
Securities held by Air Partners. See Note (2) under
"Principal Stockholders."
(14) Include 9,000 shares subject to vested director stock
options, and 185,368 shares.
(15) Includes 6,000 shares subject to vested director stock
options, and 3,000 shares held in trust for the benefit of
Mr. Barrack's children, as to which shares Mr. Barrack
disclaims beneficial ownership.
(16) Represents shares subject to vested director stock options.
(17) Mr. Foley, as President of DHL Management, also may be
deemed to own the shares held by DHL Management shown above.
(18) Includes 3,000 shares subject to a vested director stock
option.
(19) Includes 9,000 shares subject to vested director stock
options. Also includes 3,000 shares held by Mr. Price's
spouse, as to which shares Mr. Price disclaims beneficial
ownership. Mr. Price, as Managing Director of Air Partners,
also may be deemed to beneficially own the Warrants and
shares of Common Stock held by Air Partners.
(20) Includes 6,000 shares subject to vested director stock
options.
(21) Includes shares subject to vested and unvested stock
options.
(22) Executive officer of the Company.
DESCRIPTION OF CAPITAL STOCK
The current authorized capital stock of the Company
consists of 50,000,000 shares of Class A common stock,
200,000,000 shares of Class B common stock and 50,000,000 shares
of Class D common stock (such classes of common stock referred to
collectively as the "common stock"), and 10,000,000 shares of
preferred stock, $.01 par value (the "Preferred Stock"). On June
26, 1996, the Company announced the Stock Split with respect to
the Company's Class A common stock and Class B common stock,
which was distributed on July 16, 1996 to stockholders of record
as of July 2, 1996. As of July 31, 1996, there were 9,280,000
outstanding shares of Class A common stock, 46,653,176
outstanding shares of Class B common stock and 421,717
outstanding shares of Series A 12% Cumulative Preferred Stock.
Pursuant to the Reorganization (and giving effect to
the recent Stock Split), on April 27, 1993 the Company issued
3,800,000 shares of Class A common stock and 10,084,736 shares of
Class B common stock to a distribution agent for the benefit of
the Company's general unsecured nonpriority prepetition creditors
("Prepetition Creditors"). As of July 31, 1996, there remained
582,906 shares of Class A common stock, 1,524,548 shares of
Class B common stock (after giving effect to the recent Stock
Split), and approximately $1 million of cash available for
distribution. Pending resolution of certain disputed claims, a
distribution agent will continue to hold undistributed Class A
common stock and Class B common stock and will vote such shares
of each class pro rata in accordance with the vote of all other
shares of such class on any matter submitted to a vote of
stockholders. Also pursuant to the Reorganization (and giving
effect to the recent Stock Split), the Company issued 987,242
shares of Class B common stock to its retirement plan.
The following summary description of capital stock
accurately describes the material matters with respect thereto,
but is not intended to be complete and reference is made to the
provisions of the Company's Certificate of Incorporation and
Bylaws and the agreements referred to in this summary
description. As used in this section, except as otherwise stated
or required by context, each reference to Air Canada or Air
Partners includes any successor by merger, consolidation or
similar transaction and any wholly owned subsidiary of such
entity or such successor.
Common Stock--All Classes
Holders of common stock of all classes participate
ratably as to any dividends or distributions on the common stock,
except that dividends payable in shares of common stock, or
securities to acquire common stock, are paid in common stock, or
securities to acquire common stock, of the same class as that
upon which the dividend or distribution is being paid. Upon any
liquidation, dissolution or winding up of the Company, holders of
common stock of all outstanding classes are entitled to share
ratably the assets of the Company available for distribution to
the stockholders, subject to the prior rights of holders of any
outstanding Preferred Stock. Holders of common stock have no
preemptive, subscription, conversion or redemption rights (other
than the conversion rights of holders of Class A common stock
described under "--Class B Common Stock and Class A Common Stock"
and the anti-dilution rights described under "--Corporate
Governance and Control"), and are not subject to further calls or
assessments. Holders of common stock have no right to cumulate
their votes in the election of directors. All classes of common
stock vote together as a single class, subject to the right to a
separate class vote in certain instances required by law and to
the rights of holders of Class D common stock to vote separately
as a class to elect directors as described under "--Special
Classes of Common Stock."
Class B Common Stock and Class A Common Stock
The holders of Class B common stock are entitled to one
vote per share, and the holders of Class A common stock are
entitled to ten votes per share, on all matters submitted to a
vote of stockholders, except that voting rights of non-U.S.
citizens are limited as set forth below under "--Limitation on
Voting by Foreign Owners" and no holder of Class D common stock
can vote any of its Class B common stock for the election of
directors (see "--Special Classes of Common Stock").
Air Canada and Air Partners owned as of July 31, 1996
in the aggregate approximately 19.8% of the outstanding Class A
common stock and Class B common stock, representing approximately
43.3% of total voting power excluding the exercise of Warrants
held by Air Partners) and Air Partners has Warrants to acquire an
additional 6,765,264 shares of Class B common stock and 3,039,468
shares of Class A common stock (together representing
approximately 21% of total voting power, assuming exercise of
such Warrants).
At any time after January 1, 1997, shares of Class A
common stock may be freely converted into an equal number of
shares of Class B common stock. Because the Class A common stock
has ten votes per share and the Class B common stock has one vote
per share, any such conversion would effectively increase the
relative voting power of those Class A stockholders who do not
convert.
Limitation on Voting by Foreign Owners
The Company's Certificate of Incorporation defines
"Foreign Ownership Restrictions" as "applicable statutory,
regulatory and interpretive restrictions regarding foreign
ownership or control of U.S. air carriers (as amended or modified
from time to time)." Such restrictions currently require that no
more than 25% of the voting stock of the Company be owned or
controlled, directly or indirectly, by persons who are not U.S.
Citizens ("Foreigners") for purposes of the Foreign Ownership
Restrictions, and that the Company's president and at least two-
thirds of its other managing officers and directors be U.S.
Citizens. For purposes of the Certificate of Incorporation, "U.S.
Citizen" means (i) an individual who is a citizen of the United
States; (ii) a partnership each of whose partners is an
individual who is a citizen of the United States; or (iii) a
corporation or association organized under the laws of the United
States or a State, the District of Columbia, or a territory or
possession of the United States, of which the president and at
least two-thirds of the board of directors and other managing
officers are citizens of the United States, and in which at least
75% of the voting interest is owned or controlled by persons that
are citizens of the United States. The Certificate of
Incorporation provides that no shares of capital stock may be
voted by or at the direction of Foreigners, unless such shares
are registered on a separate stock record (the "Foreign Stock
Record") maintained by the Company for the registration of
ownership of voting stock by Foreigners. The Company's Bylaws
further provide that no shares will be registered on the Foreign
Stock Record if the amount so registered would exceed the Foreign
Ownership Restrictions or adversely affect the Company's
operating certificates or authorities. Registration on the
Foreign Stock Record is made in chronological order based on the
date the Company receives a written request for registration,
except that certain shares acquired by Air Partners in connection
with its original investment in the Company that are subsequently
transferred to any Foreigner are entitled to be registered prior
to, and to the exclusion of, other shares. Shares currently owned
by Air Canada and registered on the Foreign Stock Record
constitute a portion of the shares that may be voted by
Foreigners under the Foreign Ownership Restrictions.
Corporate Governance and Control
Board of Directors
The Certificate of Incorporation provides that the
Company's Board of Directors shall consist of such number of
directors as may be determined from time to time by the Board of
Directors in accordance with the Bylaws. The Board of Directors
currently consists of 12 directors to be elected by holders of
common stock, subject to the rights of holders of preferred
stock to elect additional directors as set forth in any preferred
stock designation.
Business Combinations
The Certificate of Incorporation provides that the
Company is not governed by Section 203 of the General Corporation
Law of Delaware which, in the absence of such provisions, would
have imposed additional requirements regarding mergers and other
business combinations.
Anti-dilution Rights of Air Partners
Pursuant to the Certificate of Incorporation, Air
Partners has the right to purchase from the Company additional
shares of Class B common stock to the extent necessary to
maintain its pro rata ownership of the outstanding Class B common
stock. Such anti-dilution rights terminate as to Air Partners if
the total voting power of the common stock beneficially owned by
it is less than 20% of the total voting power of all of the
outstanding common stock. Because Air Partners currently does
not own any Class B common stock, such anti-dilution rights are
not operative.
Procedural Matters
The Company's Bylaws require stockholders seeking to
nominate directors or propose other matters for action at a
stockholders' meeting to deliver notice thereof to the Company
certain specified periods in advance of the meeting and to follow
certain other specified procedures.
Change in Control
The cumulative effect of the provisions of the
Certificate of Incorporation and Bylaws referred to under this
section "Description of Capital Stock," and the Stockholders'
Agreement is to maintain certain rights of Air Partners to elect
directors and otherwise to preserve its relative ownership and
voting positions. These provisions may have the effect of
delaying, deferring or preventing a change in control of the
Company.
Special Class of Common Stock
The Certificate of Incorporation authorizes Class D
common stock as a mechanism to provide, under certain
circumstances, a specified level of Board representation for Air
Partners. No shares of Class D common stock are currently
outstanding, and they may only be issued in limited circumstances
upon conversion of Class A common stock held by Air Partners.
Air Partners has the option, which may be exercised only once, to
convert all (but not less than all) shares of Class A common
stock held by it into an equal number of shares of Class D common
stock. Such right of conversion is further conditioned upon Air
Partners' holding common stock having at least 20% of the total
voting power of all classes of common stock.
After such conversion, Air Partners is entitled to
elect one-third of the number of directors determined by the
Board of Directors pursuant to the Bylaws (rounded to the nearest
whole number), voting as a separate class. When shares of Class D
common stock are outstanding, Air Partners may not vote any of
its shares of Class B common stock for the election of directors;
and if Air Partners becomes the beneficial owner of any
additional shares of Class A common stock during such time, such
shares will automatically be converted into Class D common stock.
Each share of Class D common stock has ten votes and, as to
matters other than the election of directors, votes together with
all other classes of common stock as a single class. In the event
the voting power of all common stock held by Air Partners
represents less than 20% of the voting power of all classes of
common stock, all Class D common stock held by Air Partners will
automatically convert into an equal number of shares of Class A
common stock. Shares of Class D common stock also convert
automatically into an equal number of shares of Class A common
stock upon the transfer of record or beneficial ownership of such
Class D common stock to any person other than certain related
parties of the original holder. Air Partners may also at any time
voluntarily convert all (but not less than all) shares of Class D
common stock held by it into an equal number of shares of Class A
common stock. All shares of Class D common stock surrendered by
Air Partners for conversion into Class A common stock will be
canceled and may not be reissued.
Redeemable Preferred Stock
The Company has authorized and issued a class of
preferred stock, designated as Series A 12% Cumulative Preferred
Stock.
Holders of the Series A 12% Preferred are entitled to
receive, when, as and if declared by the Board of Directors,
cumulative dividends payable quarterly in additional shares of
such preferred stock for dividends accumulating through December
31, 1996. Thereafter dividends are payable in cash at an annual
rate of $12 per share; provided, however, that to the extent net
income (as defined in the certificate of designation for the
preferred stock) for any calendar quarter is less than the amount
of dividends due on all outstanding shares of the Series A 12%
Preferred for such quarter, the Board of Directors may declare
dividends payable in additional shares of Series A 12% Preferred
in lieu of cash. At any time, the Company may redeem, in whole or
in part, on a pro rata basis among the stockholders, any
outstanding shares of the Series A 12% Preferred. All outstanding
shares of the Series A 12% Preferred are mandatorily redeemable
on April 27, 2003 out of legally available funds. The redemption
price is $100 per share plus accrued and unpaid dividends. Shares
of the Series A 12% Preferred are not convertible into shares of
common stock and such shares do not have voting rights, except
under limited circumstances described in the following two
paragraphs. Shares of the Series A 12% Preferred have a
liquidation preference of $100 per share plus accrued and unpaid
dividends, senior to any distribution on shares of common stock.
In the event the Company violates certain covenants set
forth in the certificate of designation relating to the Series A
12% Preferred, or fails to pay the full amount of dividends on
the preferred stock for nine consecutive quarterly payment dates
or shall not have redeemed the preferred stock within five days
of the date of any redemption of which the Company has given, or
is required to give, notice (a "Default"), the holders of the
Series A 12% Preferred as to which a Default exists, voting
(subject to the Foreign Ownership Restrictions) together as one
class, are entitled to elect one member of the Board of
Directors. In the event the Company pays in full all dividends
accrued on the preferred stock for three consecutive payment
dates following such Default (and no dividend arrearages exist as
to such stock), or otherwise cures any other default that gives
rise to such voting rights, the holders of the Series A 12%
Preferred will cease to have the right to elect a director.
The consent or approval of the holders of a majority of
the then-outstanding shares of Series A 12% Preferred is required
for the creation of certain classes of senior or parity stock,
certain mergers or sales of substantially all of the Company's
assets, the voluntary liquidation or dissolution of the Company
and amendments to the terms of the preferred stock that would
adversely affect the Series A 12% Preferred.
The Board of Directors of the Company has the
authority, without any vote by the stockholders, to issue
additional shares of preferred stock, up to the number of shares
authorized in the Certificate of Incorporation, as it may be
amended from time to time, in one or more series, and to fix the
number of shares constituting any such series, the designations,
preferences and relative rights and qualifications of such
series, including the voting rights, dividend rights, dividend
rate, terms of redemption (including sinking fund provisions),
redemption price or prices, conversion rights and liquidation
preferences of the shares constituting any series.
Limitation of Director Liability and Indemnification
The Company's Certificate of Incorporation provides, to
the fullest extent permitted by Delaware law as it may from time
to time be amended, that no director shall be liable to the
Company or any stockholder for monetary damages for breach of
fiduciary duty as a director. As required under current Delaware
law, the Company's Certificate of Incorporation and Bylaws
currently provide that such waiver may not apply to liability (i)
for any breach of the director's duty of loyalty to the Company
or its stockholders, (ii) for acts or omissions not in good faith
or that involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation
Law (governing distributions to stockholders), or (iv) for any
transaction from which the director derived any improper personal
benefit. However, in the event the Delaware General Corporation
Law is amended to authorize corporate action further eliminating
or limiting the personal liability of directors, then the
liability of a director of the Company shall be eliminated or
limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended. The Certificate of Incorporation
further provides that the Company will indemnify each of its
directors and officers to the full extent permitted by Delaware
law and may indemnify certain other persons as authorized by law.
The foregoing provisions do not eliminate any monetary liability
of directors under the federal securities laws.
SHARES ELIGIBLE FOR FUTURE SALE
As of July 31, 1996, Continental had a total
of 9,280,000 shares of Class A common stock and 46,653,176
shares of Class B common stock outstanding. As of such date,
approximately 582,906 shares of Class A common stock and
approximately 1,524,548 shares of Class B common stock
were held in trust by a distribution agent pending resolution of
certain disputed claims and subsequent distribution to, or sale
for the benefit of, Prepetition Creditors. Upon distribution to
Prepetition Creditors, these shares will also be freely tradable.
An independent investment manager has discretion over the
continued holding or sale of the 100,000 shares of Class B common
stock held in trust for the benefit of the Company's retirement
plan. All of the above numbers of shares of Class A common stock
and Class B Common Stock give effect to the Stock Split.
Shares of Class A common stock held by Air Partners and
the Class B common stock held by Air Canada are "restricted"
securities within the meaning of Rule 144 under the Securities
Act and may not be sold in the absence of registration under the
Securities Act, unless an exemption from registration is
available, including the exemption provided by Rule 144. The
Company has granted Air Partners and Air Canada extensive demand
and incidental registration rights to have their common stock
registered under the Securities Act in connection with proposed
sales of such stock. Each of Air Canada and Air Partners has
entered into agreements with Continental restricting, prior to
December 16, 1996, the disposition of Continental stock held by
either of them. Air Canada has indicated its intention to
dispose of its remaining equity interest in the Company during
December 1996 or early 1997, subject to market conditions. See
"Recent Developments."
DESCRIPTION OF WARRANTS
General
The Warrants were issued under a Warrant Agreement
dated April 27, 1993 (the "Warrant Agreement") between the
Company and Continental Airlines, Inc., as warrant agent (the
"Warrant Agent"). The material terms of the Warrants and the
Warrant Agreement are summarized below. The statements herein
relating to the Warrants and the Warrant Agreement are summaries
only, however, and do not purport to be complete and reference is
made to the Warrant Agreement, which has been filed as an exhibit
to the Registration Statement of which this Prospectus is a part.
All section references under this heading are references to
sections of the Warrant Agreement.
2,298,134 of the Class A Warrants offered hereby
entitle the holder thereof to purchase one share of Class A
common stock for $7.50 per share, 741,334 Class A Warrants
entitle the holder thereof to purchase one share of Class A
common stock for $15.00 per share, 5,115,200 Class B Warrants
entitle the holder thereof to purchase one share of Class B
common stock for $7.50 per share, and 1,650,064 Class B Warrants
entitle the holder thereof to purchase one share of Class B
common stock for $15.00 per share, in each case, subject to
adjustment as provided in the Warrant Agreement. The Warrants
are exercisable by the holders at any time on or before April 27,
1998 (the "Expiration Date"). (Section 3.01)
Certain Terms of the Warrants
Exercise of Warrants. Warrants may be exercised by
surrendering the Warrant Certificate evidencing such Warrants at
the Warrant Agent's Office with the Election to Exercise form
duly completed and executed. Surrendered Warrant Certificates
must be accompanied by payment in full to the Warrant Agent for
the account of the Company (i) in cash, (ii) by certified or
official bank check or (iii) by any combination of (i) or (ii) of
the exercise price for each share of Common Stock as to which
Warrants are exercised and any applicable taxes that the Company
is not required to pay as set forth in Sections 4.08 or 6.01.
(Section 3.02(a)).
The Company will not be required to issue fractional
shares of Common Stock upon the exercise of the Warrants. In
lieu thereof, the Company, at its option, may purchase the
fraction for an amount in cash equal to the then-current market
value of the fraction (as defined in Section 4.01(d)) or issue
scrip of the Company that is non-dividend bearing, non-voting and
exchangeable in combination with other similar scrip for the
number of full shares of Common Stock represented thereby.
(Section 3.03)
The Company has the right, except as limited by law or
other agreement, to purchase or otherwise acquire Warrants at
such times, in such manner and for such consideration as it may
deem appropriate. (Section 3.04)
The Company will, at all times, reserve and keep
available free of preemptive rights out of its authorized and
unissued Common Stock, the full number of shares of Common Stock,
if any, issuable if all outstanding Warrants then exercisable
were to be exercised. Any shares of Common Stock issued upon a
Warrant holder's exercise of any Warrant shall be validly
authorized and issued, fully paid, non-assessable, and free from
all taxes (other than those required to be paid by the holder or
its transferees). (Sections 3.02(b); 4.06; 4.08)
For a description of the Company's agreement to amend
the terms of the Class B Warrants after December 16, 1996 upon
the request of Air Partners to permit cashless exercises, see
"Principal Stockholders--Warrants."
Adjustment of Warrant Price. The exercise price for
the Warrants and the number of shares of Common Stock purchasable
upon exercise of each Warrant are subject to adjustment in
certain events, including (a) the payment of a dividend or a
distribution to all holders of Common Stock or any class thereof
in Common Stock or any class thereof or combinations or
subdivisions of the Common Stock, (b) the issuance to all holders
of Common Stock or any class thereof of rights or warrants
entitling the holders thereof to purchase Common Stock at a price
per share less than the then-current market price per share
thereof, and (c) certain distributions by the Company to holders
of Common Stock of evidences of its indebtedness or assets
(excluding any cash dividend or distribution) or shares of
capital stock of any class other than Common Stock, all as
described in the Warrant Agreement. The Company is not required
to make any adjustment to the exercise price unless such
adjustment would require an increase or decrease of at least $.05
in the exercise price then subject to adjustment; provided,
however, that any adjustments that are not made for this reason
must be carried forward and taken into account in any subsequent
adjustment. (Section 4.01) The Company may, at its option,
reduce the exercise price at any time.
Rights Upon Consolidation, Merger, Sale, Transfer or
Reclassification. In the event of certain consolidations with or
mergers of the Company into another corporation or in the event
of any lease, sale or conveyance to another corporation of the
property of the Company substantially as an entirety, the holder
of each outstanding Warrant shall have the right to receive, upon
exercise of the Warrant, the kind and amount of shares,
securities, property or cash receivable upon such consolidation,
merger, lease, sale or conveyance by a holder of one share of
Class B Common Stock. (Section 4.05(a))
In the event of any liquidation, dissolution or winding
up of the affairs of the company, each holder of a Warrant may
receive, upon exercise of such Warrant in accordance with the
Warrant Agreement, the same kind and amount of any stock,
securities or assets as may be issuable, distributable or payable
on any such dissolution, liquidation, or winding up with respect
to each share of Class B common Stock of the Company. (Section
4.05(b))
Rights as Warrantholders. A holder of Warrants does
not have any rights whatsoever as a stockholder of the Company,
either at law or equity, including but not limited to the right
to vote at, or to receive notice of, any meeting of stockholders
of the Company. No consent of any holder of Warrants is required
with respect to any action or proceeding of the company, nor do
holders, by reason of the ownership or possession of a Warrant,
have any right to receive any cash dividends, stock dividends,
allotments or rights, or other distributions paid, allotted or
distributed or distributable to the stockholders of the Company.
A holder of a Warrant shall not have any rights unless the right
is expressly conferred by the Warrant Agreement or by a Warrant
Certificate held by the holder. (Section 5.01)
Transfer Agent
The transfer agent for the Warrants is currently
Continental Airlines, Inc.
Listing
The Company has applied for listing of the Warrants on
the NYSE; however, the Company has been informed by the NYSE that
unless and until the Warrants are held by 400 holders, they will
not be approved for listing. The Company does not expect an
active trading market to develop for the Warrants at this time.
PLAN OF DISTRIBUTION
The Company or the Selling Securityholders may from
time to time sell the Offered Securities directly to purchasers
or may from time to time offer the Offered Securities to or
through underwriters, broker/dealers or agents, who may receive
compensation in the form of underwriting discounts, concessions
or commissions from the Company or the Selling Securityholders or
the purchasers of such securities for whom they may act as
agents. The Selling Securityholders and any underwriters,
broker/dealers or agents that participate in the distribution of
Offered Securities may be deemed to be "underwriters" within the
meaning of the Securities Act and any profit on the sale of such
securities and any discounts, commissions, concessions or other
compensation received by any such underwriter, broker/dealer or
agent may be deemed to be underwriting discounts and commissions
under the Securities Act.
The Offered Securities may be sold from time to time in
one or more transactions at fixed prices, at prevailing market
prices at the time of sale, at varying prices determined at the
time of sale or at negotiated prices. The sale of the Offered
Securities may be effected in transactions (which may involve
crosses or block transactions) (i) on any national securities
exchange or quotation service on which the Offered Securities may
be listed or quoted at the time of sale, (ii) in the over-the-
counter market, (iii) in transactions otherwise than on such
exchanges or in the over-the-counter market or (iv) through the
writing of options. At the time a particular offering of the
Offered Securities is made, a Prospectus Supplement, if required,
will be distributed which will set forth the aggregate amount and
type of Offered Securities being offered and the terms of the
offering, including the name or names of any underwriters,
broker/dealers or agents, any discounts, commissions and other
terms constituting compensation from the Company or the Selling
Securityholders pertaining to those securities sold by them and
any discounts, commissions or concessions allowed or reallowed or
paid to broker/dealers.
To comply with the securities laws of certain
jurisdictions, if applicable, the Offered Securities will be
offered or sold in such jurisdictions only through registered or
licensed brokers or dealers. In addition, in certain
jurisdictions the Offered Securities may not be offered or sold
unless they have been registered or qualified for sale in such
jurisdictions or any exemption from registration or qualification
is available and is complied with.
Under the Exchange Act and applicable rules and
regulations promulgated thereunder, any person engaged in a
distribution of any of the Offered Securities may not
simultaneously engage in market making activities with respect to
the Securities for a period, depending upon certain
circumstances, of either two days or nine days prior to the
commencement of such distribution. In addition, and without
limiting the foregoing, the Selling Securityholders will be
subject to applicable provisions of the Exchange Act and the
rules and regulations promulgated thereunder, including without
limitation Rules 10b-6 and 10b-7, which provisions may limit the
timing of purchases and sales of any of the Offered Securities by
the Selling Securityholders. The foregoing may affect the
marketability of such securities.
Pursuant to the Registration Rights Agreement and as
otherwise agreed by the Company, all expenses of the registration
of the Offered Securities will be paid by the Company, including,
without limitation, Commission filing fees and expenses of
compliance with state securities or "blue sky" laws; provided,
however, that the Selling Securityholders will pay all
underwriting discounts and selling commissions pertaining to
those securities sold by them, if any. Subject to certain
conditions, the Selling Securityholders will be indemnified by
the Company, jointly and severally against certain civil
liabilities, including certain liabilities under the Securities
Act, or will be entitled to contribution in connection therewith.
Subject to certain conditions, the Company will be indemnified by
the Selling Securityholders, severally against certain civil
liabilities, including certain liabilities under the Securities
Act, or will be entitled to contribution in connection therewith.
LEGAL MATTERS
Unless otherwise specified in the applicable Prospectus
Supplement, the validity of the Warrants and certain United States
Federal income taxation matters with respect to Section 382 will
be passed upon for the Company by Cleary, Gottlieb, Steen &
Hamilton, New York, New York. The validity of the Continental
Class A common stock and Class B common stock, including the common
stock underlying the Warrants, will be passed upon for the Company
by Scott R. Peterson, Managing Attorney of Continental.
EXPERTS
The consolidated financial statements (including
schedules) of Continental Airlines, Inc. appearing in Continental
Airlines, Inc.'s Annual Report (Form 10-K) as of December 31,
1995 and 1994, and for the two years ended December 31, 1995
and the period April 28, 1993 through December 31, 1993, and the
consolidated statements of operations, redeemable and non-
redeemable preferred stock and common stockholders' equity and
cash flows of Continental Airlines Holdings, Inc. for the period
January 1, 1993 through April 27, 1993, incorporated by reference
in this Prospectus have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference, in
reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
No dealer, salesperson or other individual has been authorized
to give any information or to make any representations other than
those contained in this Prospectus. If given or made, such information
or representations must not be relied upon as having been authorized by
the Company, any Selling Securityholder or any underwriter.
This Prospectus does not constitute an offer to sell or the solicitation
of an offer to buy any of the securities offered hereby in any
jurisdiction where, or to any person to whom, it is unlawful to make such
offer or solicitation. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create any
implication that there has not been any change in the facts set forth in
this Prospectus or in the affairs of the Company since the date hereof.
_______________
TABLE OF CONTENTS
Page
Available Information 2
Incorporation of Certain Documents by Reference 2
Risk Factors 3
The Company 8
Recent Developments 8
Use of Proceeds 10
Market Price of Common Stock and Dividends 11
Selected Financial Data 12
Principal Stockholders 14
Selling Securityholders 17
Description of Capital Stock 20
Shares Eligible for Future Sale 24
Description of Warrants 25
Plan of Distribution 27
Legal Matters 27
Experts 28
Continental Airlines, Inc.
8,543,868 Shares of
Class A common stock
21,669,759 Shares of
Class B common stock
3,039,468 Class A
Warrants
6,765,264 Class B
Warrants
PROSPECTUS
Dated August 15, 1996