AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 8, 1996
REGISTRATION NO. 333-02701
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CONTINENTAL AIRLINES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 74-2099724
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) NUMBER)
2929 ALLEN PARKWAY, SUITE 2010
HOUSTON, TEXAS 77019
(713) 834-2950
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
JEFFERY A. SMISEK, ESQ.
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
CONTINENTAL AIRLINES, INC.
2929 ALLEN PARKWAY, SUITE 2010
HOUSTON, TEXAS 77019
(713) 834-2950
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES OF CORRESPONDENCE TO:
MICHAEL L. RYAN, ESQ. STEPHEN A. GREENE, ESQ.
CLEARY, GOTTLIEB, STEEN & HAMILTON CAHILL GORDON & REINDEL
ONE LIBERTY PLAZA 80 PINE STREET
NEW YORK, NEW YORK 10006 NEW YORK, NEW YORK 10005
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement is declared
effective.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box: [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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CONTINENTAL AIRLINES, INC.
CROSS-REFERENCE SHEET
(PURSUANT TO ITEM 501(a) OF REGULATION S-K SHOWING LOCATION
IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS IN FORM S-3)
FORM S-
3 ITEM NUMBER AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
------------------------- ---------------------------------
1. Forepart of Registration
Statement and Outside Front
Cover Page of Prospectus.... Facing Page of Registration Statement;
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus... Available Information; Incorporation of
Certain Documents by Reference; Inside
Front Cover Page of Prospectus; Outside
Back Cover Page of Prospectus
3. Summary Information, Risk
Factors and Ratio of
Earnings to Fixed Charges... Prospectus Summary; Risk Factors
4. Use of Proceeds.............. Use of Proceeds
5. Determination of Offering
Price....................... Not Applicable
6. Dilution..................... Not Applicable
7. Selling Security Holders..... Principal and Selling Stockholders
8. Plan of Distribution......... Underwriting
9. Description of Securities to
be Registered............... Not Applicable
10. Material Changes............. Recent Developments; Principal and Selling
Stockholders; Description of Capital Stock
11. Incorporation of Certain
Documents by Reference...... Incorporation of Certain Documents by
Reference
12. Disclosure of Commission
Position on Indemnification
For Securities Act
Liabilities................. Not Applicable
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be used
in connection with an offering in the United States and Canada (the "U.S.
Prospectus") and one to be used in a concurrent offering outside the United
States and Canada (the "International Prospectus"). The two prospectuses are
identical except for the front and back cover pages and the section entitled
"Underwriting." The form of U.S. Prospectus is included herein and is followed
by the alternate pages to be used in the International Prospectus. Each of the
alternate pages for the International Prospectus included herein is labeled
"Alternate Page for International Prospectus." Final forms of each Prospectus
will be filed with the Securities and Exchange Commission under Rule 424(b).
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY 8, 1996
PROSPECTUS
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4,271,015 SHARES
CONTINENTAL [LOGO]
AIRLINES
CLASS B COMMON STOCK
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Of the 4,271,015 shares (the "Shares") of Class B common stock, par value
$.01 per share (the "Class B common stock"), of Continental Airlines, Inc. (the
"Company" or "Continental") offered hereby, 3,416,812 Shares are being offered
in the United States and Canada (the "U.S. Shares") by the U.S. Underwriters
(the "U.S. Offering"), and 854,203 Shares are being concurrently offered
outside the United States and Canada by the International Underwriters (the
"International Offering" and, together with the U.S. Offering, the "Offering").
The offering price and underwriting discounts and commissions of the U.S.
Offering and the International Offering are identical. See "Underwriting."
All of the Shares offered hereby are being sold by Air Canada, a Canadian
corporation ("Air Canada"), and certain partners of Air Partners, L.P., a Texas
limited partnership ("Air Partners") (collectively, the "Selling
Stockholders"). See "Principal and Selling Stockholders." Continental will not
receive any of the proceeds from the sale of the Shares by the Selling
Stockholders.
The Class B common stock is listed on the New York Stock Exchange, Inc. (the
"NYSE") under the trading symbol "CAI.B." On May 7, 1996, the last reported
sale price of the Class B common stock on the NYSE was $54.00 per share. See
"Market Price of Common Stock and Dividends."
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN EVALUATING
AN INVESTMENT IN THE SHARES, SEE "RISK FACTORS" ON PAGES 12 TO 15.
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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.
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PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) STOCKHOLDERS(2)
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Per Share......................... $ $ $
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Total(3).......................... $ $ $
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(1) The Company and the Selling Stockholders have severally agreed to indemnify
the several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) The Company has agreed to pay certain expenses of the Offering estimated at
$350,000.
(3) Air Canada has granted the U.S. Underwriters a 30-day option to purchase up
to 200,000 additional shares of Class B common stock on the same terms and
conditions as set forth above. If all such additional shares are purchased
by the Underwriters, the total Price to Public will be $ , the total
Underwriting Discount will be $ and the total Proceeds to Selling
Stockholders will be $ . See "Underwriting."
-----------
The Shares are offered by the several Underwriters, subject to prior sale,
when, as and if delivered to and accepted by them, subject to approval of
certain legal matters by counsel to the Underwriters, and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the Shares will be made in New York, New York on or about ,
1996.
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MERRILL LYNCH & CO.
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS
MORGAN STANLEY & CO.
INCORPORATED
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The date of this Prospectus is , 1996.
AVAILABLE INFORMATION
Continental 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. In addition, reports, proxy statements and other
information concerning Continental may be inspected and copied at the offices
of the New York Stock Exchange, Inc., 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 of 1933, as
amended (the "Securities Act"). 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, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies may be
obtained at fees and charges prescribed by the Commission.
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SHARES
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NYSE OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
DURING THIS OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING
IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNT OR FOR
THE ACCOUNTS OF OTHERS IN THE SHARES PURSUANT TO EXEMPTIONS FROM RULES 10B-6,
10B-7, AND 10B-8 UNDER THE EXCHANGE ACT.
FOR FLORIDA RESIDENTS
The Company does not conduct business with the government of Cuba or any
person or affiliate located in Cuba, except that Continental aircraft conduct
Cuban overflights for which Continental makes monthly payments through a
clearing house of Cubana de Aviacion pursuant to a specific license from the
Office of Foreign Assets Control, United States Department of Treasury.
The information set forth above is accurate as of the date hereof. Current
information concerning the Company's business dealings with the government of
Cuba or with any person or affiliate located in Cuba may be obtained from the
Division of Securities and Investor Protection of the Florida Department of
Banking and Finance, The Capital, Tallahassee, Florida 32399-0350, telephone
number (904) 488-9805.
2
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 the Class B common stock contained in Continental's
registration statement (RegistrationNo. 0-21542) on Form 8-A, (iii)
Continental's Quarterly Report on Form 10-Q for the quarter ended March 31,
1996 and (iv) Continental's Current Reports on Forms 8-K, filed on January 31,
1996, March 26, 1996 and May 7, 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 Securities offered hereby 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.
3
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by the
detailed information and financial statements (including the notes thereto)
appearing elsewhere or incorporated by reference in this Prospectus.
Prospective investors should consider carefully the matters discussed under the
caption "Risk Factors." Unless otherwise stated or unless the context otherwise
requires, references to "Continental" or the "Company" include Continental
Airlines, Inc. and its predecessors and subsidiaries. All route, fleet, traffic
and similar information appearing in this Prospectus is as of or for the period
ended March 31, 1996, unless otherwise stated herein.
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 three months of 1996) and, together with its wholly owned subsidiary,
Continental Express, Inc. ("Express"), and its 91%-owned subsidiary,
Continental Micronesia, Inc. ("CMI"), serves 175 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 51%, 78%, 54% and 58% of all daily jet departures, respectively.
Continental directly serves 118 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 57 destinations and
offers additional connecting service through alliances with foreign carriers.
Continental operates 52 weekly departures to five European cities and markets
service to four other cities through code-sharing agreements. 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 and plans to
commence service between Newark and Bogota, Colombia, with service on to Quito,
Ecuador, in June 1996. 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.
In late 1994 and early 1995, Continental's new management team, led by Gordon
Bethune (President and Chief Executive Officer) and Greg Brenneman (Chief
Operating Officer), put in place a comprehensive strategic and operational plan
designed to fundamentally change the Company. The plan, labeled the "Go Forward
Plan," was a "back to basics" approach, which focused on improving
profitability and financial condition by delivering a consistent quality
product to customers and improving employee morale and working conditions.
Management believes that the initiatives put in place under the Go Forward
Plan and the support of Continental's employees contributed significantly to
the Company's record $224 million in net income and other accomplishments in
1995. These accomplishments included substantial improvements in revenue per
available seat mile, load factor and yields, increased cash from operations,
consistent interior and exterior aircraft appearance, achievement of number one
ranking in on-time performance and fewest mishandled bags among major carriers
in the fourth quarter (as reported by the U.S. Department of Transportation
("DOT")), significant reductions in customer complaints, payment of profit
sharing to employees, and improved employee relations (including signing the
first collective bargaining agreement with pilots in 12 years).
4
In addition, management believes that these Go Forward Plan initiatives and
Continental employee support have continued to contribute to the Company's
results in 1996, as evidenced by the Company's $88 million net income for the
first quarter and substantially higher revenue per available seat mile, load
factor and yields, as compared with the first quarter of 1995.
1996 GO FORWARD PLAN
The Company's 1996 Go Forward Plan combines the four basic components of the
1995 plan, Fly to Win, Fund the Future, Make Reliability a Reality and Working
Together, with new initiatives intended to build upon Continental's operational
and strategic strengths.
Fly to Win. The Company's 1996 Fly to Win initiatives center around three
principal themes: Focus on Hub Operations, Improve Business/Leisure Mix and
Develop an Alliance Network.
Focus on Hub Operations. Continental plans to continue focusing on its hub
operations, adding selected flights and refining its scheduling to
capitalize on the strength of its hubs. The last 9 jet aircraft currently
deployed to serve Greensboro, North Carolina as a "mini-hub" are scheduled
to be redeployed in June to bolster the Company's Newark and Houston hubs.
In 1996, Continental will also focus on expanding international traffic
through service to new destinations and additional code-sharing alliances
with foreign carriers.
. Newark. Continental is the only major U.S. carrier with a hub in the New
York metropolitan area, the largest population center in the United
States. Through its state-of-the-art facility, Continental operates 51%
(214 departures) of the average daily jet departures and, together with
Express, accounted for 57% (333 departures) of all average daily
departures (jet and turboprop) from Newark. As the only hub carrier in
the New York metropolitan area, Continental believes it has several
advantages. For example, in addition to international travelers
attracted to the New York metropolitan area as a tourist and business
destination, Continental's Newark hub attracts international travelers
seeking convenient connections to other destinations throughout the
Company's route system. Management believes that combining the Company's
own flying with alliance flying (discussed below) over the next few
years can develop Newark into a global gateway of considerable
significance. A new international passenger facility was opened at
Newark in 1996 to permit growth in international service, and a
passenger monorail is expected to open in the next few months which will
allow prompt connections between the international facility (Terminal B)
and the Company's domestic operations in Terminal C.
. Houston. Continental operates 55% (308 departures) of average daily jet
departures and together with Express accounted for 60% (418 departures)
of all average daily departures from Houston Intercontinental and Hobby
airports. The Company occupies space in two terminals (C and IAB) at
Houston Intercontinental and has realigned the Houston hub's gate
structure to allow for more convenient connections of domestic and
international flights. Management believes that Houston is also well
suited for east/west connecting traffic and features faster ground
connection times than the east/west hubs of certain of its principal
competitors. Management believes that Houston, like Newark, has
significant growth potential. Continental currently has 41 gates under
use at Intercontinental airport at the time of peak bank departures.
This compares to approximately 55 gates used by American Airlines at
Dallas-Fort Worth International Airport during peak bank departures and
approximately 50 gates used by Northwest Airlines at Minneapolis during
peak bank departures. The Company is currently negotiating with the City
of Houston for an additional 10 gates at Intercontinental airport.
Houston is the focus of Continental's operations in Mexico and Central
America, serving 11 cities in Mexico and every country in Central
America. Continental serves more destinations in Mexico than any other
United States airline. Continental also serves three cities in South
America through its Houston hub, flies directly to London and Paris and
has code-sharing agreements through Newark for Rome, Milan, Amsterdam and
Prague.
5
. Cleveland. Continental operates 54% (106 departures) of the average
daily jet departures and, together with Express, accounted for 62% (216
departures) of all average daily departures from Cleveland. Management
believes that Cleveland is currently underserved as a hub, given the
size of its population base relative to that of other hub cities (such
as Pittsburgh and Cincinnati) with higher levels of service. In 1996,
Continental intends to begin expansion of service at Cleveland, in part
by adding Express flights to new destinations in the midwestern United
States. Management expects these Express flights to generate additional
feed traffic that ultimately can support additional jet service in
Cleveland.
. Guam/Saipan. CMI is a United States-certificated international carrier
engaged in the business of transporting passengers, cargo and mail in
the western Pacific. From its hub operations based on Guam and Saipan,
CMI provides service to seven cities in Japan, more than any other
United States carrier, and to other Pacific rim destinations, including
Taiwan, the Philippines, Hong Kong, South Korea and Indonesia. Service
to these Japanese cities and certain other Pacific rim destinations is
subject to a variety of regulatory restrictions, limiting the ability of
other carriers to begin servicing these markets. CMI is the principal
air carrier in the Micronesian Islands, where it pioneered scheduled air
service in 1968. CMI's route system is linked to the United States
market through Honolulu, which CMI serves non-stop from both Tokyo and
Guam. CMI and Continental also maintain a code-sharing agreement and
coordinate schedules on certain flights from the west coast of the
United States to Honolulu, and from Honolulu to Guam and Tokyo to
facilitate travel from the United States into CMI's route system.
Management believes that by adding domestic and international flights to
the Company's hubs, attracting more international passengers through
alliances with foreign carriers and further refining the efficiency of
the Company's hub operations, Continental can continue to capture
additional flow traffic through its hubs and attract a larger share of
higher yielding business travelers, while growing both its domestic and
international operations.
Improve Business/Leisure Mix. The Company's passenger load factors have
increased substantially from 59.7% in the first quarter of 1995 to 67.0% in
the first quarter of 1996. This increase in load factor facilitates the
Company's efforts to manage the business versus leisure traveler mix on its
aircraft. Since the average business traveler generally pays a higher fare
(on a revenue per seat mile basis) for the convenience of booking later and
being able to make last minute travel changes, increases in business
traffic contribute to incremental profitability. Business fares (i.e.,
unrestricted fares) accounted for approximately 44.8% of the Company's
passenger revenue in the first quarter of 1996 compared to 37.8% in the
first quarter of 1995. The Company has recently invested in state-of-the-
art revenue management and pricing systems, which management believes will
enhance its ability to manage the business versus leisure mix.
Develop an Alliance Network. Management believes that developing a network
of international alliance partners will better leverage the Company's hub
assets and result in improved returns to the Company. Focusing on multiple
tactical alliances allows the Company to benefit from the strengths of its
alliance partners in their local markets while reducing the Company's
reliance on any individual alliance partner.
Management has a goal of developing alliance relationships that, together
with the Company's own flying, would permit expanded service out of Newark
to major destinations in South America, Europe and Asia, and would permit
expanded service out of Houston to certain destinations in South America
and Europe, and service to Japan. Certain route authorities that would be
required for the Company's own service to certain of these destinations are
not currently available to the Company.
6
Continental currently has international code-sharing alliances with
Alitalia Airlines ("Alitalia"), Air Canada, Transavia Airlines
("Transavia") and CSA Czech Airlines, and joint marketing agreements with
other airlines not involving code-sharing. The Company has recently entered
into code-sharing agreements or arrangements with China Airlines, the TACA
Group (serving Central America and the northern tier of South America) and
World Airways (serving South Africa, Senegal, Israel and two points in
Ireland); all of these agreements or arrangements are scheduled to be
implemented by the end of the second quarter. The Company anticipates
entering into other code-sharing agreements in 1996.
Fund the Future. Having achieved its 1995 goals of building overall liquidity
and improving financial condition, management is shifting its financial focus
in 1996 to target the Company's interest and lease expense. Through refinancing
and other initiatives, management hopes to achieve substantial reductions in
interest and lease expense attributable to financing arrangements that were
entered into when the Company was in a less favorable financial position.
In the first quarter of 1996, the Company completed a number of transactions
intended to strengthen its long-term financial position and enhance earnings:
. In January, the Company consummated the offering of $489 million of
enhanced pass-through certificates that refinanced the underlying debt
associated with 18 leased aircraft and will reduce Continental's annual
operating lease expense by more than $15 million for the affected
aircraft.
. During January and February, Continental repurchased or redeemed without
prepayment penalty the remaining amount of the Series A convertible
secured debentures for $125 million (including payment-in-kind interest
of $7 million).
. In February, Continental sold approximately 1.4 million of the shares it
owned in America West, realizing net proceeds of approximately $25
million and recognizing a gain of $12.5 million.
. In March, Continental completed the offering of $230 million of 6 3/4%
convertible subordinated notes.
. In March, Continental repaid $257 million of secured indebtedness to
General Electric Company and affiliates (collectively, "GE") (of which
$47 million was required as a result of the convertible debt financing
and the America West stock sale and $210 million was an optional
prepayment), obtaining the elimination of certain restrictive covenants.
Make Reliability a Reality. Customer service will continue to be a focus in
1996. Management believes Continental's on-time performance record is crucial
to its other operational objectives and, together with its other initiatives
(such as improved baggage handling and customer satisfaction) is an important
tool to attract higher-margin business travelers.
Continental's goal for 1996 is to be ranked monthly by the DOT among the top
three major carriers in on-time performance, baggage handling and customer
satisfaction. In 1995, $65 bonuses were paid to employees (up to the manager
level) for each month that the Company ranked among the top five major carriers
for on-time performance statistics. For 1996, bonuses of $65 will continue to
be paid to these employees for each month that Continental ranks second or
third in on-time performance, and bonuses of $100 will be paid for each month
that Continental ranks first.
In addition to programs intended to improve Continental's standings in DOT
performance data, the Company has acted in a number of additional areas to
enhance Continental's attractiveness to business travelers and the travel agent
community. Specifically, Continental implemented various initiatives designed
to offer travelers cleaner, more attractive aircraft interiors; consistent
interior and exterior decor; first class seating on all jet aircraft; better
meals; and greater benefits under its award-winning frequent flyer program. In
1996, Continental intends to continue making improvements designed to attract
business travelers, such as upgraded on-board telecommunications, entertainment
and information systems, refurbished Presidents Clubs with
7
specialty bars, and on-board specialty coffees and microbrewery beer, among
others. The Company continues to refine its award-winning BusinessFirst
service.
Working Together. Management believes that Continental's employees are its
greatest asset, as well as the cornerstones of improved reliability and
customer service. Management has introduced a variety of programs to increase
employee participation and foster a sense of shared community. These
initiatives include significant efforts to communicate openly and honestly with
all employees through daily news bulletins, weekly voicemail updates from
Gordon Bethune, quarterly Continental publications, videotapes mailed to
employees, and Go Forward Plan bulletin boards in all departments system-wide.
In addition, regularly scheduled visits to airports throughout the route system
are made by the senior executives of the Company (each of whom is assigned an
airport for this purpose) and monthly meetings open to all employees, as well
as other periodic on-site visits by management designed to encourage employee
participation and cooperation.
Management believes that it enjoys good relations with all employee groups.
The Company's jet pilots are represented by the Independent Association of
Continental Pilots ("IACP"), which signed a collective bargaining agreement,
which was ratified by the union membership, effective July 1, 1995. This
agreement was the first collective bargaining agreement with the Company's
pilots in 12 years.
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.
8
THE OFFERING
Shares Offered by
Selling Stockholders(1):
U.S. Offering.......... 3,416,812 Shares
International
Offering.............. 854,203 Shares
----------------
Total................ 4,271,015 Shares
================
Shares Outstanding after
the Offering(2):
Class A................ 4,640,000 shares
Class B................ 23,153,180 shares
-----------------
Total................ 27,793,180 shares
=================
Use of Proceeds.......... The Company will not receive any proceeds from the
Offering.
Voting Control........... Assuming consummation of the Offering (and exercise of
the Underwriters' overallotment option) and consumma-
tion of the transactions described under "Recent Devel-
opments," approximately 4.0% of the general voting
power and 10.1% of the common equity interests would be
held by Air Canada and 9.9% of the common equity inter-
ests and 39.4% of the general voting power would be
held by Air Partners. In addition, assuming exercise of
all of the warrants held by Air Partners, approximately
52.2% of the general voting power and 23.4% of the com-
mon equity interests would be held by Air Partners. See
"Recent Developments" and "Principal and Selling Stock-
holders."
The Company, Air Canada and Air Partners have agreed to
amend the Subscription and Stockholders' Agreement
dated as of April 27, 1993 among the Company, Air Part-
ners and Air Canada (the "Stockholders' Agreement") and
certain related agreements upon the closing of the Of-
fering (except for certain specified provisions which
were amended, effective April 19, 1996) as part of the
consummation of the transactions described under "Re-
cent Developments." In addition, at its annual meeting
of stockholders to be held June 26, 1996 (the "Annual
Meeting"), the Company has proposed to eliminate a num-
ber of the provisions of the Company's Restated Certif-
icate of Incorporation (the "Certificate of Incorpora-
tion") that currently provide Air Partners and Air Can-
ada special rights. See "Recent Developments" and "De-
scription of Capital Stock."
Limitations on Foreign
Ownership of Common Foreign Ownership Restrictions (as defined herein) con-
Stock................... tained in the Company's Certificate of Incorporation
and bylaws (the "Bylaws") limit the number of shares of
voting stock that may be voted by foreign holders. See
"Description of Capital Stock--Class A Common Stock and
Class B Common Stock--Limitation on Voting by Foreign
Owners."
NYSE Symbol.............. "CAI.B"
- --------
(1) Excludes 200,000 shares subject to the Underwriters' overallotment option.
(2) Excludes (a) 1,519,734 shares of Class A common stock, (b) 3,382,632 Class
B common stock reserved for issuance upon exercise of warrants held by Air
Partners and (c) shares of Class B common stock issued after April 30, 1996
pursuant to the Company's employee benefit plan; reflects the contemplated
conversion by Air Canada of all its 1,661,056 shares of Class A common
stock into Class B common stock.
9
SUMMARY FINANCIAL AND OPERATING DATA
The following tables summarize certain financial and operating data of the
Company and certain financial data of Holdings. The consolidated financial data
of both the Company, for the two 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 (as defined herein), the Company adopted
fresh start reporting in accordance with SOP 90-7 (as defined herein). 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 months ended March 31, 1996 and 1995 are derived from its unaudited
consolidated financial statements. The unaudited consolidated financial
statements 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 three months ended March 31, 1996 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1996. The summary consolidated financial data should be read in conjunction
with, and are qualified in their entirety by reference to, the Company's
consolidated financial statements, including the notes thereto, incorporated by
reference herein. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
PERIOD FROM PERIOD FROM
REORGANIZATION JANUARY 1,
THREE MONTHS YEAR ENDED (APRIL 28, 1993 1993
ENDED MARCH 31, DECEMBER 31, THROUGH THROUGH
----------------- --------------- DECEMBER 31, APRIL 27,
1996 1995 1995 1994 1993) 1993
------- -------- ------ ------- --------------- -----------
(IN MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
(UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Operating Revenue:
Passenger................................................... $ 1,375 $ 1,240 $5,302 $ 5,036 $ 3,493 $1,622
Cargo, mail and other....................................... 114 169 523 634 417 235
------- -------- ------ ------- ------- ------
1,489 1,409 5,825 5,670 3,910 1,857
Operating Expenses........................................... 1,369 1,381 5,440 5,681 3,815 1,971
------- -------- ------ ------- ------- ------
Operating Income (Loss)..................................... 120 28 385 (11) 95 (114)
------- -------- ------ ------- ------- ------
Nonoperating Income (Expense):
Interest expense............................................ (47) (53) (213) (241) (165) (52)
Interest capitalized........................................ 1 1 6 17 8 2
Interest income............................................. 9 6 31 23 14 --
Gain on System One transactions............................. -- -- 108 -- -- --
Reorganization items, net................................... -- -- -- -- -- (818)
Other, net.................................................. 12 (10) (7) (439)(1) (4) 5
------- -------- ------ ------- ------- ------
(25) (56) (75) (640) (147) (863)
------- -------- ------ ------- ------- ------
Income (Loss) before Income Taxes, Minority Interest and
Extraordinary Gain.......................................... 95 (28) 310 (651) (52) (977)
Net Income (Loss)............................................ $ 88 $ (30) $ 224 $ (613) $ (39) $2,640(2)
Earnings (Loss) per Common and Common Equivalent Share....... $ 2.70 $ (1.21) $ 7.20 $(23.76) $ (2.33) N.M.(3)
======= ======== ====== ======= =======
Earnings (Loss) per Common Share Assuming Full Dilution...... $ 2.36 $ (1.21) $ 6.29 $(23.76) $ (2.33) N.M.(3)
======= ======== ====== ======= =======
10
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
---------------- ------------------------------
1996 1995 1995 1994 1993 1992
------- ------- ------ ------ ------ ------
OPERATING DATA (UNAUDITED):
(4)
Revenue passenger miles
(millions)................. 9,752 9,561 40,023 41,588 42,324 43,072
Available seat miles
(millions)................. 14,551 16,003 61,006 65,861 67,011 67,877
Passenger load factor....... 67.0% 59.7% 65.6% 63.1% 63.2% 63.5%
Breakeven passenger load
factor..................... 61.0% 58.2% 60.8% 62.9% 63.3% 65.4%
Passenger revenue per
available seat mile
(cents).................... 8.90 7.37 8.20 7.22 7.17 6.66
Operating cost per available
seat mile (cents).......... 8.92 7.90 8.36 7.86 7.90 7.56
Average yield per revenue
passenger mile (cents)..... 13.28 12.34 12.51 11.44 11.35 10.49
Average length of aircraft
flight (miles)............. 876 803 836 727 856 851
AS OF AS OF
MARCH 31, DECEMBER 31,
1996 1995
----------- ------------
(IN MILLIONS OF DOLLARS)
(UNAUDITED)
BALANCE SHEET DATA:
Cash and Cash Equivalents, including restricted Cash
and Cash Equivalents of $124 and $144,
respectively(5)...................................... $ 657 $ 747
Other Current Assets.................................. 655 568
Total Property and Equipment, Net..................... 1,410 1,461
Routes, Gates and Slots, Net.......................... 1,517 1,531
Other Assets, Net..................................... 507 514
------ ------
Total Assets......................................... $4,746 $4,821
====== ======
Current Liabilities................................... $2,040 $1,984
Long Term Debt and Capital Leases..................... 1,462 1,658
Deferred Credits and Other Long-term Liabilities...... 542 564
Minority Interest..................................... 28 27
Continental-Obligated Mandatorily Redeemable Preferred
Securities of Trust(6)............................... 242 242
Redeemable Preferred Stock............................ 42 41
Common Stockholders' Equity........................... 390 305
------ ------
Total Liabilities and Stockholders' Equity........... $4,746 $4,821
====== ======
- --------
(1) 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.
(2) Includes a $3.6 billion extraordinary gain from the extinguishment of debt.
(3) 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.
(4) Operating cost and breakeven passenger load factor data for periods prior
to April 28, 1993 are not comparable with data after April 27, 1993.
(5) 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 its loan agreement with GE to maintain certain
minimum cash balances and net worth levels, which effectively restrict the
amount of cash available to Continental from CMI.
(6) The sole assets of the Trust are convertible subordinated debentures which
are expected to be repaid by 2020. Upon repayment, the Continental-
Obligated Mandatorily Redeemable Preferred Securities of Trust will be
mandatorily redeemed.
11
RISK FACTORS
Prospective investors should carefully consider the factors set forth below,
in addition to the other information contained or incorporated by reference in
this Prospectus, in evaluating an investment in the Shares offered hereby.
CONTINENTAL'S HISTORY OF OPERATING LOSSES
Although Continental recorded net income of $224 million in 1995 and $88
million in the three months ended March 31, 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 March 31, 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 $702 million
of minority interest, preferred securities of trust, 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 March 31, 1996, Continental had approximately $657 million of cash and
cash equivalents, including restricted cash and cash equivalents of $124
million. Continental does not have general lines of credit and has no
significant unencumbered assets.
Continental has firm commitments with The Boeing Company ("Boeing") to take
delivery of 43 new jet aircraft during the years 1998 through 2002. The
estimated aggregate cost of these aircraft is $2.6 billion. In addition, six
Beech 1900-D turboprop 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 Beech
Acceptance Corporation ("Beech") will be sufficient to fund all 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.
For 1996, Continental expects to incur cash expenditures under operating
leases of approximately $586 million, compared with $521 million for 1995,
relating to aircraft 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."
12
Continental and CMI have secured borrowings from GE which aggregated $373
million as of March 31, 1996. CMI's secured loans contain significant
financial covenants, including requirements to maintain a minimum cash balance
and consolidated net worth, restrictions on unsecured borrowings and mandatory
prepayments on the sale of most assets. These financial covenants limit the
ability of CMI to pay dividends to Continental. In addition, Continental's
secured loans require Continental to, among other things, maintain a minimum
cumulative operating cash flow, a minimum monthly cash balance and a minimum
ratio of operating cash flow to fixed charges. Continental also is prohibited
generally from paying cash dividends on its capital stock, from purchasing or
prepaying indebtedness and from incurring certain additional secured
indebtedness.
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 12.9% for
the three months ended March 31, 1996), significant changes in fuel costs
would materially affect the Company's operating results. Fuel prices continue
to be susceptible to international events, and have risen in recent months.
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 seven 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, however, Continental will be required to begin accruing
tax expense on its income statement once it has realized an additional $122
million of taxable income following March 31, 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 resulting from this offering will give rise
to an increase in percentage ownership by certain stockholders for this
purpose. Based upon the advice of counsel, the Company believes that such
percentage increase will not give rise to an ownership change under Section
382 as a result of the Offering. 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. This Section 382 limitation
for any post-change year would be 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 is 5.31%
for April 1996). Unused annual limitation may be carried over to later years,
and 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 a minimum of approximately $90 million.
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 net operating loss
carryforwards as required by Statement of Financial Accounting Standards No.
109--"Accounting for Income Taxes." Realization of a substantial portion of
the Company's net operating loss carryforwards will require the completion
during the five-year period following the Reorganization of transactions
resulting in recognition of
13
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 March 31, 1996, approximately 9.9% of the Company's common equity
interests and approximately 32.4% of the general voting power of the Company's
common stock were held by Air Partners (after giving effect to the
distribution, effective March 29, 1996, of all the 2,742,773 shares of Class B
common stock held by Air Partners to its partners), and approximately 18.0% of
the common equity interests and 23.6% of the general voting power were held by
Air Canada, exclusive in each case of warrants held by Air Partners and
certain exchange rights of Air Canada. Assuming (i) consummation of the
transactions described under "Recent Developments," (ii) consummation of this
Offering (and exercise of the Underwriters' overallotment option) and (iii)
exercise of the warrants held by Air Partners, approximately 8.6% of the
common equity interests and 3.2% of the general voting power would be held by
Air Canada, and 23.4% of the common equity interests and 52.2% of the voting
power would be held by Air Partners. See "Principal and Selling Stockholders."
Various provisions in the Company's Certificate of Incorporation, Bylaws and
the Stockholders' Agreement currently provide Air Partners and Air Canada with
a variety of special rights to elect directors and otherwise affect the
corporate governance of the Company; a number of these provisions could have
the effect of delaying, deferring or preventing a change in control of the
Company. See "Description of Capital Stock--Corporate Governance and Control."
The Company has proposed to eliminate a number of these provisions and will
propose for approval by its stockholders the related amendments to the
Certificate of Incorporation at the Annual Meeting. Air Canada and Air
Partners (unless otherwise directed by its investors) have agreed to vote in
favor of these amendments at the Annual Meeting. See "Recent Developments."
LIMITATION ON VOTING BY FOREIGN OWNERS
The Company's Certificate of Incorporation provides that no shares of
capital stock may be voted by or at the direction of persons who are not
citizens of the United States unless the shares are registered on a separate
stock record. The Company's Bylaws further provide that no shares will be
registered on this separate stock record if the amount so registered would
exceed Foreign Ownership Restrictions (as defined herein). United States law
currently requires that no more than 25% of the voting stock of the Company
(or any other domestic airline) may be owned directly or indirectly by persons
who are not citizens of the United States. See "Description of Capital Stock--
Class A Common Stock and Class B Common Stock--Limitation on Voting by Foreign
Owners."
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
14
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,
DOT regulations and judicial decisions.
Management believes that the Company benefitted from the expiration of the
aviation trust fund tax (the "ticket tax") on December 31, 1995, although the
amount of any such benefit directly resulting from the expiration of the
ticket tax cannot be determined. Reinstatement of the ticket tax will result
in higher costs to consumers, which may have an adverse effect on passenger
traffic, revenue and margins. The Company is unable to predict when or in what
form the ticket tax may be reenacted.
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 enacted or enacted in the future will not
adversely affect the Company.
15
RECENT DEVELOPMENTS
On April 19, 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 by early 1997, subject to market
conditions. Air Canada has indicated to the Company that its original
investment in Continental has become less central to Air Canada in light of
other initiatives it has undertaken--particularly expansion within Canada and
exploitation of the 1995 Open Skies agreement to expand Air Canada's own
flights into the U.S. As a result of these initiatives, Air Canada has
determined it appropriate to redeploy the funds invested in the Company into
other uses in Air Canada's business. The Agreements also reflect the
distribution by Air Partners, effective March 29, 1996, to its investors (the
"AP Investors") of all of the shares of Class B common stock held by Air
Partners and the desire of some of the AP Investors to realize the increase in
value of their investment in the Company by selling all or a portion of their
shares of Class B common stock. The Agreements required the Company to
undertake the Offering, and upon the closing of the Offering:
. in light of its then-reduced equity stake, Air Canada will no longer be
entitled to designate directors of Continental, will cause the four
present or former members of Air Canada's Board of Directors currently
serving as Continental directors to decline nomination for reelection as
directors, and will convert all of its Class A common stock to Class B
common stock;
. Air Canada and Air Partners will be restricted, prior to December 16,
1996, from the further disposition of the common stock of the Company
held by either of them; and
. each of the existing Stockholders' Agreement and Registration Rights
Agreement among the parties will be modified in a number of respects to
reflect, among other matters, the changing composition of the respective
equity interests of the parties.
Reflecting the reduction of Air Canada's interest and the decision of the
current directors designated by Air Canada not to stand for reelection if the
Offering is consummated (except under certain limited circumstances), along
with the expiration of various provisions of the Company's Certificate of
Incorporation and Bylaws specifically included at the time of the
Reorganization, Continental's Board of Directors has also approved changes to
the Company's Certificate of Incorporation and Bylaws (the "Proposed
Amendments") generally eliminating special classes of directors (except for
Air Partners' right to elect directors in certain circumstances) and
supermajority provisions, and making a variety of other modifications aimed at
streamlining the Company's corporate governance structure.
The Proposed Amendments also provide that, at any time after January 1,
1997, shares of Class A common stock would become freely convertible into an
equal number of shares of Class B common stock. Under agreements put in place
at the time of the Reorganization, 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 (other than Air Canada) are not
currently 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 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 have 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 has
determined that the restriction is no longer necessary. Any such conversion
would effectively increase the relative voting power of those Class A
stockholders who do not convert.
The Company and Air Canada also expect to enter into discussions regarding
modifications to the Company's existing "synergy" agreements with Air Canada,
covering items such as maintenance and ground facilities, with a view to
resolving certain outstanding commercial issues under the agreements and
otherwise modifying the agreements to reflect Continental's and Air Canada's
current needs. The Company has entered into an agreement with Air Partners for
the sale by Air Partners to the Company from time to time at Air Partners'
election for the one-year period beginning August 15, 1996, of up to an
aggregate of $50 million in
16
intrinsic value (then-current Class B common stock price minus exercise price)
of Air Partners' Class B common stock warrants. The purchase price would be
payable in cash. The Board of Directors has authorized the Company to publicly
issue up to $50 million of Class B common stock in connection with any such
purchase. In connection with this agreement, the Company will reclassify $50
million from common equity to redeemable warrants.
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 are being 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 are being made to
certain employees, benefits are being granted to certain employees and options
equal to 10% of the amount of the options previously granted to each optionee
are being granted (subject to certain conditions) to substantially all
employees holding outstanding options.
Certain of the Proposed Amendments and employee benefit actions are subject
to stockholder approval at the Annual Meeting. Air Canada has delivered an
irrevocable proxy in favor of Air Partners, authorizing Air Partners to vote,
in its sole discretion, all the shares of common stock beneficially owned,
directly or indirectly, by Air Canada as of the record date, April 30, 1996,
(approximately 23.6% of the voting power of all voting securities outstanding
as of such record date) with respect to such Proposed Amendments and employee
benefit actions, among other matters to be voted on by the Company's
stockholders. Air Partners has indicated to the Company that it intends to
vote all such shares in favor of all such matters and, unless otherwise
directed by its investors with respect to the shares of the Company held by
Air Partners that are attributable to such investors' respective limited
partnership interests, to vote the shares of common stock held by it as of the
record date (approximately 35.7% of the voting power of all voting securities
outstanding as of such date) in favor of all such matters.
Following the anticipated sale of Air Canada's Class B common stock in the
Offering (and exercise of the Underwriters' overallotment option) and the
conversion of all its Class A common stock to Class B common stock, Air Canada
is expected to own approximately 4.0% of the voting power and 10.1% of the
equity of the Company and Air Partners to own approximately 39.4% of the
voting power and 9.9% of the equity of the Company (assuming no exercise of
the warrants held by Air Partners).
17
USE OF PROCEEDS
All of the Shares to which this Prospectus relates are being offered by the
Selling Stockholders. Continental will not receive any of the proceeds from
the sale of such Shares.
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 March 31, 1996, there were
approximately 3,928 and 9,176 holders of record of Continental's Class A
common stock and Class B common stock, respectively.
Certain of the Company's credit agreements currently restrict the Company's
ability to pay cash dividends to its common stockholders. The Company has not
paid any cash dividends on its common stock and has no current intention of
doing so.
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.
CLASS A COMMON CLASS B COMMON
STOCK PRICE STOCK PRICE
--------------- ---------------
PERIOD HIGH LOW HIGH LOW
- ------ ------- ------- ------- -------
1994
First Quarter................................. $30 3/4 $18 3/4 $27 1/4 $16 7/8
Second Quarter................................ 21 13 1/2 19 3/4 11 1/4
Third Quarter................................. 22 1/4 14 21 1/2 13
Fourth Quarter................................ 18 1/2 8 1/8 18 1/8 7 1/2
1995
First Quarter................................. 12 1/8 7 12 1/4 6 1/2
Second Quarter................................ 25 3/4 10 3/8 25 3/4 10 5/8
Third Quarter................................. 39 3/4 23 1/8 40 1/8 23 3/8
Fourth Quarter................................ 46 7/8 34 3/8 47 1/2 34 3/4
1996
First Quarter................................. 54 38 1/4 56 3/8 38 7/8
Second Quarter (through May 7)................ 59 1/2 52 1/2 61 53 3/4
The last reported sale prices for the Company's Class A common stock and
Class B common stock on the NYSE on May 7, 1996 were $52.75 and $54.00,
respectively.
18
SELECTED FINANCIAL DATA
The following tables set forth selected financial data of (i) the Company
for the three months ended March 31, 1996 and 1995, the two years ended
December 31, 1995 and 1994 and for 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 two 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 (as defined herein). 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
months ended March 31, 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 three months ended March 31, 1996 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1996. The selected consolidated financial data should be read in
conjunction with, and are qualified in their entirety by reference to, the
Company's consolidated financial statements, including the notes thereto,
incorporated by reference herein. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
PERIOD FROM
REORGANIZATION PERIOD FROM
THREE MONTHS YEAR ENDED (APRIL 28, 1993 JANUARY 1,
ENDED MARCH 31, DECEMBER 31, THROUGH 1993 THROUGH
---------------- ----------------- DECEMBER 31, APRIL 27,
1996 1995 1995 1994 1993) 1993
------- ------- ------ ------- --------------- ------------
(IN MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
(UNAUDITED)
STATEMENT OF OPERATIONS
DATA:
Operating Revenue:
Passenger.............. $1,375 $1,240 $5,302 $ 5,036 $3,493 $1,622
Cargo, mail and other.. 114 169 523 634 417 235
------- ------- ------ ------- ------ ------
1,489 1,409 5,825 5,670 3,910 1,857
------- ------- ------ ------- ------ ------
Operating Expenses:
Wages, salaries and re-
lated costs........... 364 366 1,432(1) 1,532 1,000 502
Aircraft fuel.......... 177 169 681 741 540 272
Aircraft rentals....... 124 123 497 433 261 154
Commissions............ 126 119 489 439 378 175
Maintenance, materials
and repairs........... 112 97 429 495 363 184
Other rentals and land-
ing fees.............. 84 92 356 392 258 120
Depreciation and amor-
tization.............. 65 64 253 258 162 77
Other.................. 317 351 1,303 1,391 853 487
------- ------- ------ ------- ------ ------
1,369 1,381 5,440 5,681 3,815 1,971
------- ------- ------ ------- ------ ------
Operating Income
(Loss)................. 120 28 385 (11) 95 (114)
------- ------- ------ ------- ------ ------
Nonoperating Income (Ex-
pense):
Interest expense....... (47) (53) (213) (241) (165) (52)
Interest capitalized... 1 1 6 17 8 2
Interest income........ 9 6 31 23 14 --
Gain on System One
transactions.......... -- -- 108 -- -- --
Reorganization items,
net................... -- -- -- -- -- (818)
Other, net............. 12 (10) (7) (439)(2) (4) 5
------- ------- ------ ------- ------ ------
(25) (56) (75) (640) (147) (863)
------- ------- ------ ------- ------ ------
Income (Loss) before In-
come Taxes, Minority
Interest and Extraordi-
nary Gain.............. 95 (28) 310 (651) (52) (977)
Net Income (Loss)....... $ 88 $ (30) $ 224 $ (613) $ (39) $2,640 (3)
Earnings (Loss) per Com-
mon and Common Equiva-
lent Share............. $ 2.70 $(1.21) $ 7.20 $(23.76) $(2.33) N.M. (4)
======= ======= ====== ======= ======
Earnings (Loss) per
Common Share Assuming
Full Dilution.......... $ 2.36 $(1.21) $ 6.29 $(23.76) $(2.33) N.M. (4)
======= ======= ====== ======= ======
19
AS OF AS OF
MARCH 31, DECEMBER 31,
1996 1995
----------- ------------
(IN MILLIONS OF DOLLARS)
BALANCE SHEET DATA: (UNAUDITED)
Cash and Cash Equivalents, including restricted Cash
and Cash Equivalents of $124 and $144,
respectively(5)...................................... $ 657 $ 747
Other Current Assets.................................. 655 568
Total Property and Equipment, Net..................... 1,410 1,461
Routes, Gates and Slots, Net.......................... 1,517 1,531
Other Assets, Net..................................... 507 514
------ ------
Total Assets......................................... $4,746 $4,821
====== ======
Current Liabilities................................... $2,040 $1,984
Long-term Debt and Capital Leases..................... 1,462 1,658
Deferred Credits and Other Long-term Liabilities...... 542 564
Minority Interest..................................... 28 27
Continental-Obligated Mandatorily Redeemable Preferred
Securities of Trust(6)............................... 242 242
Redeemable Preferred Stock............................ 42 41
Common Stockholders' Equity........................... 390 305
------ ------
Total Liabilities and Stockholders' Equity........... $4,746 $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) Includes a $3.6 billion extraordinary gain from extinguishment of debt.
(4) 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.
(5) 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 its loan agreement with GE to maintain
certain minimum cash balances and net worth levels, which effectively
restrict the amount of cash available to Continental from CMI.
(6) The sole assets of the Trust are convertible debentures which are expected
to be repaid by 2020. Upon repayment, the Continental-Obligated
Mandatorily Redeemable Preferred Securities of Trust will be mandatorily
redeemed.
20
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following discussion provides an analysis of the Company's results of
operations and reasons for material changes therein for the three months ended
March 31, 1996 as compared to the corresponding period ended March 31, 1995.
For an analysis of the Company's results of operations for the year ended
December 31, 1995 as compared to the year ended December 31, 1994 and for the
year ended December 31, 1994 as compared to the year ended December 31, 1993,
see the Company's Annual Report on Form 10-K for the year ended December 31,
1995 incorporated by reference herein.
Comparison of Three Months Ended March 31, 1996 to Three Months Ended March
31, 1995
Continental's financial and operating performance improved dramatically in
the first quarter of 1996 compared to the first quarter of 1995, reflecting
among other things, continued implementation of the Company's strategic
program to enhance the fundamentals of its operations, rationalize capacity,
improve customer service and employee relations and strengthen Continental's
balance sheet and liquidity. In addition, management believes that the Company
benefitted from the expiration of the ticket tax on December 31, 1995,
although the amount of any such benefit directly resulting from the expiration
of the ticket tax cannot be determined. The Company recorded consolidated net
income of $88 million for the three months ended March 31, 1996 as compared to
a consolidated net loss of $30 million for the three months ended March 31,
1995. The Company's net income in the first quarter of 1996 included a $12.5
million gain related to the sale of approximately 1.4 million shares of
America West common stock.
Implementation of the Company's route realignment and capacity
rationalization initiatives reduced capacity by 9.1% in the first quarter of
1996 as compared to the first quarter of 1995. This decrease in capacity,
combined with a 2.0% increase in traffic, produced a 7.3 percentage point
increase in load factor to 67.0%. This higher load factor, combined with a
7.6% increase in the average yield per revenue passenger mile, contributed to
a 10.9% increase in passenger revenue to $1.4 billion despite the decreased
capacity.
Cargo, mail and other revenue decreased 32.5%, $55 million, in the three
months ended March 31, 1996 as compared to the same period in the prior year,
principally as a result of the transactions involving the Company's System One
Information Management, Inc. ("System One") subsidiary, which were effective
April 27, 1995.
Wages, salaries and related costs decreased 0.6%, $2 million, during the
quarter ended March 31, 1996 as compared to the same period in 1995, primarily
due to a reduction in the number of full-time equivalent employees from
approximately 35,000 as of March 31, 1995 to approximately 32,900 as of March
31, 1996. Such decrease was substantially offset by accruals totalling $15
million for employee profit sharing and other incentive programs, including
the payment of bonuses for on-time airline performance. In addition, wage
rates were impacted by a longevity pay increase for substantially all employee
groups, effective July 1, 1995.
Aircraft fuel expense increased 4.7%, $8 million, in the three months ended
March 31, 1996 as compared to the same period in the prior year. The average
price per gallon increased 12.7% from 52.61 cents in the first quarter of 1995
to 59.31 cents in the first quarter of 1996. Such increase was partially
offset by a 7.1% decrease in the quantity of jet fuel used from 312 million
gallons in the first quarter of 1995 to 290 million gallons in the first
quarter of 1996, principally reflecting capacity reductions and increased
stage lengths.
Commission expense increased 5.9%, $7 million, in the quarter ended March
31, 1996 as compared to the same period in the prior year, primarily due to
increased passenger revenue.
Maintenance, materials and repairs increased 15.5%, $15 million, during the
quarter ended March 31, 1996 as compared to the same period in 1995, due
principally to the volume and timing of engine overhauls as part of the
Company's ongoing maintenance program.
21
Other rentals and landing fees decreased 8.7%, $8 million, for the three
months ended March 31, 1996 compared to the same period in 1995, principally
due to reduced facility rentals and landing fees resulting from capacity
reductions.
Other operating expense decreased 9.7%, $34 million, in the three months
ended March 31, 1996 as compared to the same period in the prior year,
primarily as a result of the System One transactions (which were effective
April 27, 1995) coupled with decreases in advertising expense and other
miscellaneous expense.
Interest expense decreased 11.3%, $6 million, during the three months ended
March 31, 1996 as compared to the same period in 1995, primarily due to
principal reductions of long-term debt and capital lease obligations.
Interest income increased 50.0%, $3 million, in the first quarter of 1996
compared to the same period in the prior year, principally due to an increase
in the average interest rate earned on investments coupled with an increase in
the average invested balance of cash and cash equivalents.
The Company's other nonoperating income (expense) in the quarter ended March
31, 1996 included a $12.5 million gain related to the sale of approximately
1.4 million shares of America West common stock (39 cents and 32 cents per
primary and fully diluted share, respectively). Other nonoperating income
(expense) in the first quarter of 1995 consisted primarily of foreign exchange
and other losses of $9.6 million (related to the Japanese yen and Mexican
peso).
The income tax provision for the three months ended March 31, 1996 consists
of foreign income taxes. No provision for federal income taxes was recorded
for the three months ended March 31, 1996 or 1995 since the Company had
previously incurred net operating losses for which a tax benefit had not
previously been recorded.
22
An analysis of statistical information for Continental's jet operations for
the periods indicated is as follows:
THREE MONTHS
ENDED MARCH 31,
---------------- NET INCREASE/
1996 1995 (DECREASE)
------- ------- -------------
Revenue passenger miles (millions) (a)..... 9,752 9,561 2.0%
Available seat miles (millions) (b)........ 14,551 16,003 (9.1)%
Block hours (thousands) (c)................ 270 281 (3.9)%
Passenger load factor (d).................. 67.0% 59.7% 7.3pts.
Breakeven passenger load factor (e)........ 61.0% 58.2% 2.8pts.
Passenger revenue per available seat mile
(cents) (f)............................... 8.90 7.37 20.8%
Total revenue per available seat mile
(cents) (g)............................... 9.77 8.15 19.9%
Operating cost per available seat mile
(cents) (h)............................... 8.92 7.90 12.9%
Operating cost per block hour.............. $ 4,806 $ 4,496 6.9%
Average yield per revenue passenger mile
(cents) (i)............................... 13.28 12.34 7.6%
Average fare per revenue passenger......... $142.54 $129.10 10.4%
Revenue passengers (thousands)............. 9,087 9,141 (0.6)%
Average length of aircraft flight (miles).. 876 803 9.1%
Average daily utilization of each aircraft
(hours) (j)............................... 9:29 9:34 (0.5)%
Actual aircraft in fleet at end of period.. 314 324 (3.1)%
- --------
(a) The number of scheduled miles flown by revenue passengers.
(b) The number of seats available for passengers multiplied by the number of
scheduled miles those seats are flown.
(c) The number of hours an aircraft is operated in revenue service from gate-
to-gate.
(d) Revenue passenger miles divided by available seat miles.
(e) The percentage of seats that must be occupied by revenue passengers in
order for the airline to break even on an income before income taxes
basis, excluding nonrecurring charges, nonoperating items and other
special items.
(f) Passenger revenue divided by available seat miles.
(g) Total revenue divided by available seat miles.
(h) Operating expenses divided by available seat miles.
(i) The average revenue received for each mile a revenue passenger is carried.
(j) The average block hours flown per day in revenue service per aircraft.
23
LIQUIDITY AND CAPITAL COMMITMENTS
In the first quarter of 1996, the Company completed a number of transactions
intended to strengthen its long-term financial position and enhance earnings.
On January 31, the Company consummated the offering of $489 million of
enhanced pass-through certificates that refinanced the underlying debt
associated with 18 leased aircraft and will reduce Continental's annual
operating lease expense by more than $15 million for the affected aircraft.
During January and February, Continental repurchased or redeemed without
prepayment penalty the remaining amount of the Series A convertible secured
debentures for $125 million (including payment-in-kind interest of $7
million). In February, Continental sold approximately 1.4 million of the
shares it owned in America West, realizing net proceeds of approximately $25
million and recognizing a gain of $12.5 million. On March 26, Continental sold
$230 million of 6 3/4% convertible subordinated notes. The net proceeds from
this offering and from the America West stock sale, as well as cash on hand,
were used for the repayment of certain outstanding GE indebtedness totaling
$257 million (of which $47 million was required as a result of the convertible
debt financing and the America West stock sale and $210 million was an
optional prepayment).
As a result of NOLs, the Company will not pay United States federal income
taxes (other than alternative minimum tax) until it has recorded approximately
an additional $1.2 billion of taxable income following December 31, 1995. For
financial reporting purposes, however, Continental will be required to begin
accruing tax expense on its income statement once it has realized an
additional $122 million of taxable income following March 31, 1996. Section
382 of the Internal Revenue Code 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. 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. The Section 382
limitation for any post-change year would be 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 is 5.31% for April 1996). Unused annual limitation may be carried over
to later years, and 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 a minimum of approximately $90 million.
Continental has firm commitments with Boeing to take delivery of one new 757
aircraft in April 1996 (which aircraft has been delivered) and 43 new jet
aircraft during the years 1998 through 2002. The estimated aggregate cost of
these aircraft is $2.6 billion. In addition, six Beech 1900-D turboprop
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 will be sufficient to
fund all deliveries scheduled during 1996, and that it will have remaining
financing commitments from aircraft manufacturers of $676 million for jet
aircraft deliveries beyond 1996.
In addition, in March 1996, Express entered into an agreement to acquire
eight new ATR aircraft that are expected to be placed into service during
1996. These aircraft will be accounted for as operating leases. In conjunction
with the acquisition, in 1996, the Company will return eight older ATR
aircraft accounted for as capital leases.
Continental expects its cash outlays for 1996 capital expenditures,
exclusive of aircraft acquisitions, to aggregate $120 million primarily
relating to mainframe, software application and automation infrastructure
projects, aircraft modifications and mandatory maintenance projects, passenger
terminal facility improvements and office, maintenance, telecommunications and
ground equipment. Continental's capital expenditures during the three months
ended March 31, 1996, aggregated $14 million, exclusive of aircraft
acquisitions.
24
The Company expects to fund its 1996 and future capital commitments through
internally generated funds, together with general Company financings and
aircraft financing transactions. However, there can be no assurance that
sufficient financing will be available for all aircraft and other capital
expenditures not covered by firm financing commitments.
As of March 31, 1996, the Company had $657 million in cash and cash
equivalents, compared to $747 million as of December 31, 1995. Net cash
provided by operating activities increased $74 million during the three months
ended March 31, 1996 compared to the same period in the prior year principally
due to earnings improvement. In addition, net cash provided by investing
activities increased $9 million, primarily as a result of proceeds received
from the sale of approximately 1.4 million shares of Continental's America
West stock slightly offset by higher net capital expenditures in 1996. Net
cash used by financing activities for the three months ended March 31, 1996
compared to the same period in the prior year increased $194 million primarily
due to the repayment of long-term debt using in part, proceeds received from
the issuance of the 6 3/4% convertible subordinated notes.
Continental does not have general lines of credit, and substantially all of
its assets, including the stock of its subsidiaries, are encumbered.
Approximately $124 million and $144 million of cash and cash equivalents at
March 31, 1996 and December 31, 1995, respectively, were held in restricted
arrangements relating primarily to workers' compensation claims and in
accordance with the terms of certain other agreements. Continental and CMI, a
91% owned subsidiary, have secured borrowings from GE which as of March 31,
1996 and December 31, 1995 aggregated $373 million and $634 million,
respectively. CMI's secured loans contain significant financial covenants,
including requirements to maintain a minimum cash balance and consolidated net
worth, restrictions on unsecured borrowings and mandatory prepayments on the
sale of most assets. These financial covenants limit the ability of CMI to pay
dividends to Continental. As of March 31, 1996, CMI had a minimum cash balance
requirement of $30 million. In addition, certain of Continental's secured
loans require the Company to, among other things, maintain a minimum
cumulative operating cash flow, a minimum monthly cash balance and a minimum
ratio of operating cash flow to fixed charges. Continental also is prohibited
generally from paying cash dividends in respect of its capital stock, from
purchasing or prepaying indebtedness and from incurring certain additional
secured indebtedness.
The Company has entered into petroleum option contracts to provide some
short-term protection (currently approximately seven months) against a sharp
increase in jet fuel prices, and CMI has entered into average rate option
contracts to hedge a portion of its Japanese yen-denominated ticket sales
against a significant depreciation in the value of the yen versus the United
States dollar. The petroleum option contracts generally cover the Company's
forecasted jet fuel needs for the next three to nine months, and the average
rate option contracts cover a portion of CMI's yen-denominated ticket sales
for the next three to nine months. At March 31, 1996, the Company had
petroleum option contracts outstanding with an aggregate notional value of
$252 million and CMI had an average rate option contract outstanding with a
contract value of $158 million. At March 31, 1996, the carrying value of the
option contracts was immaterial. The Company and CMI are exposed to credit
loss in the event of nonperformance by the counterparties on the option
contracts; however, management does not anticipate nonperformance by these
counterparties. The amount of such exposure is generally the unrealized gains,
if any, on such option contracts.
Management believes that the Company's costs are likely to be affected in
1996 by, among other factors, (i) increased wages, salaries and benefits, (ii)
higher aircraft rental expense as new aircraft are delivered, (iii) changes in
the costs of materials and services (in particular, the cost of fuel, which
can fluctuate significantly in response to global market conditions), (iv)
changes in governmental regulations and taxes affecting air transportation and
the costs charged for airport access, (v) changes in the Company's fleet and
related capacity and (vi) the Company's continuing efforts to reduce costs
throughout its operations.
25
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth, as of April 30, 1996, certain information
with respect to the Selling Stockholders and with respect to persons owning
beneficially (to the knowledge of the Company) more than five percent of any
class of the Company's voting securities. The table also sets forth the
respective general voting power of such persons. Information set forth in the
following table is based on reports filed with the Commission pursuant to the
Exchange Act and on information that has been furnished to the Company by the
respective stockholders. In accordance with regulations promulgated by the
Commission, the table shows the effect of the exercise of warrants by Air
Partners, and, in the case of Air Canada for amounts owned prior to the
Offering, the exchange of certain shares of Class B common stock for Class A
common stock, but, in determining the denominator used to show percentage
ownership of such person, does not assume the exercise of warrants or the
exchange of shares owned by any other person. In addition to the shares owned
directly, each of the partners in Air Partners owns an interest in Air
Partners and may be deemed to beneficially own a portion of the Continental
securities owned by Air Partners.
The table does not show under "General Voting Power" the effect of Air
Canada's potential exchange of certain shares of Class B common stock for an
equal number of shares of Class A common stock, because, prior to the
Offering, the voting of most of the Class A common stock acquirable as a
result of such exchange would currently be prohibited by applicable Foreign
Ownership Restrictions and, after the Offering, Air Canada will have waived
its right to cause such exchange. See "--Stockholders' Agreement." Such
information is, however, shown in the footnotes to the table. Upon completion
of the Offering, Air Canada will convert all of its shares of Class A common
stock into Class B common stock and irrevocably waive its right to exchange
Class B common stock for Class A common stock. See "--Stockholders'
Agreement."
SHARES BENEFICIALLY OWNED PRIOR TO THE SHARES BENEFICIALLY OWNED AFTER
OFFERING THE OFFERING
------------------------------------------- ---------------------------------------
CLASS OF PERCENT GENERAL PERCENT GENERAL
COMMON OF VOTING SHARES OF VOTING
BENEFICIAL OWNER STOCK NUMBER CLASS(1) POWER(1)(2) BEING OFFERED NUMBER CLASS(1)(3) POWER(2)(3)
---------------- -------- --------- -------- ----------- ------------- --------- ----------- -----------
Air Canada............ Class A 2,740,000(4) 37.1% 23.6%(5) -- -- (6) -- 4.3%
Air Canada Center Class B 3,338,944(7) 15.5% 2,000,000(8) 3,000,000(6)(9) 13.0%
Montreal Int'l
Airport (Dorval)
P.O. Box 14000
Postal Station, St.
Laurent
Canada H4Y 1H4
Air Partners,
L.P.(10)............. Class A 4,259,734(11) 54.5% 44.6% -- 4,259,734(11) 69.2% 52.2%
2420 Texas Commerce Class B 3,382,632(12) 13.6% 3,382,632(12) 12.8%
Tower --
201 Main Street
Fort Worth, TX 75102
American General
Corporation(13)...... Class A 774,496(14) 11.8% 9.9% -- 774,496(14) 15.8% 11.5%
2929 Allen Parkway Class B 997,381(15) 4.5% 382,074 615,307(15) 2.6%
Houston, TX 77019
FMR Corp.............. Class B 3,658,751(16) 16.6% 4.3% -- 3,658,751(16) 15.4% 5.2%
82 Devonshire Street
Boston, MA 02109
David Bonderman....... Class A 4,267,934(17) 54.6% 45.6% -- 4,267,934(17) 69.3% 53.2%
Class B 4,341,052(18) 17.5% 114,586 4,226,466(18) 15.9%
Bonderman Family
Limited
Partnership(19)...... Class B 441,225 2.1% * 33,219 408,006 1.8% *
Estate of Larry L.
Hillblom(19)(20)..... Class B 319,800 1.5% * 319,800 -- -- --
DHL Management Servic-
es, Inc.(19)......... Class B 322,970 1.5% * 322,970 -- -- --
SunAmerica Inc.(19)... Class B 143,152 * * 143,152 -- -- --
Eli Broad(19)......... Class B 95,434 * * 66,488 28,946 * *
Donald Sturm(19)(21).. Class B 356,064 1.7% * 120,000 236,064 1.0% *
Conair Limited Part-
ners, L.P.(19)....... Class B 38,282 * * 38,282 -- -- --
26
SHARES BENEFICIALLY OWNED PRIOR TO THE SHARES BENEFICIALLY OWNED AFTER
OFFERING THE OFFERING
---------------------------------------- ---------------------------------
CLASS OF GENERAL GENERAL
NAME AND ADDRESS OF COMMON PERCENT VOTING SHARES BEING PERCENT VOTING
BENEFICIAL HOLDER STOCK NUMBER OF CLASS(1) POWER(1)(2) OFFERED NUMBER OF CLASS(1)(3) POWER(2)(3)
------------------- -------- ------- ----------- ----------- ------------ ------ -------------- -----------
Bondo Air, L.P.(19).... Class B 412,499 1.9% * 412,499 -- -- --
Air Saipan, Inc.(22)... Class B 10,086 * * 10,086 -- -- --
1992 Air, Inc.(22)..... Class B 369,108 1.7% * 305,456 63,652 * *
Air II General,
Inc.(23).............. Class B 2,403 * * 2,403 -- -- --
---------
Total................ 4,271,015
=========
- --------
*less than 1%
(1) Does not show the effect of Air Canada's potential exchange of certain
shares of Class B common stock for an equal number of shares of Class A
common stock.
(2) 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.
(3) Amount assumes conversion of 1,661,056 shares of Class A common stock
held by Air Canada into an equal number of shares of Class B common
stock.
(4) Amount includes 1,078,944 shares of Class A common stock issuable upon
exchange of a like number of shares of Class B common stock held by Air
Canada.
(5) Does not include the exchange of 1,078,944 shares of Class B common stock
for Class A common stock as described in Note 4 above, which would be
subject to Foreign Ownership Restrictions. If Air Canada were permitted
to exchange the 1,078,944 shares of Class B common stock for an equal
number of shares of Class A common stock, its General Voting Power would
be 31.5%.
(6) Amount assumes conversion of 1,661,056 shares of Class A common stock
held by Air Canada into an equal number of shares of Class B common stock
and that 1,078,944 shares of Class B common stock held by Air Canada
would no longer be exchangeable for an equal number of shares of Class A
common stock.
(7) Amount includes 1,078,944 shares of Class B common stock held by Air
Canada which are exchangeable, under certain circumstances, for a like
number of shares of Class A common stock. Such shares are also included
in the number of shares of Class A common stock reported herein pursuant
to SEC Rule 13d-3 under the Exchange Act.
(8) Does not include 200,000 shares of Class B common stock subject to the
Underwriters' overallotment option.
(9) Amount includes 200,000 shares of Class B common stock subject to the
Underwriters' overallotment option.
(10) 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. See notes (17)
and (18). Mr. Bonderman also holds director stock options to purchase
3,000 shares of Class B common stock and may be deemed to own 369,108
shares of Class B common stock owned by 1992 Air, Inc. and 2,403 shares
of Class B common stock owned by Air II General, Inc. that are not
included in the amounts shown. Bonderman Family Limited Partnership, of
which David Bonderman is the general partner, holds 8,200 shares of Class
A common stock and 441,225 shares of Class B common stock that are not
included in the amounts shown. The holders of limited 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. In
addition, Bonderman Family Limited Partnership holds limited partnership
interests in Air Partners. On the basis of certain provisions of the
limited partnership agreement of Air Partners, Bonderman Family Limited
Partnership may be deemed to beneficially own the shares of Class A
common stock and any Class B common stock beneficially owned by Air
Partners that are attributable to such limited partnership interests.
However, Bonderman Family Limited Partnership, pursuant to Rule 13d-4
under the Exchange Act, disclaims beneficial ownership of all such
shares. The estate of Larry L. Hillblom, solely in its capacity as the
sole shareholder of Air Saipan, Inc., may be deemed the beneficial owner
of shares of Class A common stock and any Class B common stock held by
Air Partners. In addition, the estate of Mr. Hillblom also holds limited
partnership interests in Air Partners. On the basis of certain provisions
of the limited partnership agreement of Air Partners, the estate of Mr.
Hillblom may be deemed to beneficially own the shares of Class A common
stock and any Class B common stock beneficially owned by Air Partners
that are attributable to such limited partnership interests. Bondo Air
Limited Partnership ("Bondo Air"), solely in its capacity as a limited
partner of Air Partners, may be deemed to beneficially own the shares of
Class A common stock and any Class B common stock held by Air Partners
that are attributable to such limited partnership interest. However,
Bondo Air, pursuant to Rule 13d-4 under the Exchange Act, disclaims
beneficial ownership of all such shares. Mr. Alfredo Brener, through a
limited partnership whose corporate general partner he controls, owns
warrants to purchase a 98.5% limited partnership interest in Bondo Air,
and on the basis of certain provisions of the limited partnership
agreement of Bondo Air, Mr. Brener may be deemed to beneficially own such
limited partnership interests and, in turn, the shares attributable to
Bondo Air's limited partnership interest in Air Partners. However, Mr.
Brener, pursuant to Rule 13d-4 under the Exchange Act, disclaims
beneficial ownership of all such shares. Donald Sturm, a director of the
Company, holds a limited partnership interest in Air Partners. On the
basis of certain provisions of the limited partnership agreement of Air
Partners, Mr. Sturm may be deemed to beneficially own the shares of Class
A common stock and any Class B common stock beneficially owned by Air
Partners that are attributable to such limited partnership interest.
However, Mr. Sturm, pursuant to Rule 13d-4 under the Exchange Act,
disclaims beneficial ownership of all such shares.
(11) Includes 1,519,734 shares issuable upon exercise of warrants by Air
Partners to purchase Class A common stock.
27
(12) Represents shares subject to warrants held by Air Partners to purchase
Class B common stock.
(13) 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 (including shares subject to warrants)
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.
(14) Based on reports filed with the Commission under the Exchange Act, the
shares reported represent American General's proportionate interest in
shares beneficially owned by Air Partners, including 276,315 shares of
Class A common stock issuable upon exercise of warrants held by Air
Partners and attributable to the limited partnership interest of American
General.
(15) Based on reports filed with the Commission under the Exchange Act, the
shares reported include 283 shares held by an indirect wholly-owned
subsidiary of American General, and 615,024 shares of Class B common
stock issuable upon exercise of warrants held by Air Partners and
attributable to the limited partnership interest of American General.
(16) Based on reports filed with the Commission under the Exchange Act, the
shares reported include 165,589 shares of Class B common stock issuable
upon conversion of the Company's 6 3/4% Convertible Subordinated Notes
due April 15, 2006 and 420,011 shares of Class B common stock issuable
upon conversion of the Company's 8 1/2% Convertible Preferred Securities
of Trust. FMR, together with its wholly owned subsidiaries, Fidelity
Management & Research Company and Fidelity Management Trust Company, has
sole dispositive power with respect to 2,568,966 of the shares
beneficially owned by it and sole voting power with respect to 2,563,900
of such shares. FMR has no shared voting or dispositive power. Members of
the Edward D. Johnson 3d family own approximately 49% of the outstanding
voting stock of FMR Corp.
(17) Includes 8,200 shares of Class A common stock beneficially owned by
Bonderman Family Limited Partnership. Also includes 2,740,000 shares of
Class A common stock beneficially owned by Air Partners or 1,519,734 such
shares subject to warrants (collectively, 54.5% of the class) owned by
Air Partners, which Mr. Bonderman may be deemed to own beneficially. See
note 10.
(18) Includes 3,000 shares subject to vested director stock options, 441,225
shares beneficially owned by Bonderman Family Limited Partnership,
369,108 shares owned by 1992 Air, Inc. and 2,403 shares owned by Air II
General, Inc. See note 10. Also includes 3,382,632 shares subject to
warrants owned by Air Partners, which Mr. Bonderman may be deemed to own
beneficially. See note 10.
(19) The referenced stockholder holds limited partnership interests in Air
Partners. On the basis of certain provisions of the limited partnership
agreement of Air Partners, the referenced stockholder may also 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. Such shares are not included in the
amounts shown for the referenced stockholder.
(20) The Estate of 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. Accordingly, the estate may be deemed to own
beneficially the 322,970 shares of Class B common stock of the Company
held by DHL Management, Inc.
(21) Includes 3,000 shares to vested director stock options. Also includes
30,200 shares held in trusts for the benefit of Mr. Sturm's children,
15,100 shares held in a charitable trust for which Mr. Sturm acts as
Trustee, and 4,300 shares held by a corporation of which Mr. Sturm is the
principal stockholder.
(22) This entity is a general partner of 1992 Air GP, one of the general
partners of Air Partners. See note 10.
(23) This entity is one of the general partners of Air Partners. See note 10.
STOCKHOLDERS' AGREEMENT
Pursuant to the existing Stockholders' Agreement, Air Partners and Air
Canada have each agreed that they will vote their shares of common stock to
elect six directors designated by Air Canada, six directors designated by Air
Partners and six directors not affiliated with Air Canada or Air Partners and
who are satisfactory to Air Partners, and to give effect to certain other
agreements regarding the composition of the board and its committees. They
have further agreed through April 27, 1996 to vote for the election of three
persons designated by the committee representing Prepetition Creditors to
serve among the six independent directors. Each such party has also agreed to
limit its holdings to a specified percentage of total voting power and to
restrict its transfers of certain Class A common stock, certain shares of
Class B common stock owned by Air Canada, and as applicable, Class C common
stock, ($.01 par value (the "Class C common stock")) and Class D common stock,
($.01 par value (the "Class D common stock")), through April 27, 1997, unless
the other party consents to the proposed transfer. Air Partners has further
granted Air Canada a right of first refusal to acquire certain of its shares
of Class A common stock or its Class D common stock in the event it receives,
after April 27, 1997, a good faith offer from a third party to purchase all or
any portion of such shares, and in the event it proposes to sell any such
shares in a Rule 144 transaction after such date. Air Partners has also given
Air Canada an option, exercisable after April 27, 1997 (and subject to
applicable Foreign Ownership Restrictions, as defined in the Company's
Certificate of Incorporation), to purchase certain of these shares at their
market price plus a specified control premium. In addition, Air Partners has
agreed to restrict its ability to sell certain Class B common stock to any air
carrier in a private sale at any time prior to April 27, 1997. Unless extended
by the parties, or
28
terminated earlier due to the occurrence of certain terminating events, the
Stockholders' Agreement will terminate on April 27, 2002.
On April 19, 1996, the Company's Board of Directors approved an amendment to
the Stockholders' Agreement, which (except for certain specified provisions
that were effective as of such date) will become effective upon the closing of
the Offering. The amendment to the Stockholders' Agreement reflects Air
Canada's proposed disposition of Continental stock by, among other things: (a)
deleting the purchase options, rights of first refusal and other restrictions
on the transfer of Continental securities that currently exist between Air
Partners and Air Canada; (b) deleting the limitation on minimum and maximum
aggregate voting power that may be held by Air Partners and Air Canada; and
(c) eliminating the voting arrangement between Air Partners and Air Canada
relating to the election of directors.
The amendment includes certain agreements among the Company, Air Partners
and Air Canada relating to the exercise of registration rights under the
Registration Rights Agreement. See "--Certain Rights of Air Partners and Air
Canada." The amendment also provides that Air Canada will: (a) convert its
shares of Class A common stock to Class B common stock; (b) grant an
irrevocable proxy to Air Partners to enable Air Partners to vote Air Canada's
shares of Continental common stock with respect to the election of directors,
approval of certain amendments to the Certificate of Incorporation, and
approval of amendments to certain employee benefit-related contracts and other
matters at the Annual Meeting; (c) irrevocably waive its right to convert
shares of Class B common stock into Class A common stock; and (d) cause each
of its designees to the Board of Directors to resign at any time following the
closing of the Offering upon the request of Continental.
In addition, each of Air Canada and Air Partners has agreed that prior to
December 16, 1996, without Continental's prior written consent, it will not
enter into certain transactions in Continental securities that would, pursuant
to Section 382, have an adverse effect on the Company's ability to fully
utilize its NOLs.
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. 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 has entered into an agreement with Air Partners for the sale
by Air Partners to the Company from time to time at Air Partners' election for
the one-year period beginning August 15, 1996, of up to an aggregate of $50
million in intrinsic value (then-current Class B common stock price minus
exercise price) of Air Partners' Class B common stock warrants. The purchase
price would be payable in cash. The Board of Directors has authorized the
Company to publicly issue up to $50 million of Class B common stock in
connection with any such purchase. In connection with this agreement, the
Company will reclassify $50 million from common equity to redeemable warrants.
PREEMPTIVE RIGHTS OF AIR PARTNERS AND AIR CANADA
Air Partners and Air Canada each has the right to purchase additional shares
of Class B common stock to preserve its current proportional ownership of such
stock. If the amendments to the Certificate of Incorporation are approved by
stockholders at the Annual Meeting Air Canada will no longer have this right.
See "Description of Capital Stock--Corporate Governance and Control--
Preemptive Rights of AP/AC Investors."
CERTAIN CONVERSION RIGHTS
Air Canada has the right at any time to convert its shares of Class A common
stock into an equal number of shares of Class B common stock and, subject to
applicable Foreign Ownership Restrictions, to exchange certain shares of Class
B common stock for an equal number of shares of Class A common stock. See
"Description of Capital Stock--Class B Common Stock and Class A Common Stock."
In specified limited circumstances, Air Partners has the right to convert its
shares of Class A common stock into Class D common stock, and Air Canada has
the right to convert its shares of Class A common stock to Class C common
stock. See "Description of Capital Stock--Special Classes of Common Stock"
regarding the terms of the Class C common stock and Class D common stock and
the conversion of such stock back into Class A common stock.
29
As discussed above in "--Stockholders' Agreement," upon the closing of the
Offering, Air Canada's agreement to convert its shares of Class A common stock
into shares of Class B common stock and its waiver of its right to exchange
certain shares of Class B common stock for Class A common stock will become
effective.
CERTAIN RIGHTS OF AIR PARTNERS AND AIR CANADA
Pursuant to a 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. On April 19, 1996, the Company's
Board of Directors approved amendments to the Registration Rights Agreement.
See "Recent Developments." Air Canada has a preferential right to bid for take
off and landing slots at LaGuardia, Washington National and Chicago O'Hare
airports and leasehold interests at Chicago O'Hare, LAX and Seattle-Tacoma
airports in the event Continental were to determine to sell such assets.
30
DESCRIPTION OF CAPITAL STOCK
The current authorized capital stock of the Company consists of 50,000,000
shares of Class A common stock, 100,000,000 shares of Class B common stock
50,000,000 shares of Class C common stock, 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"). Amendments to the Certificate of Incorporation have been
proposed by the Board of Directors for a vote at the Annual Meeting that would
increase the amount of authorized Class B common stock to 200,000,000 shares
and eliminate the Class C common stock as an authorized class of shares. See
"Recent Developments." As of April 30, 1996, there were 6,301,056 outstanding
shares of Class A common stock, 21,492,124 outstanding shares of Class B
common stock and 409,662 shares of Series A 12% Cumulative Preferred Stock.
Pursuant to the Reorganization, on April 27, 1993 the Company issued
1,900,000 shares of Class A common stock and 5,042,368 shares of Class B
common stock to a distribution agent for the benefit of the Company's
Prepetition Creditors. As of March 31, 1996, there remained 291,459 shares of
Class A common stock, 762,291 shares of Class B common stock, 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, the Company issued 493,621 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
preemptive, subscription and conversion rights of Air Partners and Air Canada
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 series 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 C
common stock and 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 C common stock or 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 (together, the "AP/AC Investors") owned as of
April 30, 1996 in the aggregate approximately 28% of the outstanding Class A
common stock and Class B common stock, representing
31
approximately 56% of total voting power (excluding the exercise of warrants
held by Air Partners and the exchange of Class B common stock for Class A
common stock by Air Canada), and Air Partners has warrants to acquire up to an
additional 3,382,632 shares of Class B common stock and 1,519,734 of Class A
common stock (together representing approximately 21% of total voting power,
assuming exercise of such warrants). See "Principal and Selling Stockholders"
for a description of the number of securities beneficially owned by each of
Air Partners and Air Canada as of April 30, 1996 and certain other matters
relating to their ownership and "--Corporate Governance and Control" below for
a discussion of arrangements regarding the composition of the Board of
Directors of the Company.
Air Canada may at any time and from time to time convert shares of Class A
common stock into an equal number of shares of Class B common stock and, so
long as such exchange would comply with the Foreign Ownership Restrictions (as
defined below under the caption "--Limitation on Voting by Foreign Owners")
may exchange up to 1,078,944 of its shares of Class B common stock for an
equal number of shares of Class A common stock. Except for these special
conversion and exchange rights of Air Canada, Class B common stock is not
convertible into or exchangeable for Class A common stock and Class A common
stock is not convertible into or exchangeable for Class B common stock.
Upon the closing of the Offering, pursuant to the amendment to the
Stockholders' Agreement, Air Canada will convert its Class A common stock into
Class B common stock and will irrevocably waive its right to exchange certain
shares of Class B common stock for Class A common stock.
In addition, under the Proposed Amendments, the Certificate of Incorporation
would be amended to permit all stockholders at any time and from time to time
after January 1, 1997 to convert shares of Class A common stock 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. The limitation in the current charter
was designed to ensure compliance with applicable Foreign Ownership
Restrictions by giving Air Canada a method for reducing its voting power, if
necessary, while preventing conversions by other stockholders that would have
the effect of increasing Air Canada's voting control without any action by Air
Canada itself. In light of Air Canada's reduced stake in the Company, the
Company has determined that this restriction is no longer necessary. In
addition, in recent periods, the market price of Class A common stock has
generally been below the 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 holders of Class A common
stock have requested that the charter be amended to give all stockholders the
right to convert Class A common stock into Class B common stock. The effective
date of this amendment is proposed to be January 1, 1997.
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
32
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 held by Air Canada, and, after such shares, 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 substantial
portion of the shares that may be voted by Foreigners under the Foreign
Ownership Restrictions. Accordingly, at this time only a very limited number
of shares of Class B common stock or Class A common stock of the Company may
be registered on the Foreign Stock Record and voted by any Foreigner other
than Air Canada.
Under the Proposed Amendments, the Bylaws would be amended to delete Air
Canada's right to have its shares included in the Foreign Stock Record on a
preferential basis. Furthermore, after Air Canada converts its Class A common
stock to Class B common stock upon the closing of the Offering, a larger
number of shares of Class B common stock and/or Class A common stock could be
registered on the Foreign Stock Record and voted by Foreigners other than Air
Canada.
CORPORATE GOVERNANCE AND CONTROL
Board of Directors. The Certificate of Incorporation provides that the
Company's Board of Directors must consist of eighteen directors to be elected
by holders of common stock, exclusive of any directors who may be elected by
holders of Preferred Stock. Pursuant to the Stockholders' Agreement, the AP/AC
Investors agreed to vote their shares to elect six directors designated by Air
Partners, six directors designated by Air Canada, and six additional directors
satisfactory to Air Partners. Pursuant to the Certificate of Incorporation,
(i) the six additional directors must be independent of Air Partners and Air
Canada and, until the first annual meeting of stockholders after April 27,
1996, must include three directors designated by the committee representing
Prepetition Creditors (as defined in the Stockholders' Agreement), and (ii) at
each annual meeting, the Board must nominate the chief executive officer for
election as a director.
Under the Proposed Amendments, the Certificate of Incorporation would be
amended to provide that the number of directors may be determined from time to
time by the Board in accordance with the Bylaws, subject to the rights of
holders of preferred stock to elect additional directors as set forth in any
preferred stock designation. The Bylaws would also be amended to provide that
the number of directors will be determined from time to time by the Board (and
will initially consist of 12 directors). In addition, provisions relating to
the Board designees of Air Canada and the committee representing Prepetition
Creditors would be deleted.
Supermajority Vote Requirements. The Certificate of Incorporation requires
the affirmative vote of shares having at least two-thirds of the total voting
power of all issued and outstanding shares of common stock, voting together as
a single class, to amend the provisions of the Certificate of Incorporation
that govern the number of authorized shares and the relative rights of classes
of capital stock, election and voting of directors, and rights of the AP/AC
Investors to purchase additional shares of Class B common stock.
The Certificate of Incorporation also provides that, unless prohibited by
law, the affirmative vote of at least 70% (75% if more than one director is
elected by holders of Preferred Stock or in certain other instances) of
directors (a "Supermajority Vote") is required to approve certain
extraordinary transactions, including (i) authorization, issuance or
disposition of Class A common stock or rights to acquire Class A common stock,
(ii) liquidation or dissolution of the Company, (iii) any fundamental change
in the lines of business of the Company, (iv) appointment of a receiver for
the Company or commencement of bankruptcy proceedings or (v) any amendment to
the Plan of Reorganization. In addition, a Supermajority Vote of directors is
required to approve the following transactions, if such Supermajority Vote
requirements are first presented to and approved by DOT as complying with the
Foreign Ownership Restrictions: (a) approval of capital expenditures in any
fiscal year that exceed by more than $50,000,000 the amount of capital
expenditures set forth in the Company's capital budget; (b) approval to incur
indebtedness for money borrowed in any fiscal year that exceeds by more than
33
$50,000,000 the maximum principal amount of indebtedness projected in the
Company's financial plan for such year; (c) certain acquisitions or
dispositions of a significant amount of assets other than in the ordinary
course of business; and (d) the taking of certain actions with respect to
material contracts (including, among others, contracts providing for the
merger or consolidation of the Corporation, contracts with periods in excess
of four years or contemplating expenditures in excess of $50 million in any
year and $150 million in the aggregate), and any compensatory plan in which
any director or executive officer of the Company participates.
The Certificate of Incorporation further requires approval by two-thirds of
the directors in office (assuming no vacancies) to approve contracts (or any
amendments thereof) between the Company and any air carrier (other than Air
Canada) with respect to a code-sharing or marketing alliance or to amend
certain provisions of the Company's Bylaws governing (i) the election and
voting of directors and committees of the Board of Directors or (ii) the
ownership and voting of stock by Foreigners. Such Bylaw amendments also must
be approved by at least a majority of the total voting power of all issued and
outstanding shares of common stock, unless they have been approved by a
majority of the directors designated or elected by the AP/AC Investors. The
Certificate of Incorporation also requires approval by the holders of at least
two-thirds of the voting power of all issued and outstanding shares of common
stock in order to amend the sections of the Certificate of Incorporation
relating to (i) the Corporation's capital stock, (ii) composition and voting
of the Board of Directors, and (iii) preemptive rights of Air Partners and Air
Canada.
Contracts and transactions between the Company and its directors, officers
or other related parties also must be approved by a majority (or, in cases
otherwise subject to a Supermajority Vote, by 75%) of disinterested directors,
unless such contracts or transactions are approved by the stockholders or are
otherwise fair to the Company.
Under the Proposed Amendments, the Certificate of Incorporation would be
amended to delete the foregoing provisions.
Fairness Opinion; Business Combinations. The Certificate of Incorporation
provides that the Board of Directors will not approve any merger or similar
corporate transaction unless, prior to the approval, the board receives an
opinion of an independent investment banking firm that the consideration to be
received by the holders of common stock is fair from a financial point of view
to such holders. The Certificate of Incorporation provides that the Company is
not governed by Section 203 of the General Corporation Law of Delaware that,
in the absence of such provisions, would have imposed additional requirements
regarding mergers and other business combinations.
Under the Proposed Amendments, the Certificate of Incorporation would be
amended to delete the requirement that the board receive such opinion.
Preemptive Rights of AP/AC Investors. Pursuant to the Certificate of
Incorporation, each AP/AC Investor is given the right to purchase from the
Company additional shares of Class B common stock to the extent necessary to
maintain its pro rata ownership of the outstanding Class B common stock. Such
preemptive rights terminate as to an AP/AC Investor if the total voting power
of the common stock beneficially owned by such AP/AC Investor is less than 20%
of the total voting power of all of the outstanding common stock.
Under the Proposed Amendments, the Certificate of Incorporation would be
amended to delete Air Canada's preemptive rights.
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 heading
"Description of Capital Stock" and the Stockholders' Agreement is to maintain
certain rights of the AP/AC Investors to elect directors and otherwise to
preserve their relative ownership and voting positions. These provisions may
have the effect of delaying, deferring or preventing a change in control of
the Company.
34
The cumulative effect of the Agreements and the Proposed Amendments will be
to maintain certain rights of Air Partners to elect directors and otherwise to
preserve its relative ownership and voting positions. Air Canada will not
continue to have similar rights.
SPECIAL CLASSES OF COMMON STOCK
The Certificate of Incorporation authorizes Class C common stock and Class D
common stock as a mechanism to provide, under certain circumstances, a
specified level of Board representation for each of the AP/AC Investors. No
shares of Class C common stock or Class D common stock are currently
outstanding, and they may only be issued in limited circumstances upon
conversion of Class A common stock held by AP/AC Investors. In the event the
AP/AC Investors hold shares of Class A common stock and Class B common stock
representing 50% or less of the combined voting power of all classes of common
stock, or if the Stockholders' Agreement is no longer in effect, each of the
AP/AC Investors 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 C common stock, in the case of Air Canada, or
Class D common stock, in the case of Air Partners. Such right of conversion is
further conditioned upon the AP/AC Investor holding common stock having at
least 20% of the total voting power of all classes of common stock.
After such conversion, holders of Class C common stock and Class D common
stock are each entitled to elect six directors, voting as a separate class.
When shares of Class C common stock are outstanding, Air Canada has no right
to vote any of its shares of Class B common stock for the election of
directors; and if Air Canada becomes the beneficial owner of additional shares
of Class A common stock during such time, such shares will automatically be
converted into an equal number of shares of Class C common stock. Likewise,
when shares of Class D common stock are outstanding, Air Partners may not vote
any of its shares of Class B common stock for the election of directors; and
if Air Partners becomes the beneficial owner of any additional shares of
Class A common stock during such time, such shares will automatically be
converted into Class D common stock. Each share of Class C common stock and
Class D common stock has ten votes and, as to matters other than the election
of directors, votes together with all other classes of common stock as a
single class. In the event the voting power of all common stock held by an
AP/AC Investor represents less than 20% of the voting power of all classes of
common stock, all Class C common stock or Class D common stock held by such
AP/AC Investor will automatically convert into an equal number of shares of
Class A common stock. Shares of Class C common stock and Class D common stock
also convert automatically into an equal number of shares of Class A common
stock upon the transfer of record or beneficial ownership of such Class C
common stock or Class D common stock to any person other than certain related
parties of the original holder. Each AP/AC Investor may also at any time
voluntarily convert all (but not less than all) shares of Class C common stock
or Class D common stock held by it into an equal number of shares of Class A
common stock. All shares of Class C common stock or Class D common stock
surrendered by an AP/AC Investor for conversion into Class A common stock will
be canceled and may not be reissued.
Under the Proposed Amendments, the Certificate of Incorporation would be
amended to delete the Class C common stock and provide that the holders Class
D common stock are 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).
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
35
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, 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. Delaware law currently
provides 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. 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
Upon completion of the Offering (assuming no exercise of the overallotment
option) and after giving effect to the conversion by Air Canada of its Class A
common stock for Class B common stock, Continental will have a total of
4,640,000 shares of Class A common stock and 23,153,180 shares of Class B
common stock outstanding (excluding shares of Class B common stock issued
after April 30, 1996 pursuant to the Company's employee benefit plan). Of such
shares, approximately 291,459 shares of Class A common stock and approximately
762,291 shares of Class B common stock are 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
tradeable. An independent investment manager has discretion over the continued
holding or sale of the 78,621 shares of Class B common stock held in trust for
the benefit of the Company's retirement plan.
36
Shares of Class A common stock and Class B common stock held by Air Partners
and 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. Each of Air Canada and Air
Partners have entered into agreements with Continental restricting, prior to
December 16, 1996, the further disposition of Continental stock held by either
of them. See "Recent Developments." Air Canada has indicated its intention to
dispose of its remaining equity interest in the Company by early 1997, subject
to market conditions. The Company has granted Air Canada and Air Partners
extensive registration rights. See "Principal and Selling Stockholders--
Certain Rights of Air Partners and Air Canada."
The Company has agreed that, except with the prior written consent of
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), it will
not, directly or indirectly, for a period of 90 days after the date of the
U.S. Purchase Agreement, offer, sell, contract to sell or otherwise dispose of
any shares of common stock of the Company or any interests therein or any
securities convertible into or exchangeable for shares of common stock or
other equity interests of the Company, except that the Company may (i) issue
shares of common stock or other equity interests (a) as a result of the
exercise or conversion of options, warrants or other securities outstanding on
the date of the U.S. Purchase Agreement, (b) as a result of the grant of stock
options or other stock-based awards (and the exercise thereof) to directors,
officers and employees of the Company or its subsidiaries, and (c) if required
pursuant to the Certificate of Incorporation and may (ii) cause to be
registered with the Commission (x) a resale shelf registration statement for
the Company's outstanding 6 3/4% Convertible Subordinated Notes due 2006 and 8
1/2% Convertible Preferred Securities of Trust, (y) a registration statement
for the sale (only after the expiration of the 90-day period referred to
above) of up to $50 million of Class B common stock and (z) a registration
statement for the sale by Air Canada and certain partners of Air Partners of
shares of Class B common stock (or the use of such shares in connection with
hedging transactions), provided that this clause (z) does not affect the
obligations of Air Canada and such partners pursuant to the 90-day lockup
agreement described below.
Air Canada and Air Partners have agreed that, except with the prior written
consent of Merrill Lynch, they will not, directly or indirectly, for a period
of 90 days after the date of the U.S. Purchase Agreement, offer, sell,
contract to sell or otherwise dispose of any shares of common stock of the
Company (except, in the case of Air Canada, for Shares included in the
Offering), any interests therein, or any securities convertible into or
exchangeable for shares of common stock of the Company, except that Air
Partners may (i) convert shares of common stock of one class for shares of
common stock of another class or for other equity interests in the Company and
(ii) transfer common stock or other equity interests in the Company to any of
its partners or affiliates (including the Company) if such transferee agrees
to be bound by the agreement set forth in this paragraph and Air Canada may
transfer shares of common stock of the Company to any entity that is wholly-
owned by Air Canada if such transferee agrees to be bound by the agreement set
forth in this paragraph.
Each of the AP Investors has agreed that, except with the prior written
consent of Merrill Lynch, it will not directly or indirectly, for a period of
90 days after the date of the U.S. Purchase Agreement, offer, sell, contract
to sell or otherwise dispose of any shares of common stock of the Company
(except for Shares included in the Offering) or any interests therein or any
securities convertible into or exchangeable for shares of common stock of the
Company, in each case that have been received, or that may hereafter be
acquired, from Air Partners.
CERTAIN U.S. TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following is a general discussion of certain United States federal
income and estate tax consequences of the purchase, ownership and disposition
of Class B common stock by a person who is (as to the United States) a foreign
corporation, a nonresident alien individual, a nonresident alien fiduciary of
an estate or trust the income of which is not subject to United States
taxation regardless of its source, or a foreign partnership (a "Non-U.S.
Holder"). This summary does not address all aspects of United States federal
income and estate taxes that may be relevant to Non-U.S. Holders in light of
their personal circumstances including Non-U.S. Holders that may be subject to
special treatment under United States federal income tax laws (for example,
insurance companies,
37
tax-exempt organizations, financial institutions or broker-dealers) and is
based on current provisions of the Internal Revenue Code of 1986 as amended
(the "Code"), existing and proposed regulations promulgated thereunder, and
administrative and judicial interpretation thereof, all of which are subject
to change. Accordingly, each Non-U.S. Holder is urged to consult its own tax
advisor with respect to the United States tax consequences of the ownership
and disposition of Class B common stock, as well as any tax consequences that
may arise under the laws of any state, municipality, foreign country or other
taxing jurisdiction or under the provisions of an applicable tax treaty.
DIVIDENDS
Dividends paid to a Non-U.S. Holder of Class B common stock ordinarily will
be subject to withholding of United States federal income tax at a 30 percent
rate, or at a lower rate under an applicable income tax treaty that provides
for a reduced rate of withholding. However, if the dividends are effectively
connected with the conduct by the Non-U.S. Holder of a trade or business
within the United States, then the dividends will be exempt from the
withholding tax described above and instead will be subject to United States
federal income tax on a net income basis, unless an applicable tax treaty
provides otherwise. In such case, if the Non-U.S. Holder is a foreign
corporation, it may also be subject to a 30% United States branch profits tax.
A Non-U.S. Holder that is eligible for a reduced rate of United States
withholding tax pursuant to a tax treaty and does not realize the benefit of
such reduced rate when the dividend is paid may obtain a refund of excess
amounts withheld by filing an appropriate claim for refund with the United
States Internal Revenue Service ("IRS").
The Company must report annually to the IRS the amount of dividends paid to
a Non-U.S. Holder and tax withheld from such dividends. This information also
may be made available to the tax authorities of the country in which the Non-
U.S. Holder resides, pursuant to the terms of a tax treaty between the United
States and such country.
GAIN ON DISPOSITION OF CLASS B COMMON STOCK
The gain realized on the sale or exchange of the Class B common stock by a
Non-U.S. Holder will not be subject to United States federal income tax,
including withholding tax, unless (i) such gain is effectively connected with
the conduct by the Non-U.S. Holder of a trade or business in the United
States, or (ii) in the case of gain realized by a Non-U.S. Holder who is an
individual, the Non-U.S. Holder is present in the United States for 183 days
or more in the taxable year of sale and either (A) such gain or income is
attributable to an office or other fixed place of business maintained in the
United States by such Non-U.S. Holder or (B) such Non-U.S. Holder has a tax
home in the United States.
FEDERAL ESTATE TAXES
Class B common stock held by an individual Non-U.S. Holder at the time of
death will be included in such Non-U.S. Holder's gross estate for United
States federal estate tax purposes, unless an applicable estate tax treaty
provides otherwise.
U.S. INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
U.S. information reporting requirements and backup withholding tax will not
apply to dividends paid on Class B common stock to a Non-U.S. Holder at an
address outside the United States. As a general matter, information reporting
and backup withholding also will not apply to a payment of the proceeds of a
sale of Class B common stock effected outside the United States by a foreign
office of a foreign broker. However, information reporting requirements (but
not backup withholding) will apply to a payment of the proceeds of a sale of
Class B common stock effected outside the United States by a foreign office of
a broker if the broker is a U.S. person, derives 50 percent or more of its
gross income for certain periods from the conduct of a trade or business in
the United States, or is a "controlled foreign corporation" as to the United
States, unless the broker has documentary evidence in its records that the
holder is a Non-U.S. Holder and certain conditions are met, or the holder
otherwise establishes an exemption. Payment by a United States office of a
broker of the proceeds of a sale of Class B common stock will be subject to
backup withholding and information reporting unless the holder certifies its
non-United States status under penalties of perjury or otherwise establishes
an exemption.
38
PROPOSED REGULATIONS
On April 15, 1996, the Internal Revenue Service released proposed
regulations (the "Proposed Regulations") that would, among other matters,
change the withholding tax and backup withholding tax rules applicable to
dividends paid with respect to stock of U.S. corporations. These regulations,
if adopted in the form proposed, would require that certain Non-U.S. Holders
of Class B common stock that seek to rely on a tax treaty to obtain a
reduction in the rate of the dividend withholding tax provide certifications
regarding their eligibility for receiving such treaty benefits. In addition,
under the Proposed Regulations, a Non-U.S. Holder that fails to comply with
certain certification requirements may be subject to backup withholding tax at
a rate of 31% in lieu of the dividend withholding tax. It is uncertain
whether, or in what form, the Proposed Regulations will be adopted. If adopted
in the form proposed, the Proposed Regulations would not apply to dividends
paid prior to 1998. Non-U.S. Holders are urged to consult their tax advisers
regarding the possible applicability to them of the Proposed Regulations.
39
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"U.S. Purchase Agreement") between the Selling Stockholders, the Company and
each of the underwriters named below (the "U.S. Underwriters"), and
concurrently with the sale of 854,203 Shares to the International Underwriters
(as defined below), the Selling Stockholders have agreed to sell to each of
the U.S. Underwriters named below, and each of the U.S. Underwriters, for whom
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Goldman, Sachs & Co.,
Lehman Brothers Inc. and Morgan Stanley & Co. Incorporated are acting as
representatives (the "U.S. Representatives"), severally has agreed to purchase
from the Selling Stockholders, the aggregate number of Shares set forth
opposite its name below:
NUMBER OF
U.S. UNDERWRITERS SHARES
----------------- ---------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...........................................
Goldman, Sachs & Co. ...........................................
Lehman Brothers Inc. ...........................................
Morgan Stanley & Co. Incorporated...............................
---------
Total...................................................... 3,416,812
=========
The Company and the Selling Stockholders also have entered into a purchase
agreement (the "International Purchase Agreement") with certain underwriters
outside the United States and Canada (the "International Underwriters" and,
together with the U.S. Underwriters, the "Underwriters") for whom Merrill
Lynch International, Goldman Sachs International, Lehman Brothers
International (Europe) and Morgan Stanley & Co. International Limited are
acting as representatives (the "International Representatives"). Subject to
the terms and conditions set forth in the International Purchase Agreement,
and concurrently with the sale of 3,416,812 Shares to the U.S. Underwriters
pursuant to the U.S. Purchase Agreement, the Selling Stockholders have agreed
to sell to the International Underwriters, and the International Underwriters
severally have agreed to purchase, an aggregate of 854,203 Shares. The initial
public offering price per share and the underwriting discount per share are
identical under the U.S. Purchase Agreement and the International Purchase
Agreement.
In the U.S. Purchase Agreement and the International Purchase Agreement, the
several U.S. Underwriters and the several International Underwriters,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the Shares being sold pursuant to each such
Agreement if any of the shares being sold pursuant to each such Agreement are
purchased. Under certain circumstances, the commitments of non-defaulting U.S.
Underwriters or International Underwriters (as the case may be) may be
increased. The closings with respect to the sale of the Shares to the U.S.
Underwriters and the International Underwriters are conditioned upon one
another.
The U.S. Underwriters and the International Underwriters have entered into
an intersyndicate agreement (the "Intersyndicate Agreement") which provides
for the coordination of their activities. The Underwriters are permitted to
sell Shares to each other for the purposes of resale at the initial public
offering price, less an amount not greater than the selling concession. Under
the terms of the Intersyndicate Agreement, the U.S. Underwriters and any
dealer to whom they sell Shares will only offer to sell or sell Shares to
persons who are United States or Canadian persons or to persons they believe
intend to resell to persons who are United States or Canadian persons, and the
International Underwriters and any dealer to whom they sell Shares will not
offer to sell or sell Shares to United States or Canadian persons or to
persons they believe intend to resell to United States or Canadian persons,
except, in each case, for transactions pursuant to the Intersyndicate
Agreement.
The U.S. Representatives have advised the Selling Stockholders that the U.S.
Underwriters propose initially to offer the Shares to the public at the
initial public offering price set forth on the cover page of this Prospectus,
40
and to certain dealers (who may include U.S. Underwriters) at such price less
a concession not in excess of $ per share. The U.S. Underwriters may allow,
and such dealers may reallow, a discount not in excess of $ per share on
sales to certain other dealers. After the Offering, the public offering price,
concession and discount may be changed.
Air Canada has granted an option to the U.S. Underwriters exercisable during
the 30-day period after the date of this Prospectus, to purchase up to an
aggregate of 200,000 additional shares at the initial public offering price
set forth on the cover page of this Prospectus, less the underwriting
discount. The U.S. Underwriters may exercise the option only to cover over-
allotments, if any, made on the sale of the Shares offered hereby. To the
extent that the U.S. Underwriters exercise the option, each U.S. Underwriter
will be obligated, subject to certain conditions, to purchase the same
percentage of such of additional shares as the number of Shares to be
purchased by it shown in the foregoing table bears to the total number of
Shares initially offered by the U.S. Underwriters hereby.
The Company has agreed that, except with the prior written consent of
Merrill Lynch, it will not, directly or indirectly, for a period of 90 days
after the date of the U.S. Purchase Agreement, offer, sell, contract to sell
or otherwise dispose of any shares of common stock of the Company or any
interests therein or any securities convertible into or exchangeable for
shares of common stock or other equity interests of the Company, except that
the Company may (i) issue shares of common stock or other equity interests (a)
as a result of the exercise or conversion of options, warrants or other
securities outstanding on the date of the U.S. Purchase Agreement, (b) as a
result of the grant of stock options or other stock-based awards (and the
exercise thereof) to directors, officers and employees of the Company or its
subsidiaries, and (c) if required pursuant to the Certificate of Incorporation
and (ii) may cause to be registered with the Commission (x) a resale shelf
registration statement for the Company's outstanding 6 3/4% Convertible
Subordinated Notes due 2006 and 8 1/2% Convertible Preferred Securities of
Trust, (y) a registration statement for the sale (only after the expiration of
the 90-day period referred to above) of up to $50 million of Class B common
stock and (z) a registration statement for the sale by Air Canada and certain
partners of Air Partners of shares of Class B common stock (or the use of such
shares in connection with hedging transactions), provided that this clause (z)
does not affect the obligations of Air Canada and such partners pursuant to
the 90-day lockup agreement described below.
Air Canada and Air Partners have agreed that, except with the prior written
consent of Merrill Lynch, they will not, directly or indirectly, for a period
of 90 days after the date of the U.S. Purchase Agreement, offer, sell,
contract to sell or otherwise dispose of any shares of common stock of the
Company (except, in the case of Air Canada, for Shares included in the
Offering), any interests therein, or any securities convertible into or
exchangeable for shares of common stock of the Company, except that Air
Partners may (i) convert shares of common stock of one class for shares of
common stock of another class or for other equity interests in the Company and
(ii) transfer common stock or other equity interests in the Company to any of
its partners or affiliates (including the Company) if such transferee agrees
to be bound by the agreement set forth in this paragraph and Air Canada may
transfer shares of common stock of the Company to any entity that is wholly
owned by Air Canada if such transferee agrees to be bound by the agreement set
forth in this paragraph.
Each of the AP Investors has agreed that, except with the prior written
consent of Merrill Lynch, it will not directly or indirectly, for a period of
90 days after the date of the U.S. Purchase Agreement, offer, sell, contract
to sell or otherwise dispose of any shares of common stock of the Company
(except for Shares included in the Offering) or any interests therein or any
securities convertible into or exchangeable for shares of common stock of the
Company, in each case that have been received, or that may hereafter be
acquired, from Air Partners.
The Company and the Selling Stockholders have severally agreed to indemnify
the several Underwriters against certain liabilities, including liabilities
under the Securities Act or to contribute to payments the Underwriters may be
required to make in respect thereof.
Certain of the Underwriters or their affiliates have provided from time to
time, and may provide in the future, investment banking services to the
Company and its affiliates, for which such Underwriters or their affiliates
have received or will receive fees and commissions.
41
LEGAL MATTERS
The validity of the Class B common stock offered hereby will be passed upon
for Continental by Jeffery A. Smisek, Esq., General Counsel of the Company.
Certain legal matters will be passed upon for Continental by Cleary, Gottlieb,
Steen & Hamilton, New York, New York, and for the Underwriters by Cahill
Gordon & Reindel, a partnership including a professional corporation, New
York, New York.
EXPERTS
The consolidated financial statements (including schedules incorporated by
reference) of Continental Airlines, Inc. at December 31, 1995 and 1994 and for
each of the two years ended December 31, 1995 and for 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
and Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports 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.
42
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PRO-
SPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY THE CLASS B COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PER-
SON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DE-
LIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUM-
STANCES, CREATE AN 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.......................... 3
Prospectus Summary....................................................... 4
Risk Factors............................................................. 12
Recent Developments...................................................... 16
Use of Proceeds.......................................................... 18
Market Price of Common Stock and Dividends............................... 18
Selected Financial Data.................................................. 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 21
Principal and Selling Stockholders....................................... 26
Description of Capital Stock............................................. 31
Shares Eligible for Future Sale.......................................... 36
Certain U.S. Tax Consequences to Non-U.S. Holders........................ 37
Underwriting............................................................. 40
Legal Matters............................................................ 42
Experts.................................................................. 42
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,271,015 SHARES
CONTINENTAL [LOGO]
AIRLINES
CLASS B COMMON STOCK
---------------
PROSPECTUS
---------------
MERRILL LYNCH & CO.
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS
MORGAN STANLEY & CO.
INCORPORATED
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY 8, 1996
PROSPECTUS
- ----------
4,271,015 SHARES
CONTINENTAL [LOGO]
AIRLINES
CLASS B COMMON STOCK
-----------
Of the 4,271,015 shares (the "Shares") of Class B common stock, par value
$.01 per share (the "Class B common stock"), of Continental Airlines, Inc. (the
"Company" or "Continental") offered hereby, 854,203 Shares are being offered
outside the United States and Canada by the International Underwriters (the
"International Offering"), and 3,416,812 Shares are being concurrently offered
in the United States and Canada by the U.S. Underwriters (the "U.S. Offering"
and, together with International Offering, the "Offering"). The offering price
and underwriting discounts and commissions of the International Offering and
the U.S. Offering are identical. See "Underwriting."
All of the Shares offered hereby are being sold by Air Canada, a Canadian
corporation ("Air Canada") and certain partners of Air Partners, L.P., a Texas
limited partnership ("Air Partners") (collectively, the "Selling
Stockholders"). See "Principal and Selling Stockholders." Continental will not
receive any of the proceeds from the sale of the Shares by the Selling
Stockholders.
The Class B common stock is listed on the New York Stock Exchange, Inc. (the
"NYSE") under the trading symbol "CAI.B." On May 7, 1996, the last reported
sale price of the Class B common stock on the NYSE was $54.00 per share. See
"Market Price of Common Stock and Dividends."
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN EVALUATING
AN INVESTMENT IN THE SHARES, SEE "RISK FACTORS" ON PAGES 12 TO 15.
-----------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) STOCKHOLDERS(2)
- --------------------------------------------------------------------------------
Per Share......................... $ $ $
- --------------------------------------------------------------------------------
Total(3).......................... $ $ $
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company and the Selling Stockholders have severally agreed to indemnify
the several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) The Company has agreed to pay certain expenses of the Offering estimated at
$350,000.
(3) Air Canada has granted the U.S. Underwriters a 30-day option to purchase up
to 200,000 additional shares of Class B common stock on the same terms and
conditions as set forth above. If all such additional shares are purchased
by the Underwriters, the total Price to Public will be $ , the total
Underwriting Discount will be $ and the total Proceeds to Selling
Stockholders will be $ . See "Underwriting."
-----------
The Shares are offered by the several Underwriters, subject to prior sale,
when, as and if delivered to and accepted by them, subject to approval of
certain legal matters by counsel to the Underwriters, and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the Shares will be made in New York, New York on or about ,
1996.
-----------
MERRILL LYNCH INTERNATIONAL
GOLDMAN SACHS INTERNATIONAL
LEHMAN BROTHERS
MORGAN STANLEY & CO.
INTERNATIONAL
-----------
The date of this Prospectus is , 1996.
ALTERNATE PAGE FOR
INTERNATIONAL PROSPECTUS
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"International Purchase Agreement") between the Selling Stockholders, the
Company and each of the underwriters named below (the "International
Underwriters"), and concurrently with the sale of 3,416,812 Shares to the U.S.
Underwriters (as defined below), the Selling Stockholders have agreed to sell
to each of the International Underwriters named below, and each of the
International Underwriters, for whom Merrill Lynch International, Goldman
Sachs International, Lehman Brothers International (Europe) and Morgan Stanley
& Co. International Limited are acting as representatives (the "International
Representatives"), severally has agreed to purchase from the Selling
Stockholders, the aggregate number of Shares set forth opposite its name
below:
NUMBER OF
INTERNATIONAL UNDERWRITERS SHARES
-------------------------- ---------
Merrill Lynch International......................................
Goldman Sachs International......................................
Lehman Brothers International (Europe)...........................
Morgan Stanley & Co. International Limited.......................
-------
Total....................................................... 854,203
=======
The Company and the Selling Stockholders also have entered into a purchase
agreement (the "U.S. Purchase Agreement") with certain underwriters in the
United States and Canada (the "U.S. Underwriters" and, together with the
International Underwriters, the "Underwriters") for whom Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Goldman, Sachs & Co., Lehman Brothers
Inc. and Morgan Stanley & Co. Incorporated are acting as representatives (the
"U.S. Representatives"). Subject to the terms and conditions set forth in the
U.S. Purchase Agreement, and concurrently with the sale of 854,203 Shares to
the International Underwriters pursuant to the International Purchase
Agreement, the Selling Stockholders have agreed to sell to the U.S.
Underwriters, and the U.S. Underwriters severally have agreed to purchase, an
aggregate of 3,416,812 Shares. The initial public offering price per share and
the underwriting discount per share are identical under the International
Purchase Agreement and the U.S. Purchase Agreement.
In the International Purchase Agreement and the U.S. Purchase Agreement, the
several International Underwriters and the several U.S. Underwriters,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the Shares being sold pursuant to each such
Agreement if any of the shares being sold pursuant to each such Agreement are
purchased. Under certain circumstances, the commitments of non-defaulting
International Underwriters or U.S. Underwriters (as the case may be) may be
increased. The closings with respect to the sale of the Shares to the
International Underwriters and the U.S. Underwriters are conditioned upon one
another.
The International Underwriters and the U.S. Underwriters have entered into
an intersyndicate agreement (the "Intersyndicate Agreement") which provides
for the coordination of their activities. The Underwriters are permitted to
sell Shares to each other for the purposes of resale at the initial public
offering price, less an amount not greater than the selling concession. Under
the terms of the Intersyndicate Agreement, the U.S. Underwriters and any
dealer to whom they sell Shares will only offer to sell or sell Shares to
persons who are United States or Canadian persons or to persons they believe
intend to resell to persons who are United States or Canadian persons, and the
International Underwriters and any dealer to whom they sell Shares will not
offer to sell or sell Shares to United States or Canadian persons or to
persons they believe intend to resell to United States or Canadian persons,
except, in each case, for transactions pursuant to the Intersyndicate
Agreement.
The International Representatives have advised the Selling Stockholders that
the International Underwriters propose initially to offer the Shares to the
public at the initial public offering price set forth on the cover page of
40
ALTERNATE PAGE FOR
INTERNATIONAL PROSPECTUS
this Prospectus, and to certain dealers (who may include International
Underwriters) at such price less a concession not in excess of $ per share.
The International Underwriters may allow, and such dealers may reallow, a
discount not in excess of $ per share on sales to certain other dealers.
After the Offering, the public offering price, concession and discount may be
changed.
Air Canada has granted an option to the U.S. Underwriters exercisable during
the 30-day period after the date of this Prospectus, to purchase up to an
aggregate of 200,000 additional shares at the initial public offering price
set forth on the cover page of this Prospectus, less the underwriting
discount. The U.S. Underwriters may exercise the option only to cover over-
allotments, if any, made on the sale of the Shares offered hereby. To the
extent that the U.S. Underwriters exercise the option, each U.S. Underwriter
will be obligated, subject to certain conditions, to purchase the same
percentage of such of additional shares as the number of Shares to be
purchased by it bears to the total number of Shares initially offered by the
U.S. Underwriters.
The Company has agreed that, except with the prior written consent of
Merrill Lynch, it will not, directly or indirectly, for a period of 90 days
after the date of the U.S. Purchase Agreement, offer, sell, contract to sell
or otherwise dispose of any shares of common stock of the Company or any
interests therein or any securities convertible into or exchangeable for
shares of common stock or other equity interests of the Company, except that
the Company may (i) issue shares of common stock or other equity interests (a)
as a result of the exercise or conversion of options, warrants or other
securities outstanding on the date of the U.S. Purchase Agreement, (b) as a
result of the grant of stock options or other stock-based awards (and the
exercise thereof) to directors, officers and employees of the Company or its
subsidiaries, and (c) if required pursuant to the Certificate of Incorporation
and may cause to be registered with the Commission (x) a resale shelf
registration statement for the Company's outstanding 6 3/4% Convertible
Subordinated Notes due 2006 and 8 1/2% Convertible Preferred Securities of
Trust, (y) a registration statement for the sale (only after the expiration of
the 90-day period referred to above) of up to $50 million of Class B common
stock and (z) a registration statement for the sale by Air Canada and certain
partners of Air Partners of shares of Class B common stock (or the use of such
shares in connection with hedging transactions), provided that this clause (z)
does not affect the obligations of Air Canada and such partners pursuant to
the 90-day lockup agreement described below.
Air Canada and Air Partners have agreed that, except with the prior written
consent of Merrill Lynch, they will not, directly or indirectly, for a period
of 90 days after the date of the U.S. Purchase Agreement, offer, sell,
contract to sell or otherwise dispose of any shares of common stock of the
Company (except, in the case of Air Canada, for Shares included in the
Offering), any interests therein, or any securities convertible into or
exchangeable for shares of common stock of the Company, except that Air
Partners may (i) convert shares of common stock of one class for shares of
common stock of another class or for other equity interests in the Company and
(ii) transfer common stock or other equity interests in the Company to any of
its partners or affiliates (including the Company) if such transferee agrees
to be bound by the agreement set forth in this paragraph and Air Canada may
transfer shares of common stock of the Company to any entity that is wholly-
owned by Air Canada if such transferee agrees to be bound by the agreement set
forth in this paragraph.
Each of the AP Investors has agreed that, except with the prior written
consent of Merrill Lynch, it will not directly or indirectly, for a period of
90 days after the date of the U.S. Purchase Agreement, offer, sell, contract
to sell or otherwise dispose of any shares of common stock of the Company
(except for Shares included in the Offering) or any interests therein or any
securities convertible into or exchangeable for shares of common stock of the
Company, in each case that have been received, or that may hereafter be
acquired, from Air Partners.
Each International Underwriter has agreed that (i) it has not offered or
sold, and will not for a period of six months following consummation of the
Offering offer or sell, in the United Kingdom by means of any document, any
shares of Class B common stock offered hereby, other than to persons whose
ordinary activities involve them in acquiring, holding, managing or disposing
of investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances that do not constitute an offer to the public
within the meaning of the Public Offers of Securities Regulations 1995, (ii)
it has complied with and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in relation to
the shares of
41
ALTERNATE PAGE FOR
INTERNATIONAL PROSPECTUS
Class B common stock in, from, or otherwise involving the United Kingdom and
(iii) it has only issued or passed on and will only issue or pass on to any
person in the United Kingdom any document received by it in connection with
the issue of the shares of Class B common stock if that person is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1995, as amended, or is a person to whom
the document may otherwise lawfully be issued or passed on.
The Company and the Selling Stockholders have severally agreed to indemnify
the several Underwriters against certain liabilities, including liabilities
under the Securities Act or to contribute to payments the Underwriters may be
required to make in respect thereof.
Purchasers of the Shares offered hereby may be required to pay stamp taxes
and other charges in accordance with the laws and practices of the country of
purchase, in addition to the offering price set forth on the cover page
hereof.
Certain of the Underwriters or their affiliates have provided from time to
time, and may provide in the future, investment banking services to the
Company and its affiliates, for which such Underwriters or their affiliates
have received or will receive fees and commissions.
LEGAL MATTERS
The validity of the Class B common stock offered hereby will be passed upon
for Continental by Jeffery A. Smisek, Esq., General Counsel of the Company.
Certain legal matters will be passed upon for Continental by Cleary, Gottlieb,
Steen & Hamilton, New York, New York, and for the Underwriters by Cahill
Gordon & Reindel, a partnership including a professional corporation, New
York, New York.
EXPERTS
The consolidated financial statements (including schedules incorporated by
reference) of Continental Airlines, Inc. at December 31, 1995 and 1994 and for
each of the two years ended December 31, 1995 and for 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
and Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports 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.
42
ALTERNATE PAGE FOR
INTERNATIONAL PROSPECTUS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PRO-
SPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY THE CLASS B COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PER-
SON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DE-
LIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUM-
STANCES, CREATE AN 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.
IN THIS PROSPECTUS, REFERENCES TO "DOLLARS" AND "$" ARE TO UNITED STATES DOL-
LARS.
---------------
TABLE OF CONTENTS
PAGE
----
Available Information.................................................... 2
Incorporation of Certain Documents by Reference.......................... 3
Prospectus Summary....................................................... 4
Risk Factors............................................................. 12
Recent Developments...................................................... 16
Use of Proceeds.......................................................... 18
Market Price of Common Stock and Dividends............................... 18
Selected Financial Data.................................................. 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 21
Principal and Selling Stockholders....................................... 26
Description of Capital Stock............................................. 31
Shares Eligible for Future Sale.......................................... 36
Certain U.S. Tax Consequences to Non-U.S. Holders........................ 37
Underwriting............................................................. 40
Legal Matters............................................................ 42
Experts.................................................................. 42
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,271,015 SHARES
CONTINENTAL [LOGO]
AIRLINES
CLASS B COMMON STOCK
---------------
PROSPECTUS
---------------
MERRILL LYNCH INTERNATIONAL
GOLDMAN SACHS INTERNATIONAL
LEHMAN BROTHERS
MORGAN STANLEY & CO.
INTERNATIONAL
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is an itemized list of expenses (all of which are estimates
other than the registration fee and the NASD filing fee) of Continental in
connection with registration of the Shares being registered hereby.
Continental will pay all expenses incident to the registration of the Shares
under the Securities Act including fees and disbursements of counsel to the
Selling Stockholders.
Securities and Exchange Commission registration filing fee......... $ 92,408
NASD filing fee.................................................... 27,299
Blue Sky qualification fees and expenses, including legal fee...... 10,000
Printing and engraving expenses.................................... 75,000
Accounting fees and expenses....................................... 34,000
Legal fees and expenses............................................ 100,000
Miscellaneous...................................................... 11,293
--------
Total.......................................................... $350,000
========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Certificate of Incorporation and bylaws provide that the
Company will indemnify each of its directors and officers to the full extent
permitted by the laws of the State of Delaware and may indemnify certain other
persons as authorized by the Delaware General Corporation Law (the "GCL").
Section 145 of the GCL provides as follows:
"(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding
if he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in its
favor by reason of the fact that he is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the corporation and except that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to
the extent that the Court of Chancery or the court in which such action or
suit was brought shall determine upon application that, despite the
II-1
adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of
the director, officer, employee or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in subsections
(a) and (b). Such determination shall be made (1) by a majority vote of the
board of directors who are not parties to such action, suit or proceeding,
even though less than a quorum, or (2) if there are no such directors, or if
such directors so direct, by independent legal counsel in a written opinion,
or (3) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or director
in defending any civil, criminal, administrative, or investigative action,
suit or proceeding may be paid by the corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking
by or on behalf of such director or officer to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
corporation as authorized in this section. Such expenses (including attorneys'
fees) incurred by other employees and agents may be so paid upon such terms
and conditions, if any, as the board of directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or granted
pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the corporation would have the power to
indemnify him against such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power
and authority to indemnify its directors, officers, and employees or agents,
so that any person who is or was a director, officer, employee or agent for
such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall
stand in the same position under this section with respect to the resulting or
surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee,
or agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the corporation" as referred to
in this section.
II-2
(j) The indemnification and advancement of expenses provided by, or granted
pursuant to, this section shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction to
hear and determine all actions for advancement of expenses or indemnification
brought under this section or under any bylaw, agreement, vote of stockholders
or disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses (including attorneys'
fees).
The Certificate of Incorporation and bylaws also limit the personal
liability of directors to the Company and its stockholders for monetary
damages resulting from certain breaches of the directors' fiduciary duties.
The bylaws of the Company provide as follows:
"No Director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability (i) for any breach of the Director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the GCL, or (iv) for any
transaction from which the Director derived any improper personal benefit. If
the GCL is amended to authorize corporate action further eliminating or
limiting the personal liability of Directors, then the liability of Directors
of the Corporation shall be eliminated or limited to the full extent permitted
by the GCL, as so amended."
The Company maintains directors' and officers' liability insurance. Air
Partners and Air Canada have also entered into indemnification agreements with
directors and officers of the Company covering certain liabilities, excluded
from such insurance, that might arise from claims by or on behalf of Air
Partners or Air Canada.
ITEM 16. EXHIBITS.
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
1.1 Form of U.S. Purchase Agreement among the Company, the Selling
Stockholders and the U.S. Underwriters*
1.2 Form of International Purchase Agreement among the Company, the
Selling Stockholders and the International Underwriters*
5.1 Opinion of Jeffery A. Smisek, Esq., General Counsel of Continental,
with respect to the validity of the Class B common stock*
10.1 Amendment to Stockholders' Agreement dated April 19, 1996 among the
Company, Air Partners and Air Canada**
10.2 Amended and Restated Registration Rights Agreement dated April 19,
1996 among the Company, Air Partners and Air Canada**
10.3 Form of Warrant Purchase Agreement between the Company and Air
Partners*
23.1 Consent of Ernst & Young LLP**
23.2 Consent of Jeffery A. Smisek, Esq. (included in his opinion filed as
Exhibit 5.1)*
24.1 Powers of Attorney**
- --------
* Filed herewith
** Previously filed
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual
II-3
report pursuant to section 15(d) of the Securities Exchange Act of 1934) that
is incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
Insofar as the indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS AMENDMENT TO THE
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOUSTON, STATE OF TEXAS, ON MAY 8,
1996.
Continental Airlines, Inc.
/s/ Jeffery A. Smisek
By: _________________________________
Jeffery A. Smisek
Senior Vice President and General
Counsel
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED, ON MAY 8, 1996.
SIGNATURE TITLE
/s/ Gordon M. Bethune President, Chief Executive Officer
- ------------------------------------- (Principal Executive Officer) and
GORDON M. BETHUNE Director
/s/ Lawrence W. Kellner Senior Vice President and Chief
- ------------------------------------- Financial Officer (Principal Financial
LAWRENCE W. KELLNER Officer)
/s/ Michael P. Bonds Staff Vice President and Controller
- ------------------------------------- (Principal Accounting Officer)
MICHAEL P. BONDS
* Director
- -------------------------------------
THOMAS J. BARRACK, JR.
* Director
- -------------------------------------
DAVID BONDERMAN
/s/ Gregory D. Brenneman Director
- -------------------------------------
GREGORY D. BRENNEMAN
II-5
SIGNATURE TITLE
* Director
- -------------------------------------
JOEL H. COWAN
* Director
- -------------------------------------
PATRICK FOLEY
* Director
- -------------------------------------
ROWLAND C. FRAZEE, C.C.
* Director
- -------------------------------------
HOLLIS L. HARRIS
* Director
- -------------------------------------
DEAN C. KEHLER
* Director
- -------------------------------------
ROBERT L. LUMPKINS
* Director
- -------------------------------------
DOUGLAS H. MCCORKINDALE
* Director
- -------------------------------------
DAVID E. MITCHELL, O.C.
* Director
- -------------------------------------
RICHARD W. POGUE
* Director
- -------------------------------------
WILLIAM S. PRICE III
II-6
SIGNATURE TITLE
* Director
- -------------------------------------
DONALD L. STURM
* Director
- -------------------------------------
CLAUDE I. TAYLOR, O.C.
* Director
- -------------------------------------
KAREN HASTIE WILLIAMS
* Director
- -------------------------------------
CHARLES A. YAMARONE
*By: /s/ Scott R. Peterson
- -------------------------------------
SCOTT R. PETERSON, ATTORNEY-IN-FACT
II-7
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
1.1 Form of U.S. Purchase Agreement among the Company, the Selling
Stockholders and the U.S. Underwriters*
1.2 Form of International Purchase Agreement among the Company, the
Selling Stockholders and the International Underwriters*
5.1 Opinion of Jeffery A. Smisek, Esq., General Counsel of Continental,
with respect to the validity of the Class B common stock*
10.1 Amendment to Stockholders' Agreement dated April 19, 1996 among the
Company, Air Partners and Air Canada**
10.2 Amended and Restated Registration Rights Agreement dated April 19,
1996 among the Company, Air Partners and Air Canada**
10.3 Form of Warrant Purchase Agreement between the Company and Air
Partners*
23.1 Consent of Ernst & Young LLP**
23.2 Consent of Jeffery A. Smisek, Esq. (included in his opinion filed as
Exhibit 5.1)*
24.1 Powers of Attorney**
- --------
* Filed herewith
** Previously filed
3,416,812 Shares
CONTINENTAL AIRLINES, INC.
(a Delaware corporation)
Class B Common Stock
(Par Value $.01 Per Share)
U.S. PURCHASE AGREEMENT
May __, 1996
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS INC.
MORGAN STANLEY & CO. INCORPORATED
as Representatives of the several U.S. Underwriters
c/o MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281
Ladies and Gentlemen:
Continental Airlines, Inc., a Delaware corporation
(the "Company"), Air Canada, a Canada corporation ("Air
Canada"), and each of the stockholders named in Schedule B
hereto (together with Air Canada, the "Selling Stockholders"),
in all instances acting severally and not jointly, confirm
their agreement with Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and each
of the other Underwriters named in Schedule A to the U.S.
Pricing Agreement (as defined below) (collectively, the "U.S.
Underwriters," which term shall also include any underwriter
substituted as hereinafter provided in Section 10 hereof), for
whom Merrill Lynch, Goldman, Sachs & Co., Lehman Brothers Inc.
and
-2-
Morgan Stanley & Co. Incorporated are acting as
representatives (in such capacity, the "Representatives"), with
respect to (a) the sale by the Selling Stockholders, acting
severally and not jointly, of the respective numbers of shares
of Class B common stock, par value $.01 per share of the
Company (the "Class B Common Stock") reflected in Schedule B
hereto (the shares to be so sold by the Selling Stockholders
being referred to herein as the "Initial U.S. Securities") and
the purchase by the U.S. Underwriters, acting severally and not
jointly, of the respective number of shares of Class B Common
Stock reflected in Schedule A hereto; and (b) the grant by Air
Canada to the U.S. Underwriters, acting severally and not
jointly, of the option described in Section 2(b) hereof to
purchase all or any part of the Option Securities (as defined
herein) to cover over-allotments except, in each case, as may
otherwise be provided in the U.S. Pricing Agreement. The
Initial U.S. Securities and the Option Securities are
collectively hereinafter called the "U.S. Securities."
It is understood that the Company and the Selling
Stockholders are concurrently entering into an agreement dated
the date hereof (the "International Purchase Agreement") which
provides for the sale by the Selling Stockholders of 854,203
shares of Class B Common Stock (the "Initial International
Securities") through arrangements with certain underwriters
outside the United States and Canada (the "International
Underwriters"), for whom Merrill Lynch International Limited,
Goldman Sachs International, Lehman Brothers International
(Europe) and Morgan Stanley & Co. International Limited are
acting as representatives.
The U.S. Underwriters and the International
Underwriters are hereinafter collectively called the
"Underwriters," the Initial U.S. Securities and the Initial
International Securities are hereinafter called the "Initial
Securities" and the Initial Securities and the Option
Securities are hereinafter called the "Securities."
The Underwriters are concurrently entering into an
Intersyndicate Agreement of even date herewith (the "Inter-
syndicate Agreement") providing for the coordination of certain
transactions among the U.S. Underwriters and the International
Underwriters.
Each U.S. Underwriter shall purchase the number of
shares of the Initial U.S. Securities set forth opposite such
U.S. Underwriter's name in Schedule A to the U.S. Pricing
-3-
Agreement. To the extent that the public offering price per
share set forth in the U.S. Pricing Agreement is less than the
minimum public offering price per share set forth as to any
Selling Stockholder on the signature page of the power of
attorney, which forms a part of the custody agreement dated as
of ______, 1996 (including such power-of-attorney, the "Custody
Agreement") between the Company and such Selling Stockholder,
such Selling Stockholder shall not sell any shares pursuant to
this Agreement and shall no longer be deemed to be a Selling
Stockholder under this Agreement.
Prior to the purchase and public offering of the U.S.
Securities by the several U.S. Underwriters, the Company, the
Selling Stockholders and the Representatives, acting on behalf
of the several U.S. Underwriters, shall enter into an agreement
substantially in the form of Exhibit A hereto (the "U.S.
Pricing Agreement"). The U.S. Pricing Agreement may take the
form of an exchange of any standard form of written
telecommunication between the Company, the Selling Stockholders
and the Representatives and shall specify such information as
is required by Exhibit A hereto. The sale to the several U.S.
Underwriters of the U.S. Securities by the Selling Stockholders
will be governed by this Agreement, as supplemented by the U.S.
Pricing Agreement. From and after the date of the execution
and delivery of the U.S. Pricing Agreement, this Agreement
shall be deemed to incorporate the U.S. Pricing Agreement.
The public offering price and the purchase price per
share with respect to the International Securities shall be set
forth in a separate instrument (the "International Pricing
Agreement"), the form of which is attached to the International
Purchase Agreement. The U.S. dollar price per share for the
Securities to be purchased by the U.S. Underwriters pursuant to
this Agreement and by the International Underwriters pursuant
to the International Purchase Agreement shall be identical.
The Company has filed with the United States
Securities and Exchange Commission (the "Commission") a
registration statement on Form S-3 (No. 333-02701) and related
preliminary prospectuses for the registration of the Securities
under the Securities Act of 1933, as amended (the "1933 Act"),
has filed such amendments thereto and such amended preliminary
prospectuses as may have been required to the date hereof and
will file such additional amendments thereto and such amended
-4-
prospectuses as may hereafter be required*. Such registration
statement (as amended) at the time it becomes effective and the
U.S. prospectus and the international prospectus constituting a
part thereof (including in each case all documents incorporated
or deemed to be incorporated by reference therein and the
information, if any, deemed to be part thereof pursuant to Rule
430A(b) or Rule 434 of the rules and regulations of the
Commission under the 1933 Act (the "1933 Act Regulations")), as
such U.S. prospectus or international prospectus may from time
to time be amended or supplemented pursuant to the 1933 Act or
the Securities Exchange Act of 1934, as amended (the "1934
Act"), are hereinafter referred to as the "Registration
Statement," the "U.S. Prospectus" and the "International
Prospectus," respectively, and the U.S. Prospectus and the
International Prospectus are hereinafter together called the
"Prospectuses" and, each individually, a "Prospectus," except
that if any revised prospectus shall be provided to the U.S.
Underwriters or the International Underwriters by the Company
for use in connection with the offering of the Securities which
differs from the Prospectuses on file at the Commission at the
time the Registration Statement becomes effective (whether or
not such revised prospectus is required to be filed by the
Company pursuant to Rule 424(b) of the 1933 Act Regulations),
the terms "U.S. Prospectus" and "International Prospectus"
shall refer to such revised prospectuses from and after the
time they are first provided to the U.S. Underwriters or the
International Underwriters, as the case may be, for such use.
Additionally, if the Company has elected to rely upon Rule 434
of the 1933 Act Regulations, the Company will prepare and file
a term sheet (a "term sheet"), in accordance with the
provisions of Rules 434 and 424(b) of such Regulations,
promptly after execution of the Pricing Agreement. All
references in this Agreement to financial statements and
schedules or other information which is "contained," "included"
or "stated" in the Registration Statement or the Prospectus
(and all other references of like import) shall be deemed to
mean and include all such financial statements and schedules or
other information which is or is deemed to be incorporated by
reference in the Registration Statement or the Prospectus, as
the case may be; and all references in this Agreement to
amendments or supplements to the
_________________________
* Two forms of prospectuses are to be used in connection with the
offering and sale of the Securities: one relating to the
International Securities (the "International Prospectus") and one
relating to the U.S. Securities (the "U.S. Prospectus").
-5-
Registration Statement or the Prospectus shall be deemed to mean
and include the filing of any document under the 1934 Act which is
or is deemed to be incorporated by reference in the Registration
Statement or the Prospectus, as the case may be.
The Company and the Selling Stockholders understand
that the U.S. Underwriters propose to make a public offering of
the U.S. Securities as soon as the Representatives deem
advisable after the Registration Statement becomes effective
and the U.S. Pricing Agreement has been executed and delivered.
SECTION 1. Representations and Warranties.
(a) The Company represents and warrants to each U.S.
Underwriter as of the date hereof and as of the date of the
U.S. Pricing Agreement (such latter date being hereinafter
referred to as the "U.S. Representation Date") as follows:
(i) At the time the Registration Statement becomes
effective and at the U.S. Representation Date, the
Registration Statement will comply in all material
respects with the requirements of the 1933 Act and the
1933 Act Regulations and will not contain an untrue
statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make
the statements therein not misleading. The U.S.
Prospectus, at the U.S. Representation Date (unless the
term "U.S. Prospectus" refers to a prospectus which has
been provided to the U.S. Underwriters by the Company for
use in connection with the offering of the Securities
which differs from the U.S. Prospectus on file at the
Commission at the time the Registration Statement becomes
effective, in which case at the time it is first provided
to the U.S. Underwriters for such use) and at Closing Time
referred to in Section 2 hereof, will not include an
untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements
therein, in the light of the circumstances under which
they were made, not misleading; and if Rule 434 is used,
the U.S. Prospectus shall not be "materially different,"
as such term is used in Rule 434 of the 1933 Act
Regulations, from the U.S. Prospectus first provided to
the U.S. Underwriters for their use; provided, however,
that the representations and warranties in this subsection
shall not apply to statements contained in or omissions
from the Registration Statement or U.S. Prospectus made in
reliance upon and in conformity with information furnished
to the Company in writing by any
-6-
U.S. Underwriter through Merrill Lynch or by or on behalf of
any Selling Stockholder expressly for use in the Registration
Statement or U.S. Prospectus.
(ii) The accountants that examined and certified the
audited consolidated financial statements and supporting
schedules of the Company included or incorporated or
deemed to be incorporated in the Registration Statement
are independent public accountants as required by the 1933
Act and the 1933 Act Regulations.
(iii) The audited and unaudited financial statements
included or incorporated or deemed to be incorporated in
the Registration Statement and the Prospectuses, together
with the related notes thereto, present fairly in all
material respects the financial position, results of
operations and cash flows of the Company and its
consolidated subsidiaries as at the dates and for the
periods to which they relate; except as otherwise stated
in the Registration Statement, said financial statements
have been prepared in conformity with United States
generally accepted accounting principles applied on a
consistent basis; and the supporting schedules, if any,
included or incorporated or deemed to be incorporated in
the Registration Statement present fairly in all material
respects the information required to be stated therein.
(iv) Since the respective dates as of which
information is given in the Registration Statement and the
Prospectuses, except as otherwise stated therein, (A)
there has been no material adverse change in the business,
financial condition, assets or results of operations of
the Company and its consolidated subsidiaries, taken as a
whole, whether or not arising in the ordinary course of
business (a "Material Adverse Change"), (B) there has been
no transaction entered into by the Company or any of its
consolidated subsidiaries, other than those in the
ordinary course of business, that is material to the
Company and its consolidated subsidiaries, taken as a
whole, and (C) there has been no dividend or distribution
of any kind declared, paid or made by the Company on its
capital stock (other than declarations or scheduled
payments of dividends on the Company's outstanding
preferred stock in additional shares of such preferred
stock).
(v) The Company has been duly incorporated and is
validly existing as a corporation in good standing under
-7-
the laws of the State of Delaware with corporate power and
authority to own, lease and operate its properties and to
conduct its business as now conducted and as described in
the Prospectuses and to enter into and perform its
obligations under this Agreement, the Custody Agreement,
the U.S. Pricing Agreement, the International Purchase
Agreement and the International Pricing Agreement; and the
Company is duly qualified as a foreign corporation to
transact business and is in good standing in each
jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property
or the conduct of business, except where the failure to so
qualify would not have a material adverse effect on the
business, financial condition, assets or results of
operations of the Company and its consolidated
subsidiaries, taken as a whole (a "Material Adverse
Effect").
(vi) The only subsidiaries of the Company that are
"significant subsidiaries" within the meaning of Rule
1-02(w) of Regulation S-X under the 1933 Act as of the
date hereof are Air Micronesia, Inc. and Continental
Micronesia, Inc., each a Delaware corporation
(collectively, together with Continental Express, Inc., a
Delaware corporation, the "Subsidiaries"). Each
Subsidiary has been duly incorporated and is validly
existing as a corporation in good standing under the laws
of the jurisdiction of its incorporation, has corporate
power and authority to own, lease and operate its
properties and to conduct its business as described in the
Prospectuses and is duly qualified as a foreign
corporation to transact business and is in good standing
in each jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the
failure to so qualify would not have a Material Adverse
Effect. Except as set forth in the Registration
Statement, all of the outstanding capital stock of each
Subsidiary has been duly authorized and validly issued, is
fully paid and non-assessable and except as set forth in
the Registration Statement is owned by the Company,
directly or through subsidiaries, free and clear of any
security interest, mortgage, pledge, lien, encumbrance,
claim or equity.
(vii) All of the outstanding capital stock of the
Company has been duly authorized and validly issued and is
fully paid and nonassessable; the authorized capital stock
-8-
of the Company conforms in all material respects to all
statements relating thereto in the Prospectuses.
(viii) Neither the Company nor any of the Subsidiaries
is in violation of its charter or in default (or, with
notice or lapse of time or both, would be in default) in
the performance or observance of any obligation,
agreement, covenant or condition contained in any
contract, indenture, mortgage, loan agreement, note, lease
or other instrument to which the Company or any of the
Subsidiaries is a party or by which it or any of them is
bound, or to which any of the property or assets of the
Company or any of the Subsidiaries is subject, which
violation or default would have a Material Adverse Effect;
and the execution, delivery and performance of this
Agreement, the U.S. Pricing Agreement, the Custody
Agreement, the International Purchase Agreement and the
International Pricing Agreement and the consummation of
the transactions contemplated herein and therein and
compliance by the Company with its obligations hereunder
and thereunder have been duly authorized by all necessary
corporate action and will not conflict with or constitute
or result in a breach or violation by the Company or any
of the Subsidiaries of (A) any of the terms or provisions
of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a
default) by the Company or any of the Subsidiaries, or
give rise to any right to accelerate the maturity or
require the prepayment of any indebtedness under, or
result in the creation or imposition of any lien, charge
or encumbrance upon any property or assets of the Company
or any of the Subsidiaries under, any contract, indenture,
mortgage, deed of trust, loan agreement, note, lease, or
other instrument to which the Company or any of the
Subsidiaries is a party or by which any of them may be
bound, or to which any of them or any of their respective
assets or properties is subject, which individually or in
the aggregate would (1) have or result in a Material
Adverse Effect, or (2) materially affect the consummation
of the transactions contemplated hereby; (B) the
respective charters or by-laws of the Company and the
Subsidiaries or (C) any applicable law, administrative
regulation or administrative or court decree which would
have or result in a Material Adverse Effect, or materially
affect the consummation of the transactions contemplated
hereby.
-9-
(ix) Except as disclosed in the Registration
Statement, to the knowledge of the Company, no material
labor problem, dispute or disturbance with the employees
of the Company or any of the Subsidiaries exists or is
threatened.
(x) Except as disclosed in the Registration
Statement, there is no legal action, suit or proceeding
before or by any court or governmental agency or body,
domestic or foreign, now pending, or, to the knowledge of
the Company, threatened, against the Company or any of the
Subsidiaries, which is required to be disclosed in the
Registration Statement, or which would, individually or in
the aggregate, have a Material Adverse Effect, or which
could reasonably be expected to materially and adversely
affect the consummation of the transactions contemplated
by this Agreement, the U.S. Pricing Agreement, the Custody
Agreement, the International Purchase Agreement and the
International Pricing Agreement. Except as disclosed in
the Registration Statement, neither the Company nor any of
the Subsidiaries has received any notice or claim of any
default (or event which with notice or lapse of time or
both would result in a default) under any of its
respective material contracts or has knowledge of any
breach of any of such contracts by the other party or
parties thereto, except such defaults or breaches as would
not result in a Material Adverse Effect. There are no
contracts or documents of the Company or any of its
subsidiaries which are required to be filed as exhibits to
the Registration Statement by the 1933 Act or by the 1933
Act Regulations which have not been so filed.
(xi) No authorization, approval or consent of any
court or governmental authority or agency of the United
States is necessary in connection with the offering or
sale of the Securities hereunder or under the
International Purchase Agreement, except such as may be
required and have been obtained under the 1933 Act, the
1933 Act Regulations, the 1934 Act, the 1934 Act
Regulations or as may be required by the National
Association of Securities Dealers, Inc. ("NASD") or under
state securities laws.
(xii) The Company (i) has been subject to the
requirements of Section 12 of the 1934 Act for a period of
at least 12 calendar months, (ii) has filed in a timely
manner all reports required to be filed during the 12
calendar months preceding the U.S. Representation Date,
and
-10-
(iii) the aggregate market value of the voting stock
held by non-affiliates of the Company is $75 million or
more.
(xiii) Except as could not reasonably be expected to
have a Material Adverse Effect, the Company and the
Subsidiaries possess such certificates, authorizations or
permits issued by the appropriate state, federal or
foreign regulatory agencies or bodies necessary to conduct
the business now conducted by them in the manner described
in the Registration Statement, and neither the Company nor
any of the Subsidiaries has received any notice of pro-
ceedings relating to the revocation or modification of any
such certificate, authority or permit which, singly or in
the aggregate, if the subject of an unfavorable decision,
ruling or finding, would have a Material Adverse Effect.
(xiv) This Agreement, the Custody Agreement and the
International Purchase Agreement have been, and, at the
U.S. Representation Date, the U.S. Pricing Agreement and
the International Pricing Agreement will have been, duly
authorized, executed and delivered by the Company.
(xv) There are no persons with registration or other
similar rights to have any securities registered pursuant
to the Registration Statement by the Company under the
1933 Act, except such as have been waived in writing or
complied with by the inclusion of such persons as Selling
Stockholders.
(xvi) Except as disclosed in the Registration
Statement, there is no claim pending or to the knowledge
of the Company threatened under any Environmental Law (as
defined below) against the Company or any of the
Subsidiaries which could reasonably be expected, singly or
in the aggregate, to result in a Material Adverse Effect;
to the knowledge of the Company there are no past or
present actions, conditions, events, circumstances or
practices, including, without limitation, the release of
any Hazardous Material (as defined below) that could
reasonably be expected to form the basis of any such claim
under any Environmental Law against the Company or any of
the Subsidiaries which would, singly or in the aggregate,
result in a Material Adverse Effect. The term
"Environmental Law" means the common law and any federal,
state, local or foreign law, rule or regulation, code,
order, decree, judgment or injunction, issued,
promulgated, approved or entered thereunder relating to
pollution or protection of
-11-
public or employee health or the environment, including,
without limitation, the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980,
as amended, the Resource Conservation and Recovery Act,
as amended, the Toxic Substance Control Act, as
amended, the Clean Air Act, as amended, and the Federal
Water Pollution Act, as amended, and their foreign, state
and local counterparts or equivalents and any other
laws relating to (i) releases of any Hazardous Material
into the environment (including, without limitation,
ambient air, surface water, ground water, land surface
or subsurface strata), (ii) the manufacture, processing,
distribution, use, treatment, storage, disposal,
transport, presence or handling of any Hazardous Material,
or (iii) underground storage tanks and related piping,
and releases therefrom. The term "Hazardous Material"
means any pollutant, contaminant, chemical, hazardous
material, or industrial, toxic or hazardous substance
or waste (including, without limitation, petroleum,
including crude oil or any fraction thereof or any
petroleum product) regulated by or the subject of any
Environmental Law.
(xvii) The Securities are listed on the New York Stock
Exchange and have been registered under Section 12(b) of
the 1934 Act.
(xviii) The documents incorporated or deemed to be
incorporated by reference in the Prospectuses, at the time
they were or hereafter are filed with the Commission,
complied and will comply in all material respects with the
requirements of the 1934 Act and the rules and regulations
of the Commission under the 1934 Act (the "1934 Act
Regulations"), and, when read together with the other
information in the Prospectuses, at the time the
Registration Statement and any amendments thereto become
effective and at the Closing Time, will not contain an
untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary
to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(xix) Except as set forth on the inside front cover
page of the Prospectuses, the Company has not and is not
presently doing business with the government of Cuba or
with any person or any affiliate located in Cuba.
-12-
(b) Each of the Selling Stockholders severally, and
not jointly, represents and warrants to, and agrees with, each
U.S. Underwriter as of the date hereof, as of the U.S. Repre-
sentation Date and as of the Closing Time as follows:
(i) Such Seller Stockholder has reviewed and is
familiar with the Registration Statement and the
Prospectuses contained therein or filed as supplements
thereto and such Selling Stockholder has no reason to
believe that the Prospectuses (and any amendment,
supplement or term sheet thereto) include (or, as of the
Closing Time, as defined in Section 2 below, will include)
an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements
therein, in the light of the circumstances under which
they were made, not misleading; and such Selling
Stockholder is not prompted to sell the Securities to be
sold by such Selling Stockholder by any information
concerning the Company that is not set forth in the
Prospectuses.
(ii) On the date the U.S. Pricing Agreement is
executed and at the Closing Time, as defined in Section 2
below (and if any Option Securities are purchased, at the
Date of Delivery, as defined in Section 2 below), and,
unless the Company has notified you as provided in Section
3(e) below, at all times between the first delivery of the
U.S. Prospectus to the U.S. Underwriters for their use and
the Closing Time, as defined in Section 2 below (and, if
any Option Securities are purchased, the Date of Delivery,
as defined in Section 2 below), such parts of the
Registration Statement and any amendments and supplements
thereto as specifically refer to such Selling Stockholder
will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading and such parts of the U.S. Prospectus as
specifically refer to such Selling Stockholder will not
include an untrue statement of a material fact or omit to
state a material fact necessary in order to make the
statements therein, in the light of the circumstances
under which they were made, not misleading.
(iii) Certificates for all of the Securities to be
sold by such Selling Stockholder pursuant to this
Agreement, in suitable form for transfer by delivery or
accompanied by duly executed instruments of transfer or
assignment in blank with signatures guaranteed have been
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deposited with the Company, as custodian (the "Custodian")
pursuant to a Custody Agreement dated as of May___, 1996,
for the purpose of effecting delivery pursuant to this
Agreement.
(iv) The execution and delivery of this Agreement,
the U.S. Pricing Agreement, the Custody Agreement, the
International Purchase Agreement and the International
Pricing Agreement by such Selling Stockholder and the
consummation of the transactions herein and therein
contemplated will not (A) result in the creation or
imposition of any lien, charge or encumbrance upon the
U.S. Securities to be sold by such Selling Stockholder or
(B) result in a breach by such Selling Stockholder of, or
constitute a default by such Selling Stockholder under,
any material indenture, deed of trust, contract or other
agreement or instrument or any decree, judgment or order
to which such Selling Stockholder is a party or by which
such Selling Stockholder may be bound, in each case that
would have a Material Adverse Effect or (C) result in any
violation of the provisions of the certificate or articles
of incorporation or by-laws, trust agreement or other
organizational documents, if any, of such Selling
Stockholder.
(v) Such Selling Stockholder has and will have, at
the Closing Time, good and marketable title to the U.S.
Securities to be sold by such Selling Stockholder under
this Agreement, free and clear of any pledge, lien,
security interest, encumbrance, equity, community property
rights, restriction on transfer or claim whatsoever other
than pursuant to this Agreement and such Selling
Stockholder's Custody Agreement; such Selling Stockholder
has full right, power and authority and all authorizations
and approvals required by law to sell, transfer and
deliver the U.S. Securities to be sold by such Selling
Stockholder under this Agreement and upon delivery of such
U.S. Securities and payment of the purchase price therefor
as contemplated in this Agreement, each of the U.S.
Underwriters will receive good and marketable title to the
U.S. Securities purchased by it from such Selling
Stockholder, free and clear of any pledge, lien, security
interest, encumbrance, equity, restriction on transfer or
claim whatsoever.
(vi) All authorizations, approvals, consents and
orders necessary for the execution and delivery by such
Selling Stockholder of this Agreement, the U.S. Pricing
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Agreement, the Custody Agreement, the International
Purchase Agreement and the International Pricing Agreement
and the sale and delivery of the Securities to be sold by
such Selling Stockholder under this Agreement and the
International Purchase Agreement (other than, at the time
of execution hereof, the issuance of the order of the
Commission declaring the Registration Statement effective
and such authorizations, approvals or consents as may be
necessary under state securities laws) have been obtained
and are in full force and effect, and such Selling
Stockholder has full right, power and authority to enter
into and perform its obligations under this Agreement, the
U.S. Pricing Agreement, the Custody Agreement, the
International Purchase Agreement and the International
Pricing Agreement, and to sell, transfer and deliver the
Securities to be sold by such Selling Stockholder under
this Agreement, the U.S. Pricing Agreement, the Custody
Agreement, the International Purchase Agreement and the
International Pricing Agreement.
(vii) Such Selling Stockholder has not taken, and will
not take, directly or indirectly, any action which is
designed to or which might reasonably be expected to cause
or result in or which has constituted stabilization or
manipulation of the price of any security of the Company
to facilitate the distribution of the Securities.
[(viii) Except as otherwise permitted under the relevant
lock-up agreement, such Selling Stockholder will not,
directly or indirectly, for a period of 90 days from the
date of the Pricing Agreement, except with the prior
written consent of Merrill Lynch, offer, sell, contract to
sell or otherwise dispose of shares of common stock of the
Company, or any interests therein, or any securities
convertible into or exchangeable for shares of common
stock of the Company.]
(c) Any certificate signed by any officer of the
Company and delivered to the U.S. Underwriters or to the
International Underwriters or to counsel for the Underwriters
pursuant to the terms of this Agreement shall be deemed a
representation and warranty by the Company to each Underwriter
as to the matters covered thereby, and any certificate signed
by any officer or partner, as the case may be, of a Selling
Stockholder and delivered to the U.S. Underwriters or to the
International Underwriters or counsel for the Underwriters
pursuant to the terms of this Agreement shall be deemed a
representation
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and warranty by such Selling Stockholder to each
U.S. Underwriter as to the matters covered thereby.
SECTION 2. Sale and Delivery to the U.S. Underwriters;
Closing.
(a) On the basis of the representations and
warranties herein contained and subject to the terms and
conditions herein set forth, the Selling Stockholders, acting
severally and not jointly, agree to sell to each U.S.
Underwriter, acting severally and not jointly, and each U.S.
Underwriter, acting severally and not jointly, agrees to
purchase from the Selling Stockholders, acting severally and
not jointly, at the purchase price per share set forth in the
U.S. Pricing Agreement (subject to subparagraph (b) hereof),
(i) the number of Initial U.S. Securities from the Selling
Stockholders set forth in Schedule A opposite the name of such
U.S. Underwriter, plus (ii) any additional number of Initial
U.S. Securities which such U.S. Underwriter may become
obligated to purchase pursuant to the provisions of Section 10
hereof.
(1) If the Company has elected not to rely upon Rule
430A under the 1933 Act Regulations, the public offering
price and the purchase price per share to be paid by the
several U.S. Underwriters for the U.S. Securities have
each been determined and set forth in the U.S. Pricing
Agreement, dated the date hereof, and an amendment to the
Registration Statement and the Prospectuses containing
such information will be filed before the Registration
Statement becomes effective.
(2) If the Company has elected to rely upon Rule
430A under the 1933 Act Regulations, the purchase price
per share to be paid by the several U.S. Underwriters for
the U.S. Securities shall be an amount equal to the public
offering price, less an amount per share to be determined
by agreement between the U.S. Underwriters, Air Canada and
the Selling Stockholders (or any Attorney-in-Fact (as
defined in the Custody Agreement) appointed by a Selling
Stockholder). The public offering price per share of the
U.S. Securities shall be a fixed price to be determined by
agreement between the U.S. Underwriters, Air Canada and
the Selling Stockholders (or any Attorney-in-Fact
appointed by a Selling Stockholder). The public offering
price and the purchase price shall be set forth in
paragraph 2 of the U.S. Pricing
-16-
Agreement. In the event that such prices have not
been agreed upon and the U.S. Pricing Agreement has
not been executed and delivered by all parties
thereto by the close of business on the fourth
business day following the date of this Agreement, this
Agreement shall terminate forthwith, without liability of
any party to any other party, unless otherwise agreed to
by the Company, Air Canada, the Selling Stockholders (or
any Attorney-in-Fact appointed by a Selling Stockholder)
and the Representatives.
(b) In addition, on the basis of the representations
and warranties herein contained and subject to the terms and
conditions herein set forth, Air Canada hereby grants an option
to the U.S. Underwriters, severally and not jointly, to
purchase up to 200,000 additional shares of Class B Common
Stock (the "Option Securities") at the price per share set
forth in the U.S. Pricing Agreement. The option hereby granted
will expire 30 days after (i) the date the Registration
Statement becomes effective, if the Company has elected not to
rely on Rule 430A under the 1933 Act Regulations, or (ii) the
U.S. Representation Date, if the Company has elected to rely on
Rule 430A under the 1933 Act Regulations, and may be exercised
in whole or in part from time to time only for the purpose of
covering over-allotments which may be made in connection with
the offering and distribution of the Initial U.S. Securities
upon notice by the Representatives to the Company and Air
Canada, setting forth the number of Option Securities as to
which the several U.S. Underwriters are then exercising the
option and the time and date of payment and delivery for such
Option Securities. Any such time and date of delivery (a "Date
of Delivery") shall be determined by the Representatives, but
shall not be later than seven full business days after the
exercise of said option, nor in any event prior to the Closing
Time, as hereinafter defined, unless otherwise agreed by the
Representatives and Air Canada. If the option is exercised as
to all or any portion of the Option Securities, each of the
U.S. Underwriters, acting severally and not jointly, will
purchase that proportion of the total number of Option
Securities then being purchased which the number of Initial
U.S. Securities set forth in Schedule A opposite the name of
such U.S. Underwriter bears to the total number of Initial U.S.
Securities (except as otherwise provided in the U.S. Pricing
Agreement), subject in each case to such adjustments as the
Representatives in their discretion shall make to eliminate any
sales or purchases of fractional shares.
(c) Payment of the purchase price for, and delivery
of certificates for, the Initial U.S. Securities shall be made
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at the world headquarters of Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated at the address
stated above, or at such other place as shall be agreed upon by
the Representatives and the Company, at 10:00 A.M. on the third
or fourth business day (unless postponed in accordance with the
provisions of Section 10) following the date the Registration
Statement becomes effective (or, if the Company has elected to
rely upon Rule 430A of the 1933 Act Regulations, the third or
fourth business day after execution of the U.S. Pricing
Agreement), or such other time not later than ten business days
after such date as shall be agreed upon by the Representatives,
Air Canada and the Selling Stockholders (or any Attorney-in-
Fact appointed by a Selling Stockholder) (such time and date of
payment and delivery being herein called "Closing Time"). In
addition, in the event that any or all of the Option Securities
are purchased by the U.S. Underwriters, payment of the purchase
price for and delivery of certificates for such Option
Securities shall be made at the above-mentioned offices, or at
such other place as shall be agreed upon by the Representatives
and Air Canada, on each Date of Delivery as specified in the
notice from the Representatives to the Company and Air Canada.
Payment for Initial U.S. Securities shall be made to Air Canada
and to the Custodian on behalf of the other Selling
Stockholders by certified or official bank check or checks
drawn in New York Clearing House funds or similar next day
funds, or by wire transfer to an account to be designated by
the Custodian at least one business day prior to the Closing
Time of immediately available funds (net of the cost to Merrill
Lynch of obtaining such immediately available funds), payable
to the order of the respective Selling Stockholders, against
delivery to the Representatives for the respective accounts of
the U.S. Underwriters of certificates for the U.S. Securities
to be purchased by them. Payment for Option Securities, if
any, shall be made to Air Canada in accordance with the
preceding sentence. Certificates for the Initial U.S.
Securities and the Option Securities, if any, shall be in such
denominations and registered in such names as the
Representatives may request in writing to the transfer agent at
least two business days before Closing Time or the relevant
Date of Delivery, as the case may be. It is understood that
each U.S. Underwriter has authorized the Representatives, for
its account, to accept delivery of, receipt for, and make
payment of the purchase price for, the Initial U.S. Securities
and the Option Securities, if any, which it has agreed to
purchase. Merrill Lynch, individually and not as
representative of the U.S. Underwriters, may (but shall not be
obligated to) make payment of the purchase price for the
Initial U.S. Securities or the Option Securities, if any, to be
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purchased by any U.S. Underwriter whose check has not been
received by Closing Time or the relevant Date of Delivery, as
the case may be, but such payment shall not relieve such U.S.
Underwriter from its obligations hereunder. The certificates
for the Initial U.S. Securities and the Option Securities, if
any, will be made available by the transfer agent for
examination and packaging by the Representatives not later than
10:00 A.M. on the last business day prior to Closing Time or
the relevant Date of Delivery, as the case may be.
(d) Each Selling Stockholder will pay all applicable
stock transfer taxes which are required to be paid in
connection with the sale and transfer of the U.S. Securities by
such Selling Stockholder to the U.S. Underwriters hereunder or
will have fully provided for payment of such taxes and all laws
imposing such taxes will have been fully complied with.
SECTION 3. Covenants of the Company. The Company
covenants with each U.S. Underwriter as follows:
(a) The Company will, for so long as the
Underwriters are required to deliver a prospectus in
connection with the offer and sale of the Securities,
notify the Representatives promptly, and confirm the
notice in writing, (i) of the effectiveness of the
Registration Statement and any amendment thereto
(including any post-effective amendment), (ii) of the
receipt of any comments from the Commission, (iii) of any
request by the Commission for any amendment to the
Registration Statement or any amendment or supplement to
the Prospectuses or for additional information, and (iv)
of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement
or the initiation of any proceedings for that purpose.
The Company will make every reasonable effort to prevent
the issuance of any stop order and, if any stop order is
issued, to obtain the lifting thereof at the earliest
possible moment. The obligations of the Company pursuant
to this Section 3(a) shall be deemed to terminate 90 days
after the date of the U.S. Pricing Agreement unless the
Representatives shall notify the Company in writing that
the Underwriters continue to be subject to prospectus
delivery requirements with respect to offers and sales of
the Securities, and in the event of any such notice the
obligations of the Company under this Section 3(a) shall
be deemed to terminate 60 days after the date of such
notice unless a further notice to such effect is so
provided.
-19-
(b) The Company will, for so long as the
Underwriters are required to deliver a prospectus in
connection with the offer and sale of the Securities, give
the Representatives notice of its intention to file or
prepare any amendment to the Registration Statement
(including any post-effective amendment) or any amendment
or supplement to the Prospectuses (including any revised
prospectus which the Company proposes for use by the
Underwriters in connection with the offering of the
Securities which differs from the prospectuses on file at
the Commission at the time the Registration Statement
becomes effective, whether or not such revised
prospectuses are required to be filed pursuant to Rule
424(b) of the 1933 Act Regulations), whether pursuant to
the 1933 Act, the 1934 Act or otherwise, will furnish the
Representatives with copies of any such amendment or
supplement a reasonable amount of time prior to such
proposed filing or use, as the case may be, and will not
file any such amendment or supplement or use any such
prospectus to which the Representatives or counsel for the
Underwriters shall reasonably object. In the event
(a) the Underwriters shall object to any such amendment,
supplement or prospectus and (b) the Company shall have
determined (based upon the written opinion of outside
counsel) that the failure to file with the Commission, or
use in connection with the sale of the securities included
in the Registration Statement, any such amendment,
supplement or prospectus would make the Prospectus include
a material misstatement or omit to state a material fact
in light of the circumstances existing at the time it is
delivered to a purchaser, then the Company may file with
the Commission any such amendment, supplement or
prospectus. The obligations of the Company pursuant to
this Section 3(b) shall be deemed to terminate 90 days
after the date of the U.S. Pricing Agreement unless the
Representatives shall notify the Company in writing that
the Underwriters continue to be subject to prospectus
delivery requirements with respect to offers and sales of
the Securities, and in the event of any such notice the
obligations of the Company under this Section 3(b) shall
be deemed to terminate 60 days after the date of such
notice unless a further notice to such effect is so
provided.
(c) The Company will deliver to the Representatives
as many signed copies of the Registration Statement as
originally filed and of each amendment thereto (including
exhibits filed therewith or incorporated by reference
-20-
therein and documents incorporated or deemed to be
incorporated by reference therein) as the Representatives
may reasonably request and will also deliver to the
Representatives a conformed copy of the Registration
Statement as originally filed and of each amendment
thereto (without exhibits) for each of the U.S.
Underwriters.
(d) The Company will furnish to each U.S.
Underwriter, from time to time during the period when the
U.S. Prospectus is required to be delivered under the 1933
Act or the 1934 Act, such number of copies of the U.S.
Prospectus (as amended or supplemented) as such U.S.
Underwriter may reasonably request for the purposes
contemplated by the 1933 Act or the 1934 Act or the
respective applicable rules and regulations of the
Commission thereunder.
(e) During the period when the U.S. Prospectus is
required to be delivered under the 1933 Act or the 1934
Act, if any event shall occur as a result of which it is
necessary, in the reasonable opinion of counsel for the
Representatives or counsel to the Company, to amend or
supplement the U.S. Prospectus in order that the U.S.
Prospectus, as then amended or supplemented, will not
include an untrue statement of material fact or omit to
state a material fact necessary to make the statements
therein, in the light of the circumstances existing at the
time it is delivered to a purchaser, not misleading or, in
the reasonable opinion of the Representatives or counsel
to the Representatives, such amendment or supplement is
necessary to comply with applicable law, the Company will,
subject to paragraph (b) of this Section 3, promptly
prepare such amendment or supplement as may be necessary
to correct such untrue statement or omission or to effect
such compliance (in form and substance reasonably
satisfactory to counsel for the Representatives), so that,
as so amended or supplemented, the U.S. Prospectus will
not include an untrue statement of a material fact or omit
to state a material fact necessary in order to make the
statements therein, in the light of the circumstances
existing at the time it is delivered to a purchaser, not
misleading, or so that such Prospectus as so amended or
supplemented will comply with applicable law, as the case
may be, and the Company will furnish to the U.S.
Underwriters such number of copies of such amendment or
supplement as the U.S. Underwriters may reasonably
request. The Company agrees to notify the Underwriters in
writing to suspend use of
-21-
the Prospectuses as promptly as practicable after the
occurrence of an event specified in this paragraph (e),
and the Underwriters hereby agree upon receipt of
such notice from the Company to suspend use of
the Prospectuses until the Company has amended or
supplemented the Prospectuses to correct such misstatement
or omission or to effect such compliance.
(f) The Company, during the period when the U.S.
Prospectus is required to be delivered under the 1933 Act
or the 1934 Act, will file all documents required to be
filed with the Commission pursuant to Section 13, 14 or 15
of the 1934 Act within the time periods required by the
1934 Act and the 1934 Act Regulations.
(g) The Company will endeavor, in cooperation with
the U.S. Underwriters, to qualify the Securities for
offering and sale under the applicable securities laws of
such states and other jurisdictions of the United States
as the Representatives may reasonably designate; provided,
however, that the Company shall not be obligated to (i)
qualify as a foreign corporation in any jurisdiction in
which it is not so qualified, (ii) file any general
consent to service of process in any jurisdiction where it
is not at the Closing Time then so subject or (iii)
subject itself to taxation in any such jurisdiction if it
is not so subject. In each jurisdiction in which the
Securities have been so qualified, the Company will file
such statements and reports as may be required by the laws
of such jurisdiction to continue such qualification in
effect for a period of not less than one year from the
effective date of the Registration Statement or such
shorter period that will terminate when all Initial
Securities and any Option Securities to be sold subject to
such qualification have been sold or withdrawn. The
Company shall promptly advise the Representatives and
counsel to the Representatives of the receipt by the
Company of any notification with respect to the suspension
of the qualification or exemption from qualification of
the Securities for offering or sale in any jurisdiction or
the institution of any proceeding for such purpose. The
Company will inform the Florida Department of Banking and
Finance if prior to the completion of the distribution of
the Securities by the Underwriters the Company commences
engaging, other than as set forth in the Registration
Statement, in business with the government of Cuba or with
any person or affiliate located in Cuba. Such information
will be provided within
-22-
90 days of the commencement thereof or after a change to any such
previously reported information.
(h) The Company will make generally available to its
security holders as soon as practicable, but not later
than 90 days after the close of the period covered
thereby, an earning statement (in form complying with the
provisions of Rule 158 of the 1933 Act Regulations)
covering a twelve-month period beginning not later than
the first day of the Company's fiscal quarter next
following the "effective date" (as defined in said Rule
158) of the Registration Statement.
(i) If, at the time that the Registration Statement
becomes effective, any information shall have been omitted
therefrom in reliance upon Rule 430A of the 1933 Act
Regulations, then immediately following the execution of
the U.S. Pricing Agreement, the Company will prepare, and
file or transmit for filing with the Commission in
accordance with such Rule 430A and Rule 424(b) of the 1933
Act Regulations, copies of an amended U.S. Prospectus and
an amended International Prospectus, or, if required by
such Rule 430A, a post-effective amendment to the
Registration Statement (including amended Prospectuses),
containing all information so omitted.
(j) The Company will use its commercially reasonable
best efforts to cause the continued listing of the
Securities on the New York Stock Exchange.
(k) The Company will not, directly or indirectly,
for a period of 90 days from the U.S. Representation Date,
except with the prior written consent of Merrill Lynch,
offer, sell, contract to sell, or otherwise dispose of any
shares of common stock of the Company or any interests
therein, or any securities that are convertible into or
exchangeable for shares of common stock or other equity
interests of the Company, except that the Company may
issue shares of common stock or other equity interests of
the Company (i) pursuant to the exercise or conversion of
options, warrants or other securities outstanding on the
date hereof, (ii) pursuant to the grant of stock options
or other stock-based awards (and the exercise thereof) to
directors, officers, and employees of the Company or its
subsidiaries, and (iii) as may be required pursuant to the
certificate of incorporation of the Company and may cause
to be registered with the Commission (x) a resale shelf
-23-
registration statement for the shares of Class B Common
Stock to be issued upon the conversion of the Company's
outstanding 6 3/4% Convertible Subordinated Notes Due
April 15, 2006 and 8 1/2% Convertible Trust Originated
Preferred Securities (Convertible TOPrS) and (y) a
registration statement for the sale (only after the
expiration of the 90 day period referred to above) of up
to $50 million of Class B Common Stock.
(l) Immediately following the execution of the U.S.
Pricing Agreement, the Company will prepare, and file or
transmit for filing with the Commission in accordance with
Rules 434 and 424(b) of the 1933 Act Regulations, copies
of amended Prospectus supplements and term sheet, if any,
to the Registration Statement, containing all omitted
information.
(m) If the Company uses Rule 434 of the 1933 Act
Regulations, it will comply with the requirements of Rule
434 of such regulations and the U.S. Prospectus will not
be "materially different," as such term is used in Rule
434 of the 1933 Act Regulations, from the U.S. Prospectus
first given to the U.S. Underwriters for their use.
SECTION 4. Payment of Expenses. The Company will
pay all expenses incident to the performance of its obligations
under this Agreement, including (i) the printing and filing of
the Registration Statement as originally filed and of each
amendment thereto, (ii) the preparation and delivery of the
certificates for the Securities to the Underwriters, (iii) the
fees and disbursements of the Company's counsel and
accountants, (iv) the qualification of the Securities under
securities laws in accordance with the provisions of Section
3(g) hereof, including filing fees and the fees and
disbursements of counsel for the Underwriters in connection
therewith and in connection with the preparation of the Blue
Sky Survey, (v) the printing and delivery to the Underwriters
of copies of the Registration Statement as originally filed and
of each amendment thereto (excluding exhibits, except to the
Representatives), of each preliminary prospectus, and of the
Prospectus and any amendments or supplements thereto, (vi) the
printing and delivery to the Underwriters of copies of the Blue
Sky Survey, (vii) the fee of the National Association of
Securities Dealers, Inc. and (ix) the fees and expenses of
continuing the listing of the Securities on the New York Stock
Exchange, Inc.
-24-
Notwithstanding the foregoing, each Selling
Stockholder will pay and bear any stock transfer taxes,
underwriting discounts or commissions payable upon, or with
respect to the sale of Securities sold by such Selling
Stockholder to the Underwriters, and any fees and disbursements
of counsel to the Selling Stockholders. The Company will pay
the amount of the Commission filing fee attributable to
Securities sold by each Selling Stockholder hereunder.
If after the execution of a U.S. Pricing Agreement
this Agreement is terminated by the Representatives in
accordance with the provisions of Section 5 or Section 9(a)(i)
hereof, the Company shall reimburse the Underwriters for all of
their reasonable out-of-pocket expenses that shall have been
incurred by them in connection with the proposed purchase and
sale of the Securities, including the reasonable fees and
disbursements of counsel for the Underwriters [unless such
termination occurs by reason of the failure to satisfy the
conditions contained in Sections 5(b)(3), 5(g) insofar as it
relates to deliveries by the Selling Stockholders, and
5(h)(2)(c), in which case such fees and expenses shall be paid
by the Selling Stockholder or Selling Stockholders as to which
such failure of condition relates].
SECTION 5. Conditions of U.S. Underwriters'
Obligations. The obligations of the U.S. Underwriters
hereunder are subject to the accuracy of the representations
and warranties of the Company and the Selling Stockholders
herein contained, to the performance by the Company and the
Selling Stockholders of their respective several obligations
hereunder, and to the following further conditions:
(a) The Registration Statement shall have become
effective not later than 5:30 P.M. on the date hereof, or
with the consent of the Representatives, at a later time
and date, not later, however, than 5:30 P.M. on the first
business day following the date hereof, or at such later
time and date as may be approved by a majority in interest
of the U.S. Underwriters; and at Closing Time, no stop
order suspending the effectiveness of the Registration
Statement shall have been issued under the 1933 Act or
proceedings therefor initiated or threatened by the
Commission. If the Company has elected to rely upon Rule
430A of the 1933 Act Regulations, the price of the
Securities and any price-related information previously
omitted from the effective Registration Statement pursuant
to such Rule 430A shall have been transmitted to the
Commission
-25-
for filing pursuant to Rule 424(b) of the 1933
Act Regulations within the prescribed time period and,
prior to Closing Time, the Company shall have provided
evidence satisfactory to the Representatives of such
timely filing, or a post-effective amendment providing
such information shall have been promptly filed and
declared effective in accordance with the requirements of
Rule 430A of the 1933 Act Regulations.
(b) At Closing Time the Representatives, as
representatives of the U.S. Underwriters, shall have
received:
(1) The favorable opinion, dated as of Closing
Time, of Cleary, Gottlieb, Steen & Hamilton, special
counsel for the Company, in form and substance
satisfactory to counsel for the Underwriters, to the
effect that:
(i) The Company is validly existing as a
corporation in good standing under the laws of
the State of Delaware.
(ii) The Company has corporate power to own
its properties and conduct its business as
described in the Registration Statement and to
enter into and perform its obligations under
this Agreement, the U.S. Pricing Agreement, the
Custody Agreement, the International Purchase
Agreement and the International Pricing
Agreement.
(iii) The issuance and sale of the
Securities was not subject, at the date of
issue, to preemptive or other similar rights
arising under the certificate of incorporation
or by-laws of the Company or under the Delaware
General Corporation Law.
(iv) The execution and delivery of this
Agreement, the U.S. Pricing Agreement, the
International Purchase Agreement and the
International Pricing Agreement have each been
duly authorized by all necessary corporate
action of the Company.
[(v) The Registration Statement is
effective under the 1933 Act and, to the best of
-26-
their knowledge and information, no stop order
suspending the effectiveness of the Registration
Statement has been issued under the 1933 Act or
proceedings therefor initiated or threatened by
the Commission.]
(vi) The Class B Common Stock and each
other class of authorized capital stock of the
Company conform in all material respects to the
description thereof contained in the Prospec-
tuses under the heading "Description of Capital
Stock."
(vii) The statements set forth under the
headings "Description of Capital Stock" and
"Principal and Selling Stockholders --
Stockholders' Agreement" in the Prospectuses,
insofar as such statements purport to summarize
certain provisions of the Certificate of
Incorporation of the Company and that certain
Stockholders' Agreement, and any amendments
thereto, provide a fair summary of such
provisions; the statements set forth under the
headings "Certain U.S. Tax Consequences to Non-
U.S. Holders" and "Risk Factors -- Certain Tax
Matters," insofar as such statements purport to
summarize certain federal tax laws of the United
States referred to thereunder, provide a fair
[and accurate] summary of such laws.
(viii) No authorization, approval, consent or
order of any governmental authority of the
United States or the State of New York is
required as of the date of such opinion in
connection with the offering and sale of the
Securities to the Underwriters in the United
States pursuant to the U.S. Purchase Agreement,
except such as may have been obtained under the
1933 Act or the 1933 Act Regulations or the 1934
Act.
(2) The favorable opinion, dated as of Closing
Time, of Jeffery A. Smisek, Esq., Senior Vice
President and General Counsel of the Company, in form
and substance satisfactory to counsel for the
Underwriters, to the effect that:
-27-
(i) To the best of his knowledge, the
Company is duly qualified as a foreign
corporation to transact business and is in good
standing in each jurisdiction in the United
States which such qualification is required,
except in jurisdictions where the failure to be
so qualified could not reasonably be expected to
have a Material Adverse Effect.
(ii) Each of the Subsidiaries has been duly
incorporated and is validly existing as a
corporation in good standing under the laws of
the jurisdiction of its incorporation, has all
requisite corporate power and authority to own,
lease and operate its properties and to conduct
its business as described in the Registration
Statement and, to the best of his knowledge, is
duly qualified as a foreign corporation to
transact business and is in good standing in
each jurisdiction in the United States in which
such qualification is required, except as could
not reasonably be expected to have a Material
Adverse Effect; all of the issued and
outstanding capital stock of each such
Subsidiary has been duly authorized and validly
issued, is fully paid and nonassessable and,
except as disclosed in the Prospectuses or
except as would not have a Material Adverse
Effect, is owned beneficially and of record by
the Company, directly or through subsidiaries,
free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or
equity.
(iii) To the best of his knowledge, there
are no legal or governmental proceedings pending
or threatened to which the Company or any
Subsidiary is a party or to which the assets of
the Company or any Subsidiary are subject which
are required to be disclosed in the Registration
Statement, other than those disclosed therein,
or those which individually or in the aggregate
would have a Material Adverse Effect.
(iv) To the best of his knowledge, none of
the Company or any of the Subsidiaries is in
default (or, with notice or lapse of time or
both, would be in default) in the performance or
-28-
observance of any material obligation,
agreement, covenant or condition contained in
any contract, indenture, mortgage, deed of
trust, loan agreement, note, lease or other
instrument to which it is a party or by which it
is bound, or to which any of its respective
assets is subject, or in violation of any law,
statute, judgment, decree, order rule or
regulation of any domestic or foreign court with
jurisdiction over the Company or any of the
Subsidiaries or any of their respective assets,
or other governmental or regulatory authority,
agency or other body, other than such defaults
or violations which, individually or in the
aggregate, would not have a Material Adverse
Effect.
(v) To the best of his knowledge, the
execution, delivery and performance of this
Agreement, the U.S. Pricing Agreement, the
Custody Agreement, the International Purchase
Agreement and the International Pricing
Agreement and the consummation of the
transactions contemplated herein and therein and
compliance by the Company with its obligations
hereunder and thereunder will not conflict with
or constitute a breach of, or default under, or
result in the creation or imposition of any
lien, charge or encumbrance upon any property or
assets of the Company or any of the Subsidiaries
pursuant to, any material contract, indenture,
mortgage, loan agreement, note, lease or other
instrument to which the Company or any of the
Subsidiaries is a party or by which it or any of
them is bound, or to which any of the property
or assets of the Company or any of the
Subsidiaries is subject, except as would not,
individually or in the aggregate, have a
Material Adverse Effect, nor will such action
result in any violation of the provisions of the
charter or by-laws of the Company, or any
applicable law, administrative regulation or
administrative or court decree.
(vi) To the best of his knowledge, there
are no contracts, indentures, mortgages, loan
agreements, notes, leases or other instruments
required to be described or referred to in the
Registration Statement other than those
-29-
described or referred to therein. The
descriptions thereof or references thereto are
correct in all material respects, and to his
actual knowledge no default exists in the due
performance or observance of any material
obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage,
loan agreement, note, lease or other instrument
so described, referred to or filed as an exhibit
to a document filed under the 1934 Act or the
1934 Act Regulations, except as could not
reasonably be expected to have a Material
Adverse Effect.
(vii) At the time the Registration Statement
became effective and at the Representation Date,
the Registration Statement (other than the
financial statements and supporting schedules
included therein and the Exhibits thereto, as to
which no opinion need be rendered) complied as
to form in all material respects with the
requirements of the 1933 Act and the 1933 Act
Regulations. Each document filed pursuant to
the 1934 Act (other than the financial
statements and supporting schedules included
therein, as to which no opinion need be
rendered) and incorporated or deemed to be
incorporated by reference in the Prospectuses
complied when so filed as to form in all
material respects with the 1934 Act and the 1934
Act Regulations.
(viii) The shares of issued and outstanding
Class A Common Stock and Class B Common Stock,
including the Securities to be sold by the
Selling Stockholders, have been duly authorized
by all necessary corporate action and validly
issued and are fully paid and nonassessable.
(3) The favorable opinion, dated as of Closing
Time, of counsel for each of the Selling
Stockholders, in form and substance satisfactory to
counsel for the Underwriters, to the effect that:
(i) This Agreement, the U.S. Pricing
Agreement, the International Purchase Agreement
and the International Pricing Agreement have
been duly authorized, executed and delivered by
or on behalf of such Selling Stockholder.
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(ii) The Custody Agreement has been duly
authorized, executed and delivered by or on
behalf of such Selling Stockholder and
constitute the valid and binding obligations of
such Selling Stockholder, enforceable in
accordance with their terms, except as the
enforcement thereof may be limited by
bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or
affecting creditors' rights generally or by
general equitable principles.
(iii) To the best of its knowledge and
information, such Selling Stockholder has good
and marketable title to the Securities to be
sold by such Selling Stockholder under this
Agreement and the International Purchase
Agreement, free and clear of any pledge, lien,
security interest, encumbrance, claim or equity,
other than pursuant to this Agreement, the
International Purchase Agreement and the Custody
Agreement, and has full right, power and
authority to sell the U.S. Securities to be sold
by such Selling Stockholder under this
Agreement; and upon the delivery of and payment
for the U.S. Securities as contemplated in this
Agreement, assuming that each such U.S.
Underwriter is without notice of any "adverse
claim" (as such term is defined in the Uniform
Commercial Code) each of the U.S. Underwriters
will acquire all of such Selling Stockholder's
rights and interests to the Securities sold by
such Selling Stockholder, free and clear of any
pledge, lien, security interest, encumbrance,
claim or equity.
(4) The favorable opinion, dated as of Closing
Time, of Cahill Gordon & Reindel, counsel for the
Underwriters, with respect to the matters set forth
in (i), (iv), (v) and (vi) of subsection (b)(1) of
this Section.
(5) In giving their opinions required by
subsections (b)(1) and (b)(4), respectively, of this
Section, Cleary, Gottlieb, Steen & Hamilton and
Cahill Gordon & Reindel shall each additionally state
that they have participated in conferences with
officers and other representatives of the Company,
-31-
representatives of the independent public accountants
for the Company and representatives of the
Underwriters at which the contents of the
Registration Statement and the Prospectuses and
related matters were discussed and, although they are
not passing upon, have not made any independent
verification of and do not assume any responsibility
for the accuracy, completeness or fairness of the
statements contained in the Registration Statement
and the Prospectuses (except to the extent expressly
set forth in their opinion), on the basis of the
foregoing (relying as to materiality to a large
extent upon the opinions of officers and other
representatives of the Company), no facts have come
to their attention that lead them to believe that the
Registration Statement at the time it became
effective or at the U.S. Representation Date
contained an untrue statement of a material fact or
omitted to state a material fact necessary in order
to make the statements therein not misleading, or
that the Prospectuses, as of their dates and as of
the date of such opinion, contained an untrue
statement of a material fact or omitted to state a
material fact necessary in order to make the
statements therein, in light of the circumstances
under which they were made, not misleading (it being
specifically understood that they have not been
requested to and do not express any statement with
respect to the financial statements and schedules and
other financial and statistical data included or
incorporated by reference in the Registration
Statement).
(c) At Closing Time there shall not have been, since
the date hereof or since the respective dates as of which
information is given in the Registration Statement and the
Prospectus except as stated therein, any Material Adverse
Change or any development resulting in a prospective
Material Adverse Change, and the Representatives shall
have received a certificate of the President or a Vice
President of the Company and of the principal financial or
principal accounting officer of the Company, dated as of
Closing Time, addressed to the Representatives, as
representatives of the U.S. Underwriters, and each Selling
Stockholder to the effect that (i) there has been no such
Material Adverse Change or development resulting in a
prospective Material Adverse Change, (ii) the
representations and warranties of the Company in this
Agreement are true and correct with the same force and
effect as though
-32-
expressly made at and as of Closing Time,
(iii) the Company has complied with all agreements and
satisfied all conditions on its part to be performed or
satisfied at or prior to Closing Time, and (iv) no stop
order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that
purpose have been initiated or threatened by the
Commission.
(d) At the time that this Agreement is signed, Ernst
& Young LLP shall have furnished to the Representatives a
letter addressed to the Representatives, as
representatives of the U.S. Underwriters, and the Company,
dated as of the date of this Agreement, in form and
substance satisfactory to the Representatives, confirming
that they are independent auditors with respect to the
Company and its subsidiaries within the meaning of the
1933 Act and the 1933 Act Regulations and stating in
effect that:
(i) in their opinion the audited financial
statements and supporting schedules included in the
Registration Statement or incorporated or deemed to
be incorporated by reference therein comply as to
form in all material respects with the applicable
accounting requirements of the 1933 Act and the 1933
Act Regulations;
(ii) on the basis of a reading of the latest
unaudited financial statements made available by the
Company; carrying out certain procedures specified in
such letter (but not an examination in accordance
with generally accepted auditing standards) which
would not necessarily reveal matters of significance
with respect to the comment set forth in such letter;
a reading of the minutes of the meetings of the
stockholders, the board of directors and committees
thereof of the Company; and inquiries of certain
officials of the Company who have responsibility for
financial and accounting matters of the Company as to
transactions and events subsequent to March 31, 1996,
and such other inquiries and procedures as may be
specified in such letter, nothing has come to their
attention which causes them to believe that:
(A) the unaudited financial statements of
the Company and its subsidiaries included in the
Registration Statement or incorporated or deemed
to be incorporated by reference therein do not
-33-
comply as to form in all material respects with
the applicable accounting requirements of the
1933 Act and the 1933 Act Regulations or are not
presented in conformity with generally accepted
accounting principles applied on a basis
substantially consistent with the audited
financial statements incorporated by reference
therein; or
(B) the unaudited amounts of revenues, net
income and net income per share set forth under
"Selected Financial Data" in the Prospectuses
were not determined on a basis substantially
consistent with what is used in determining the
corresponding amounts in the audited financial
statements incorporated by reference in the
Registration Statement; or
(C) with respect to the period subsequent
to March 31, 1996, that at a specified date not
more than five days prior to the date of this
Agreement, there has been any change in the
capital stock of the Company or any increase in
the consolidated long term debt or consolidated
net current liabilities of the Company and its
subsidiaries or any decrease in common
stockholders' equity as compared with the
amounts shown in the March 31, 1996 balance
sheet incorporated by reference in the
Registration Statement and Prospectuses, or for
the period from March 31, 1996 to such specified
date, there were any decreases, as compared with
the corresponding period in the preceding year,
in consolidated operating revenues, net income
or primary or fully diluted income per common
share or any increases in net loss or primary or
fully diluted loss per common share of the
Company and its subsidiaries, except in all
instances for changes, increases or decreases
that are described in such letter or that the
Registration Statement and the Prospectus
disclose have occurred or may occur; and
(iii) in addition to the examination referred to
in their opinion and the limited procedures referred
to in clause (ii) above, they have performed certain
other specified procedures, not constituting an
audit, with respect to certain amounts, percentages
-34-
and financial information that are derived from the
general accounting records of the Company and are
included in the Registration Statement and
Prospectus, and have compared such amounts,
percentages and financial information with such
records of the Company and with information derived
from such records and have found such amounts,
percentages and financial information to be in
agreement with the relevant accounting, financial and
other records of the Company and its subsidiaries
identified in such letter.
(e) At Closing Time the Representatives shall have
received from Ernst & Young a letter addressed to the
Representatives, as representatives of the U.S.
Underwriters and each Selling Stockholder, dated as of
Closing Time, to the effect that they reaffirm the
statements made in the letter furnished pursuant to
subsection (d) of this Section, except that the specified
date referred to shall be a date not more than five days
prior to Closing Time and, if the Company has elected to
rely on Rule 430A of the 1933 Act Regulations, to the
further effect that they have carried out procedures as
specified in clause (iii) of subsection (d) of this
Section with respect to certain amounts, percentages and
financial information specified by the Representatives and
deemed to be a part of the Registration Statement pursuant
to Rule 430A(b) and have found such amounts, percentages
and financial information to be in agreement with the
records specified in such clause (iii).
(f) At Closing Time, and at each Date of Delivery,
the Securities shall continue to be listed on the New York
Stock Exchange.
(g) At Closing Time and at each Date of Delivery, if
any, counsel for the Underwriters shall have been
furnished with such documents as they may reasonably
require and have specifically requested prior to such time
for the purpose of enabling them to pass upon the issuance
and sale of the Securities as herein contemplated and
related proceedings, or in order to evidence the accuracy
of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained;
and all proceedings taken by the Company and the Selling
Stockholders in connection with the sale of the U.S.
Securities as herein contemplated shall be satisfactory in
form and
-35-
substance to the Representatives and counsel for
the Underwriters.
(h) In the event that the U.S. Underwriters exercise
their option provided in Section 2(b) hereof to purchase
all or any portion of the Option Securities, the
obligations of the several U.S. Underwriters to consummate
such purchase are subject to the further conditions that
the representations and warranties of the Company and the
Selling Stockholders contained herein and the statements
in any certificates furnished by the Company and the
Selling Stockholders hereunder shall be true and correct
as of each Date of Delivery and, at the relevant Date of
Delivery, the Representatives shall have received:
(1) A certificate, dated such Date of Delivery, of
the President or a Vice President of the Company
and of the chief financial or chief accounting
officer of the Company addressed to the
Representatives as representatives of the U.S.
Underwriters and each Selling Stockholder
confirming that the certificate delivered at the
Closing Time pursuant to Section 5(c) hereof
remains true and correct as of such Date of
Delivery.
(2) The favorable opinions of (A) Cleary, Gottlieb,
Steen & Hamilton, counsel for the Company,
(B) Jeffery A. Smisek, Esq., General Counsel of
the Company and (C) counsel to Air Canada in
form and substance satisfactory to counsel for
the U.S. Underwriters, dated such Date of
Delivery, relating to the Option Securities to
be purchased on such Date of Delivery and
otherwise to the same effect as the opinions
required by Sections 5(b)(1), 5(b)(2), 5(b)(3)
and 5(b)(5), as the case may be, hereof.
(3) The favorable opinion of Cahill Gordon &
Reindel, counsel for the U.S. Underwriters,
dated such Date of Delivery, relating to the
Option Securities to be purchased on such Date
of Delivery and otherwise to the same effect as
the opinion required by Sections 5(b)(4) and
5(b)(5) hereof.
(4) A letter from Ernst & Young, in form and
substance satisfactory to the Representatives
and
-36-
dated such Date of Delivery, substantially
the same in form and substance as the letter
furnished to the Representatives pursuant to
Section 5(e) hereof, except that the "specified
date" in the letter furnished pursuant to this
Section 5(h)(4) shall be a date not more than
five days prior to such Date of Delivery.
(i) Each Selling Stockholder shall have executed and
delivered to the Underwriters a 90-day lock-up agreement
in the forms attached hereto as Exhibit A.
(j) The Selling Stockholders shall have furnished to
the Underwriters such other documents, certificates and
opinions as the Underwriters shall have reasonably and
specifically requested prior to the Closing Time.
If any condition specified in this Section shall not
have been fulfilled in all material respects when and as
required to be fulfilled, this Agreement may be terminated by
the Representatives by notice to the Company and each Selling
Stockholder at any time at or prior to Closing Time, and such
termination shall be without liability of any party to any
other party except as provided in Section 4 hereof.
SECTION 6. Indemnification.
(a) The Company agrees to indemnify and hold
harmless each U.S. Underwriter, each Selling Stockholder and
each person, if any, who controls any U.S. Underwriter or any
Selling Stockholder within the meaning of Section 15 of the
1933 Act as follows:
(i) against any and all loss, liability, claim,
damage and expense whatsoever, including any amounts paid
in settlement of any investigation, litigation, proceeding
or claim, as incurred, arising out of any untrue statement
or alleged untrue statement of a material fact contained
in the Registration Statement (or any amendment thereto),
including the information deemed to be part of the
Registration Statement pursuant to Rule 430A(b) of the
1933 Act Regulations, if applicable, or the omission or
alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements
therein not misleading or arising out of any untrue
statement or alleged untrue statement of a material fact
contained in any preliminary prospectus or the Prospectus
(or any
-37-
amendment or supplement thereto) or the omission
or alleged omission therefrom of a material fact necessary
in order to make the statements therein, in the light of
the circumstances under which they were made, not
misleading, provided, that the Company shall not be liable
under this clause (i) for any settlement of any action
effected without its written consent, which consent shall
not be unreasonably withheld; and
(ii) against any and all expense whatsoever, as
incurred (including, subject to Section 6(d) hereof, the
reasonable fees and disbursements of counsel chosen by
Merrill Lynch to represent the Underwriters, which counsel
shall also represent any Selling Stockholder seeking
indemnity from the Company pursuant to this Section 6(a)
based upon similar claims, provided, that, if such Selling
Stockholders, on the one hand, and the Company on the
other hand, reasonably determine that there may be legal
defenses available to such other Selling Stockholders
which are different from or in addition to those available
to you, then the Selling Stockholders shall be entitled to
retain separate counsel to conduct the defense of such
Selling Stockholders), reasonably incurred in
investigating, preparing or defending against any
litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or
any claim whatsoever based upon any such untrue statement
or omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid
under (i) above; provided, however, that this indemnity
agreement shall not apply to any loss, liability, claim,
damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or
omission made in reliance upon and in conformity with
written information furnished to the Company by any
Underwriter through Merrill Lynch expressly for use in the
Registration Statement (or any amendment thereto) or any
preliminary prospectus or the Prospectus (or any amendment
or supplement thereto). The foregoing indemnification
with respect to any preliminary prospectus shall not inure
to the benefit of any U.S. Underwriter, or any person who
controls a U.S. Underwriter within the meaning of Section
15 of the 1933 Act, from whom the person asserting any
such losses, claims, damages or liabilities purchased U.S.
Securities if a copy of the U.S. Prospectus (as then
amended or supplemented if the Company shall have
furnished to the U.S. Underwriters for their use any
amendments or supplements thereto) was not
-38-
sent or given by or on behalf of such U.S. Underwriter
to such person, if such is required by law, at or prior to
the written confirmation of the sale of such U.S. Securities
to such person and to the extent that delivery of the Prospectus
(as so amended or supplemented) would have cured the
defect giving rise to such loss, claim, damage or
liability.
(b) Each U.S. Underwriter severally agrees to
indemnify and hold harmless the Company, its directors, each of
its officers who signed the Registration Statement, each
Selling Stockholder, and each person, if any, who controls the
Company or a Selling Stockholder within the meaning of Section
15 of the 1933 Act against any and all loss, liability, claim,
damage and expense described in the indemnity contained in
subsection (a) of this Section, as incurred, but only with
respect to untrue statements or omissions, or alleged untrue
statements or omissions, made in the Registration Statement (or
any amendment thereto) or any preliminary prospectuses or the
Prospectuses (or any amendment or supplement thereto) in
reliance upon and in conformity with written information
furnished to the Company by such U.S. Underwriter through
Merrill Lynch expressly for use in the Registration Statement
(or any amendment thereto) or such preliminary prospectuses or
the Prospectuses (or any amendment or supplement thereto).
(c) Each Selling Stockholder severally, and not
jointly, agrees to indemnify and hold harmless each U.S.
Underwriter, the Company, its directors and each of its
officers who signed the Registration Statement, and each other
Selling Stockholder, and each person, if any, who controls any
of the foregoing within the meaning of Section 15 of the 1933
Act, against any and all loss, liability, claim, damage and
expense described in the indemnity contained in Section 6(a),
as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in
the Registration Statement (or any amendment thereto), or any
preliminary prospectus or the Prospectus (or any supplement
thereto) in reliance upon and in conformity with public
documents, or oral or written information pertaining to such
Selling Stockholder furnished to the Company by or on behalf of
such Selling Stockholder expressly for use in the Registration
Statement (or any amendment thereto), or any preliminary
prospectus or the Prospectus (or any amendment or supplement
thereto); provided, however, that each Selling Stockholder's
maximum aggregate liability under this Section 6(c) [and for
any breach of the representations and warranties of such
-39-
Selling Stockholder set forth in Section 1(b)(i) of this
Agreement (together with any liability of such Selling
Stockholder for any breach or alleged breach of the
representations and warranties of such Selling Stockholder set
forth in Section 1(b)(i) of the International Purchase
Agreement)] shall be limited to the aggregate amount of the net
proceeds (after deducting the Underwriters' discount but before
deducting expenses) received by such Selling Stockholder from
the sale of such Selling Stockholder's Securities pursuant to
this Agreement and the International Purchase Agreement;
provided, further, that each Selling Stockholder agrees to
indemnify and hold harmless each U.S. Underwriter, the Company,
its directors and each of its officers who signed the
Registration Statement, each other Selling Stockholder, and
each person, if any, who controls any of the foregoing within
the meaning of Section 15 of the 1933 Act, against any all
loss, liability, claim, damage and expense whatsoever, as
incurred, arising out of a breach or alleged breach of such
Selling Stockholder's representation and warranties set forth
in Section 1(b)(i).
[In making a claim for indemnification under this
Section 6 or contribution under Section 7, in each case, with
respect to a breach or alleged breach by a Selling Stockholder
of its representation and warranty set forth in Section
1(b)(i), the indemnified parties may proceed against either
(i) both the Company (in respect of claims under Section 6(a)
or Section 7) and such Selling Stockholder or (ii) the Company
only, but may not proceed solely against such Selling
Stockholder. In the event that the indemnified parties are
entitled to seek indemnity or contribution hereunder against
any loss, liability, claim, damage and expense incurred with
respect to a final judgment from a trial court then, as a
precondition to any indemnified party obtaining indemnification
or contribution from a Selling Stockholder in respect of a
breach or alleged breach of its representation and warranty set
forth in Section 1(b)(i), the indemnified parties shall first
obtain a final judgment from a trial court that such
indemnified parties are entitled to indemnity or contribution
under this Agreement with respect to such loss, liability,
claim, damage or expense (the "Final Judgment") from the
Company (in respect of claims under Section 6(a) or Section 7)
and such Selling Stockholder and shall seek to satisfy such
Final Judgment in full from the Company by making a written
demand upon the Company for such satisfaction. Only in the
event such Final Judgment shall remain unsatisfied in whole or
in part 45 days following the date of receipt by the Company of
such demand shall any indemnified party have the right to take
-40-
action to satisfy such Final Judgment by making demand directly
on such Selling Stockholder (but only if and to the extent the
Company has not already satisfied such Final Judgment, whether
by settlement, release or otherwise). The indemnified parties
may exercise this right to first seek to obtain payment from
the Company and thereafter obtain payment from a Selling
Stockholder without regard to the pursuit by any party of its
rights to the appeal of such Final Judgment. The indemnified
parties shall, however, be relieved of their obligation to
first obtain a Final Judgment, seek to obtain payment from the
Company with respect to such Final Judgment or, having sought
such payment, to wait such 45 days after failure by the Company
to immediately satisfy any such Final Judgment if (i) the
Company files a petition for relief under the United States
Bankruptcy Code (the "Bankruptcy Code"), (ii) an order for
relief is entered against the Company in an involuntary case
under the Bankruptcy Code, (iii) the Company makes an
assignment for the benefit of its creditors or (iv) any court
orders or approves the appointment of a receiver or custodian
for the Company or a substantial portion of its assets. The
foregoing provisions of this paragraph are not intended to
require any indemnified party to obtain a Final Judgment
against the Company or a Selling Stockholder before obtaining
reimbursement of expenses pursuant to clause (a)(i), (a)(ii) or
(c) of this Section 6. However, the indemnified parties shall
first seek to obtain such reimbursement in full from the
Company by making a written demand upon the Company for such
reimbursement. Only in the event such expenses shall remain
unreimbursed in whole or in part 45 days following the date of
receipt by the Company of such demand shall any indemnified
party have the right to receive reimbursement of such expenses
from a Selling Stockholder by making written demand directly on
a Selling Stockholder (but only if and to the extent the
Company has not already satisfied the demand for reimbursement,
whether by settlement, release or otherwise). The indemnified
parties shall, however, be relieved of their obligation to
first seek to obtain such reimbursement in full from the
Company or, having made written demand therefor, to wait such
45 days after failure by the Company to immediately reimburse
such expenses if (i) the Company files a petition for relief
under the Bankruptcy Code, (ii) an order for relief is entered
against the Company in an involuntary case under the Bankruptcy
Code, (iii) the Company makes an assignment for the benefit of
its creditors or (iv) any court orders or approves the
appointment of a receiver or custodian for the Company or a
substantial portion of its assets.]
-41-
(d) Each indemnified party shall give prompt notice
to each indemnifying party of any action commenced against it
in respect of which indemnity or contribution may be sought
hereunder, but failure to so notify an indemnifying party shall
not relieve it from any liability which it may have otherwise
than on account of this indemnity agreement. An indemnifying
party may participate at its own expense in the defense of such
action. If it so elects within a reasonable time after receipt
of such notice, an indemnifying party, jointly with any other
indemnifying parties receiving such notice, may assume the
defense of such action with counsel chosen by it and approved
by the indemnified parties defendant in such action, unless
such indemnified parties reasonably object to such assumption
on the ground that there may be legal defenses available to
them which are different from or in addition to those available
to such indemnifying party. If an indemnifying party assumes
the defense of such action, the indemnifying parties shall not
be liable for any fees and expenses of counsel for the
indemnified parties incurred thereafter in connection with such
action. In no event shall the indemnifying party be liable for
the fees and expenses of more than one counsel (separate from
its own counsel) for each of the U.S. Underwriters, the Company
and the Selling Stockholders, as applicable, in connection with
any one action or separate but similar or related actions in
the same jurisdiction arising out of the same general
allegations or circumstances.
SECTION 7. Contribution. In order to provide for
just and equitable contribution in circumstances in which the
indemnity agreement provided for in Section 6 hereof is for any
reason held to be unenforceable by the indemnified parties
although applicable in accordance with its terms, the Company,
the U.S. Underwriters and the Selling Stockholders shall
contribute to the aggregate losses, liabilities, claims,
damages and expenses of the nature contemplated by said
indemnity agreement incurred by the Company, the Selling
Stockholders and one or more of the U.S. Underwriters, in such
proportion that the U.S. Underwriters are responsible for that
portion represented by the percentage that the underwriting
discount appearing on the cover page of the Prospectus bears to
the public offering price appearing thereon and the Company and
the Selling Stockholders are responsible for the balance;
provided, however, that each Selling Stockholder shall only be
responsible in an amount equal to that portion of the balance
that is in the same proportion to such balance as the net
proceeds to such Selling Stockholder bears to the net proceeds
of the offerings, up to an amount equal to the net proceeds
realized
-42-
by such Selling Stockholder; provided, further, that
no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any person who was not guilty of such
fraudulent misrepresentation; and provided, further, that the
contribution provisions of this Section 7 shall not inure to
the benefit of any U.S. Underwriter to the extent that the
aggregate losses, liabilities, claims, damages and expenses
result from the circumstances described in the first proviso in
Section 6(a)(ii). For purposes of this Section, each person,
if any, who controls a U.S. Underwriter within the meaning of
Section 15 of the 1933 Act shall have the same rights to
contribution as such U.S. Underwriter, and each director of the
Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls
the Company or any Selling Stockholder within the meaning of
Section 15 of the 1933 Act shall have the same rights to
contribution as the Company or such Selling Stockholder, as the
case may be. No party shall be liable for contribution with
respect to any action, suit, proceeding or claim settled
without its written consent.
SECTION 8. Representations, Warranties and
Agreements to Survive Delivery. All representations,
warranties and agreements contained in this Agreement and the
U.S. Pricing Agreement, or contained in certificates of
officers of the Company submitted pursuant hereto, shall remain
operative and in full force and effect, regardless of any
investigation made by or on behalf of any U.S. Underwriter or
controlling person, or by or on behalf of the Company, and
shall survive delivery of the U.S. Securities to the U.S.
Underwriters.
SECTION 9. Termination of Agreement.
(a) The Representatives may terminate this
Agreement, by notice to the Company and each Selling
Stockholder, at any time at or prior to Closing Time (i) if
there has been, since the date of this Agreement or since the
respective dates as of which information is given in the
Registration Statement, except as stated therein, any Material
Adverse Change or any development resulting in a prospective
Material Adverse Change or (ii) if there has occurred any
material adverse change in, the financial markets in the United
States or elsewhere or any outbreak of hostilities or
escalation thereof or other calamity or crisis the effect of
which is such as to make it, in the judgment of the
Representatives, impracticable to market the U.S. Securities or
to enforce contracts for the sale of the U.S. Securities, or
(iii) if trading in the Common Stock has
-43-
been suspended by the Commission or if trading
generally on either the American Stock Exchange or the
New York Stock Exchange has been suspended, or minimum
or maximum prices for trading have been
fixed, or maximum ranges for prices for securities have been
required, by either of said exchanges or by order of the
Commission or any other governmental authority, or if a banking
moratorium has been declared by either Federal, New York or
Texas authorities.
(b) If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any
party to any other party except as provided in Section 4
hereof. Notwithstanding any such termination, the provisions
of Sections 6 and 7 shall remain in effect.
SECTION 10. Default by One or More of the U.S.
Underwriters. If one or more of the U.S. Underwriters shall
fail at Closing Time to purchase the Initial U.S. Securities
which it or they are obligated to purchase under this Agreement
and the U.S. Pricing Agreement (the "Defaulted Securities"),
the Representatives shall have the right, within 24 hours
thereafter, to make arrangements for one or more of the non-
defaulting U.S. Underwriters, or any other underwriters, to
purchase all, but not less than all, of the Defaulted
Securities in such amounts as may be agreed upon and upon the
terms herein set forth; if, however, the Representatives shall
not have completed such arrangements within such 24-hour
period, then:
(a) if the number of Defaulted Securities does not
exceed 10% of the number of Initial U.S. Securities, each
of the non-defaulting U.S. Underwriters shall be
obligated, severally and not jointly, to purchase the full
amount thereof in the proportions that their respective
underwriting obligations hereunder bear to the
underwriting obligations of all non-defaulting U.S.
Underwriters, or
(b) if the number of Defaulted Securities exceeds
10% of the number of Initial U.S. Securities, this
Agreement shall terminate without liability on the part of
any non-defaulting U.S. Underwriter.
No action taken pursuant to this Section shall
relieve any defaulting Underwriter from liability in respect of
its default.
-44-
In the event of any such default which does not
result in a termination of this Agreement, either the
Representatives or the Company or the Selling Stockholders
acting unanimously shall have the right to postpone Closing
Time for a period not exceeding seven days in order to effect
any required changes in the Registration Statement or
Prospectuses or in any other documents or arrangements.
SECTION 11. Notices. All notices and other
communications hereunder shall be in writing and shall be
deemed to have been duly given if mailed or transmitted by any
standard form of telecommunication. Notices to the U.S.
Underwriters shall be directed to the Representatives at
Merrill Lynch World Headquarters, North Tower, World Financial
Center, New York, New York 10281-1201, attention of Mark J.
Schulte, Managing Director; notices to the Company shall be
directed to it at 2929 Allen Parkway, Suite 2010, Houston,
Texas 77019-4607, attention of Chief Financial Officer, with a
copy to the attention of General Counsel, and notices to each
Selling Stockholder shall be directed to it at the address set
forth in Schedule B hereto.
SECTION 12. Information Supplied by the U.S.
Underwriters. The Statements set forth in the last paragraph
on the front cover page and under the heading "Underwriting" in
the U.S. Prospectus, the International Prospectus or the
Registration Statement (to the extent such statements relate to
the Underwriters) constitute the only information furnished by
Merrill Lynch to the Company for the purposes of Sections 1 and
6 hereof.
SECTION 13. Parties. This Agreement, the U.S.
Pricing Agreement, the International Purchase Agreement and the
International Pricing Agreement shall each inure to the benefit
of and be binding upon the Underwriters, the Company and the
Selling Stockholders and their respective successors. Nothing
expressed or mentioned in this Agreement, the U.S. Pricing
Agreement, the International Purchase Agreement and the
International Pricing Agreement is intended or shall be
construed to give any person, firm or corporation, other than
the Underwriters, the Company and the Selling Stockholders and
their respective successors and the controlling persons and
officers and directors referred to in Sections 6 and 7 and
their heirs and legal representatives, any legal or equitable
right, remedy or claim under or in respect of this Agreement,
the U.S. Pricing Agreement, the International Purchase
Agreement and the International Pricing Agreement or any
provision herein or therein
-45-
contained. This Agreement, the U.S. Pricing Agreement,
the International Purchase Agreement and the International
Pricing Agreement and all conditions and provisions hereof
and thereof are intended to be for the sole
and exclusive benefit of the Underwriters, the Company and the
Selling Stockholders and their respective successors, and said
controlling persons and officers and directors and their heirs
and legal representatives, and for the benefit of no other
person, firm or corporation. No purchaser of Securities from
any Underwriter shall be deemed to be a successor by reason
merely of such purchase.
SECTION 14. Governing Law and Time. This Agreement
and the U.S. Pricing Agreement shall be governed by and
construed in accordance with the laws of the State of New York
applicable to agreements made and to be performed in said
State. Specified times of day refer to New York City time.
-46-
If the foregoing is in accordance with your
understanding of our agreement, please sign and return to the
Company a counterpart hereof, whereupon this instrument, along
with all counterparts, will become a binding agreement among
the Underwriters, the Selling Stockholders and the Company in
accordance with its terms.
Very truly yours,
CONTINENTAL AIRLINES, INC.
By: ______________________
Title:
-47-
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS INC.
MORGAN STANLEY & CO. INCORPORATED
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: ________________________
Authorized Signatory
For themselves and as Representatives of the other U.S.
Underwriters named in Schedule A to the U.S. Pricing Agreement.
[Selling Stockholders Counterpart Signature Page]
AIR CANADA
By: ______________________
Name:
Title:
[Selling Stockholders Counterpart Signature Page]
____________________________
DAVID BONDERMAN
BONDERMAN FAMILY LIMITED
PARTNERSHIP
By:_________________________
Name: David Bonderman,
as General Partner
1992 AIR, INC.
By:_________________________
Name: David Bonderman
Title:
AIR II GENERAL, INC.
By:_________________________
Name: David Bonderman
Title:
BONDO AIR, L.P.
By: 1992 AIR, INC.
By:_________________________
Name: David Bonderman
Title:
[Selling Stockholders Counterpart Signature Page]
AMERICAN GENERAL CORPORATION
By:_________________________
Name:
Title:
[Selling Stockholders Counterpart Signature Page]
SUNAMERICA INC.
By:_________________________
Name:
Title:
[Selling Stockholders Counterpart Signature Page]
____________________________
ELI BROAD
[Selling Stockholders Counterpart Signature Page]
ESTATE OF LARRY L. HILLBLOM
DHL MANAGEMENT, INC.
DONALD STURM
CONAIR LIMITED PARTNERS, L.P.
AIR SAIPAN, INC.
By:__________________________
Name:
Title: Attorney-in-Fact
3,416,812 Shares
CONTINENTAL AIRLINES, INC.
(a Delaware corporation)
Class B Common Stock
(Par Value $.01 Per Share)
U.S. PRICING AGREEMENT
May __, 1996
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS INC.
MORGAN STANLEY & CO. INCORPORATED
as Representatives of the several Underwriters
c/o MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281
Dear Sirs:
Reference is made to the U.S. Purchase Agreement
dated May __, 1996 (the "U.S. Purchase Agreement") relating to
the purchase by the several U.S. Underwriters named in Schedule
A hereto, for whom Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Goldman, Sachs & Co., Lehman
Brothers Inc. and Morgan Stanley & Co. Incorporated are acting
as representatives (the "Representatives"), of the above shares
of Class B Common Stock (the "Securities") of Continental
Airlines, Inc., a Delaware corporation (the "Company"), to be
sold by certain stockholders named in Schedule B thereto (the
"Selling Stockholders"). Capitalized terms used herein have
the meanings provided in the U.S. Purchase Agreement.
-2-
Pursuant to Section 2 of the U.S. Purchase Agreement,
the Company, Air Canada and the Selling Stockholders, severally
and not jointly, agree with each U.S. Underwriter as follows:
1. The initial public offering price per share for
the U.S. Securities, determined as provided in said
Section 2, shall be $ .
2. The purchase price per share for the U.S.
Securities to be paid by the several U.S. Underwriters
shall be $ , being an amount equal to the initial
public offering price set forth above less $ per
share; provided that the purchase price per share for any
Option Securities (as defined in the U.S. Purchase
Agreement) purchased upon exercise of the over-allotment
option described in Section 2(b) of the U.S. Purchase
Agreement shall be reduced by an amount per share equal to
any dividends declared by the Company and payable on the
Initial U.S. Securities (as defined in the U.S. Purchase
Agreement) but not payable on the Option Securities.
3. The number of shares to be sold by the Selling
Stockholders, as determined by whether the initial public
offering price per share set forth in paragraph 1 above is
equal to or greater than the designated minimum initial
public offering price per share as set forth on Schedule B
of the Purchase Agreement, is as follows:
Number of Shares of Class B
Name of Selling Stockholder Common Stock to be Sold
--------------------------- ---------------------------
4. The number of Option Shares is 200,000 shares of
Class B Common Stock.
-3-
If the foregoing is in accordance with your
understanding of our agreement, please sign and return to the
Company a counterpart hereof, whereupon this instrument, along
with all counterparts, will become a binding agreement among
the Underwriters, the Selling Stockholders and the Company in
accordance with its terms.
Very truly yours,
CONTINENTAL AIRLINES, INC.
By: __________________________
Name:
Title:
-4-
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS INC.
MORGAN STANLEY & CO INCORPORATED
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: ________________________
Authorized Signatory
For themselves and as Representatives of the other U.S.
Underwriters named in the U.S. Purchase Agreement.
[Selling Stockholders Counterpart Signature Page]
AIR CANADA
By: ___________________
Name:
Title:
[Selling Stockholders Counterpart Signature Page]
____________________________
DAVID BONDERMAN
BONDERMAN FAMILY LIMITED
PARTNERSHIP
By:_________________________
Name: David Bonderman,
as General Partner
1992 AIR, INC.
By:_________________________
Name: David Bonderman
Title:
AIR II GENERAL, INC.
By:_________________________
Name: David Bonderman
Title:
BONDO AIR, L.P.
By: 1992 AIR, INC
By:_________________________
Name: David Bonderman
Title:
[Selling Stockholders Counterpart Signature Page]
AMERICAN GENERAL CORPORATION
By:_________________________
Name:
Title:
[Selling Stockholders Counterpart Signature Page]
SUNAMERICA INC.
By:_________________________
Name:
Title:
[Selling Stockholders Counterpart Signature Page]
____________________________
ELI BROAD
[Selling Stockholders Counterpart Signature Page]
ESTATE OF LARRY L. HILLBLOM
DHL MANAGEMENT, INC.
DONALD STURM
CONAIR LIMITED PARTNERS, L.P.
AIR SAIPAN, INC.
By:__________________________
Name:
Title: Attorney-in-Fact
SCHEDULE A
Number
Name of U.S. Underwriter of Securities
------------------------ -------------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.............................
Goldman, Sachs & Co...................................
Lehman Brothers Inc...................................
Morgan Stanley & Co. Incorporated.....................
[Smith Barney Shearson Inc............................
Donaldson, Lufkin & Jenrette Securities
Corporation........................................
Dean Witter Reynolds Inc..............................
CS First Boston Corporation...........................
PaineWebber Incorporated..............................
Salomon Brothers......................................
BT Securities.........................................
S.G. Warburg].........................................
SCHEDULE B
Number of Shares Minimum Initial
Name and Address of of Class B Common Public Offering
Selling Stockholder Stock to Be Sold Price Per Share
- ------------------- ----------------- ---------------
Air Canada 2,000,000 $
Air Canada Center
Montreal Int'l Airport (Dorval)
P.O. Box 14000
Postal Station, St. Laurent
Canada H4Y 1H4
American General Corporation 382,074
2929 Allen Parkway
Houston, TX 77019
David Bonderman 114,586
Bonderman Family Limited
Partnership 33,219
Estate of Larry L. Hillblom 319,800
c/o William I. Webster
Special Administrator for
the Estate of Larry Lee Hillblom
AAA-305,, Box 10001
Saipan, MP 96950
DHL Management, Inc. 322,970
DHL Airways, Inc.
333 Twin Dolphin Dr.
Redwood City, CA 94065
Attn: Bill Roure, Asst. Treas.
and Bill Smart, CFO
Sun America Inc. 143,152
SunAmerica Inc.
1 SunAmerica Center
Century City
Los Angeles, CA 90067-6022
Attn: Lynn Hopton (Corp. Finance)
-2-
Number of Shares Minimum Initial
Name and Address of of Class B Common Public Offering
Selling Stockholder Stock to Be Sold Price Per Share
- ------------------- ----------------- ---------------
Eli Broad 66,488
c/o SunAmerica Inc.
1 SunAmerica Center
Century City
Los Angeles, CA 90067-6022
Attn: Jay S. Wintrob and
Cindy Qunne
Donald Sturm 120,000
Conair, L.P. 38,282
Bondo Air, L.P. 412,499
Air Saipan, Inc. 10,086
1992 Air, Inc. 305,456
Air II General, Inc. 2,403
SCHEDULE B
Number of Shares Minimum Initial
Name and Address of of Class B Common Public Offering
Selling Stockholder Stock to be Sold Price Per Share
- ------------------- ----------------- ---------------
854,203 Shares
CONTINENTAL AIRLINES, INC.
(a Delaware corporation)
Class B Common Stock
(Par Value $.01 Per Share)
INTERNATIONAL PURCHASE AGREEMENT
London, England
May __, 1996
MERRILL LYNCH INTERNATIONAL
GOLDMAN SACHS INTERNATIONAL
LEHMAN BROTHERS INTERNATIONAL (EUROPE)
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
as Representatives of the several
International Underwriters
c/o MERRILL LYNCH INTERNATIONAL
Ropemaker Place
25 Ropemaker Street
London EC 2Y 9LY
Ladies and Gentlemen:
Continental Airlines, Inc., a Delaware corporation
(the "Company"), Air Canada, a Canada corporation ("Air
Canada"), and each of the stockholders named in Schedule B
hereto (together with Air Canada, the "Selling Stockholders"),
in all instances acting severally and not jointly, confirm
their agreement with Merrill Lynch International ("MLI") and each
of the other Underwriters named in Schedule A to the International
Pricing Agreement (as defined below) (collectively, the "International
Underwriters," which term shall also include any underwriter
substituted as hereinafter provided in Section 10 hereof), for
whom Merrill Lynch International, Goldman Sachs International,
Lehman Brothers International (Europe) and Morgan Stanley & Co.
International Limited are acting as managers (in such capacity,
the "Lead Managers"), with respect to (a) the sale by the Selling
Stockholders, acting severally and
-2-
not jointly, of the respective numbers of shares of Class
B common stock, par value $.01 per share of the Company
(the "Class B Common Stock") reflected in Schedule B hereto
(the shares to be so sold by the Selling Stockholders being
referred to herein as the "International Securities") except
as may otherwise be provided in the International Pricing Agreement.
It is understood that the Company and the Selling
Stockholders are concurrently entering into an agreement dated
the date hereof (the "U.S. Purchase Agreement") which provides
(a) for the sale by the Selling Stockholders of 3,416,812
shares of Class B Common Stock (the "Initial U.S. Securities")
through arrangements with certain underwriters in the United
States and Canada (the "U.S. Underwriters"), for whom Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch"), Goldman, Sachs & Co., Lehman Brothers, Inc.
and Morgan Stanley & Co. are acting as representatives and
(b) for the grant by Air Canada to the U.S. Underwriters,
acting severally and not jointly, of the option described in
Section 2(b) of the U.S. Purchase Agreement to purchase all or
any part of the Option Securities (as defined therein) to cover
over-allotments.
The International Underwriters and the U.S.
Underwriters are hereinafter collectively called the
"Underwriters," the International Securities and the Initial
U.S. Securities are hereinafter called the "Initial Securities"
and the Initial Securities and the Option Securities are
hereinafter called the "Securities."
The Underwriters are concurrently entering into an
Intersyndicate Agreement of even date herewith (the "Inter-
syndicate Agreement") providing for the coordination of certain
transactions among the International Underwriters and the U.S.
Underwriters.
Each International Underwriter shall purchase the
number of shares of the International Securities set forth
opposite such International Underwriter's name in Schedule A to
the International Pricing Agreement. To the extent that the
public offering price per share set forth in the International
Pricing Agreement is less than the minimum public offering
price per share set forth as to any Selling Stockholder on the
signature page of the power of attorney, which forms a part of
the custody agreement dated as of ______, 1996 (including such
power-of-attorney, the "Custody Agreement") between the Company
and such Selling Stockholder, such Selling Stockholder shall
-3-
not sell any shares pursuant to this Agreement and shall no
longer be deemed to be a Selling Stockholder under this
Agreement.
Prior to the purchase and public offering of the
International Securities by the several International
Underwriters, the Company, the Selling Stockholders and the
Lead Managers, acting on behalf of the several International
Underwriters, shall enter into an agreement substantially in
the form of Exhibit A hereto (the "International Pricing
Agreement"). The International Pricing Agreement may take the
form of an exchange of any standard form of written
telecommunication between the Company, the Selling Stockholders
and the Lead Managers and shall specify such information as is
required by Exhibit A hereto. The sale to the several
International Underwriters of the International Securities by
the Selling Stockholders will be governed by this Agreement, as
supplemented by the International Pricing Agreement. From and
after the date of the execution and delivery of the
International Pricing Agreement, this Agreement shall be deemed
to incorporate the International Pricing Agreement.
The public offering price and the purchase price per
share with respect to the U.S. Securities shall be set forth in
a separate instrument (the "U.S. Pricing Agreement"), the form
of which is attached to the U.S. Purchase Agreement. The U.S.
dollar price per share for the Securities to be purchased by
the International Underwriters pursuant to this Agreement and
by the U.S. Underwriters pursuant to the U.S. Purchase
Agreement shall be identical.
The Company has filed with the United States
Securities and Exchange Commission (the "Commission") a
registration statement on Form S-3 (No. 333-02701) and related
preliminary prospectuses for the registration of the Securities
under the Securities Act of 1933, as amended (the "1933 Act"),
has filed such amendments thereto and such amended preliminary
prospectuses as may have been required to the date hereof and
will file such additional amendments thereto and such amended
prospectuses as may hereafter be required.* Such registration
_________________________
* Two forms of prospectuses are to be used in connection
with the offering and sale of the Securities: one
relating to the International Securities (the
"International Prospectus") and one relating to the U.S.
Securities (the "U.S. Prospectus").
-4-
statement (as amended) and the International prospectus and the
U.S. prospectus constituting a part thereof (including in each
case all documents incorporated or deemed to be incorporated by
reference therein and the information, if any, deemed to be
part thereof pursuant to Rule 430A(b) or Rule 434 of the rules
and regulations of the Commission under the 1933 Act (the "1933
Act Regulations")), as such International prospectus or U.S.
prospectus may from time to time be amended or supplemented
pursuant to the 1933 Act or the Securities Exchange Act of
1934, as amended (the "1934 Act"), are hereinafter referred to
as the "Registration Statement," the "International Prospectus"
and the "U.S. Prospectus," respectively, and the International
Prospectus and the U.S. Prospectus are hereinafter together
called the "Prospectuses" and, each individually, a
"Prospectus," except that if any revised prospectus shall be
provided to the International Underwriters or the U.S.
Underwriters by the Company for use in connection with the
offering of the Securities which differs from the Prospectuses
on file at the Commission at the time the Registration
Statement becomes effective (whether or not such revised
prospectus is required to be filed by the Company pursuant to
Rule 424(b) of the 1933 Act Regulations), the terms
"International Prospectus" and "U.S. Prospectus" shall refer to
such revised prospectuses from and after the time they are
first provided to the International Underwriters or the U.S.
Underwriters, as the case may be, for such use. Additionally,
if the Company has elected to rely upon Rule 434 of the 1933
Act Regulations, the Company will prepare and file a term sheet
(a "term sheet"), in accordance with the provisions of Rules
434 and 424(b) of such Regulations, promptly after execution of
the International Pricing Agreement. All references in this
Agreement to financial statements and schedules or other
information which is "contained," "included" or "stated" in the
Registration Statement or the Prospectus (and all other
references of like import) shall be deemed to mean and include
all such financial statements and schedules or other
information which is or is deemed to be incorporated by
reference in the Registration Statement or the Prospectus, as
the case may be; and all references in this Agreement to
amendments or supplements to the Registration Statement or the
Prospectus shall be deemed to mean and include the filing of
any document under the 1934 Act which is or is deemed to be
incorporated by reference in the Registration Statement or the
Prospectus, as the case may be.
The Company and the Selling Stockholders understand
that the International Underwriters propose to make a public
offering of the International Securities as soon as the Lead
-5-
Managers deem advisable after the Registration Statement
becomes effective and the International Pricing Agreement has
been executed and delivered.
SECTION 1. Representations and Warranties.
(a) The Company represents and warrants to each
International Underwriter as of the date hereof and as of the
date of the International Pricing Agreement (such latter date
being hereinafter referred to as the "International
Representation Date") as follows:
(i) At the time the Registration Statement becomes
effective and at the International Representation Date,
the Registration Statement will comply in all material
respects with the requirements of the 1933 Act and the
1933 Act Regulations and will not contain an untrue
statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make
the statements therein not misleading. The International
Prospectus, at the International Representation Date
(unless the term "International Prospectus" refers to a
prospectus which has been provided to the International
Underwriters by the Company for use in connection with the
offering of the Securities which differs from the
International Prospectus on file at the Commission at the
time the Registration Statement becomes effective, in
which case at the time it is first provided to the
International Underwriters for such use) and at Closing
Time referred to in Section 2 hereof, will not include an
untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements
therein, in the light of the circumstances under which
they were made, not misleading; and if Rule 434 is used,
the International Prospectus shall not be "materially
different," as such term is used in Rule 434 of the 1933
Act Regulations, from the International Prospectus first
provided to the International Underwriters for their use;
provided, however, that the representations and warranties
in this subsection shall not apply to statements contained
in or omissions from the Registration Statement or
International Prospectus made in reliance upon and in
conformity with information furnished to the Company in
writing by any International Underwriter through Merrill
Lynch or by or on behalf of any Selling Stockholder
expressly for use in the Registration Statement or
International Prospectus.
-6-
(ii) The accountants that examined and certified the
audited consolidated financial statements and supporting
schedules of the Company included or incorporated or
deemed to be incorporated in the Registration Statement
are independent public accountants as required by the 1933
Act and the 1933 Act Regulations.
(iii) The audited and unaudited financial statements
included or incorporated or deemed to be incorporated in
the Registration Statement and the Prospectuses, together
with the related notes thereto, present fairly in all
material respects the financial position, results of
operations and cash flows of the Company and its
consolidated subsidiaries as at the dates and for the
periods to which they relate; except as otherwise stated
in the Registration Statement, said financial statements
have been prepared in conformity with United States
generally accepted accounting principles applied on a
consistent basis; and the supporting schedules, if any,
included or incorporated or deemed to be incorporated in
the Registration Statement present fairly in all material
respects the information required to be stated therein.
(iv) Since the respective dates as of which
information is given in the Registration Statement and the
Prospectuses, except as otherwise stated therein, (A)
there has been no material adverse change in the business,
financial condition, assets or results of operations of
the Company and its consolidated subsidiaries, taken as a
whole, whether or not arising in the ordinary course of
business (a "Material Adverse Change"), (B) there has been
no transaction entered into by the Company or any of its
consolidated subsidiaries, other than those in the
ordinary course of business, that is material to the
Company and its consolidated subsidiaries, taken as a
whole, and (C) there has been no dividend or distribution
of any kind declared, paid or made by the Company on its
capital stock (other than declarations or scheduled
payments of dividends on the Company's outstanding
preferred stock in additional shares of such preferred
stock).
(v) The Company has been duly incorporated and is
validly existing as a corporation in good standing under
the laws of the State of Delaware with corporate power and
authority to own, lease and operate its properties and to
conduct its business as now conducted and as described in
the Prospectuses and to enter into and perform its
-7-
obligations under this Agreement, the Custody Agreement,
the International Pricing Agreement, the U.S. Purchase
Agreement and the U.S. Pricing Agreement; and the Company
is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in
which such qualification is required, whether by reason of
the ownership or leasing of property or the conduct of
business, except where the failure to so qualify would not
have a material adverse effect on the business, financial
condition, assets or results of operations of the Company
and its consolidated subsidiaries, taken as a whole (a
"Material Adverse Effect").
(vi) The only subsidiaries of the Company that are
"significant subsidiaries" within the meaning of Rule
1-02(w) of Regulation S-X under the 1933 Act as of the
date hereof are Air Micronesia, Inc. and Continental
Micronesia, Inc., each a Delaware corporation
(collectively, together with Continental Express, Inc., a
Delaware corporation, the "Subsidiaries"). Each
Subsidiary has been duly incorporated and is validly
existing as a corporation in good standing under the laws
of the jurisdiction of its incorporation, has corporate
power and authority to own, lease and operate its
properties and to conduct its business as described in the
Prospectuses and is duly qualified as a foreign
corporation to transact business and is in good standing
in each jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the
failure to so qualify would not have a Material Adverse
Effect. Except as set forth in the Registration
Statement, all of the outstanding capital stock of each
Subsidiary has been duly authorized and validly issued, is
fully paid and non-assessable and except as set forth in
the Registration Statement is owned by the Company,
directly or through subsidiaries, free and clear of any
security interest, mortgage, pledge, lien, encumbrance,
claim or equity.
(vii) All of the outstanding capital stock of the
Company has been duly authorized and validly issued and is
fully paid and nonassessable; the authorized capital stock
of the Company conforms in all material respects to all
statements relating thereto in the Prospectuses.
(viii) Neither the Company nor any of the Subsidiaries
is in violation of its charter or in default (or, with
-8-
notice or lapse of time or both, would be in default) in
the performance or observance of any obligation,
agreement, covenant or condition contained in any
contract, indenture, mortgage, loan agreement, note, lease
or other instrument to which the Company or any of the
Subsidiaries is a party or by which it or any of them is
bound, or to which any of the property or assets of the
Company or any of the Subsidiaries is subject, which
violation or default would have a Material Adverse Effect;
and the execution, delivery and performance of this
Agreement, the International Pricing Agreement, the
Custody Agreement, the U.S. Purchase Agreement and the
U.S. Pricing Agreement and the consummation of the
transactions contemplated herein and therein and
compliance by the Company with its obligations hereunder
and thereunder have been duly authorized by all necessary
corporate action and will not conflict with or constitute
or result in a breach or violation by the Company or any
of the Subsidiaries of (A) any of the terms or provisions
of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a
default) by the Company or any of the Subsidiaries, or
give rise to any right to accelerate the maturity or
require the prepayment of any indebtedness under, or
result in the creation or imposition of any lien, charge
or encumbrance upon any property or assets of the Company
or any of the Subsidiaries under, any contract, indenture,
mortgage, deed of trust, loan agreement, note, lease, or
other instrument to which the Company or any of the
Subsidiaries is a party or by which any of them may be
bound, or to which any of them or any of their respective
assets or properties is subject, which individually or in
the aggregate would (1) have or result in a Material
Adverse Effect, or (2) materially affect the consummation
of the transactions contemplated hereby; (B) the
respective charters or by-laws of the Company and the
Subsidiaries or (C) any applicable law, administrative
regulation or administrative or court decree which would
have or result in a Material Adverse Effect, or materially
affect the consummation of the transactions contemplated
hereby.
(ix) Except as disclosed in the Registration
Statement, to the knowledge of the Company, no material
labor problem, dispute or disturbance with the employees
of the Company or any of the Subsidiaries exists or is
threatened.
-9-
(x) Except as disclosed in the Registration
Statement, there is no legal action, suit or proceeding
before or by any court or governmental agency or body,
domestic or foreign, now pending, or, to the knowledge of
the Company, threatened, against the Company or any of the
Subsidiaries, which is required to be disclosed in the
Registration Statement, or which would, individually or in
the aggregate, have a Material Adverse Effect, or which
could reasonably be expected to materially and adversely
affect the consummation of the transactions contemplated
by this Agreement, the International Pricing Agreement,
the Custody Agreement, the U.S. Purchase Agreement and the
U.S. Pricing Agreement. Except as disclosed in the
Registration Statement, neither the Company nor any of the
Subsidiaries has received any notice or claim of any
default (or event which with notice or lapse of time or
both would result in a default) under any of its
respective material contracts or has knowledge of any
breach of any of such contracts by the other party or
parties thereto, except such defaults or breaches as would
not result in a Material Adverse Effect. There are no
contracts or documents of the Company or any of its
subsidiaries which are required to be filed as exhibits to
the Registration Statement by the 1933 Act or by the 1933
Act Regulations which have not been so filed.
(xi) No authorization, approval or consent of any
court or governmental authority or agency of the United
States is necessary in connection with the offering or
sale of the Securities hereunder or under the U.S.
Purchase Agreement, except such as may be required and
have been obtained under the 1933 Act, the 1933 Act
Regulations, the 1934 Act, the 1934 Act Regulations or as
may be required by the National Association of Securities
Dealers, Inc. ("NASD") or under state securities laws.
(xii) The Company (i) has been subject to the
requirements of Section 12 of the 1934 Act for a period of
at least 12 calendar months, (ii) has filed in a timely
manner all reports required to be filed during the 12
calendar months preceding the International Representation
Date, and (iii) the aggregate market value of the voting
stock held by non-affiliates of the Company is $75 million
or more.
(xiii) Except as could not reasonably be expected to
have a Material Adverse Effect, the Company and the
-10-
Subsidiaries possess such certificates, authorizations or
permits issued by the appropriate state, federal or
foreign regulatory agencies or bodies necessary to conduct
the business now conducted by them in the manner described
in the Registration Statement, and neither the Company nor
any of the Subsidiaries has received any notice of pro-
ceedings relating to the revocation or modification of any
such certificate, authority or permit which, singly or in
the aggregate, if the subject of an unfavorable decision,
ruling or finding, would have a Material Adverse Effect.
(xiv) This Agreement, the Custody Agreement and the
U.S. Purchase Agreement have been, and, at the
International Representation Date, the International
Pricing Agreement and the U.S. Pricing Agreement will have
been, duly authorized, executed and delivered by the
Company.
(xv) There are no persons with registration or other
similar rights to have any securities registered pursuant
to the Registration Statement by the Company under the
1933 Act, except such as have been waived in writing or
complied with by the inclusion of such persons as Selling
Stockholders.
(xvi) Except as disclosed in the Registration
Statement, there is no claim pending or to the knowledge
of the Company threatened under any Environmental Law (as
defined below) against the Company or any of the
Subsidiaries which could reasonably be expected, singly or
in the aggregate, to result in a Material Adverse Effect;
to the knowledge of the Company there are no past or
present actions, conditions, events, circumstances or
practices, including, without limitation, the release of
any Hazardous Material (as defined below) that could
reasonably be expected to form the basis of any such claim
under any Environmental Law against the Company or any of
the Subsidiaries which would, singly or in the aggregate,
result in a Material Adverse Effect. The term
"Environmental Law" means the common law and any federal,
state, local or foreign law, rule or regulation, code,
order, decree, judgment or injunction, issued,
promulgated, approved or entered thereunder relating to
pollution or protection of public or employee health or
the environment, including, without limitation, the
Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, the Resource
Conservation and Recovery Act, as amended, the Toxic
Substance Control Act, as amended, the
-11-
Clean Air Act, as amended, and the Federal Water
Pollution Act, as amended, and their foreign,
state and local counterparts or equivalents and any
other laws relating to (i) releases of any Hazardous Material
into the environment (including, without limitation,
ambient air, surface water, ground water, land surface
or subsurface strata), (ii) the manufacture, processing,
distribution, use, treatment, storage, disposal,
transport, presence or handling of any
Hazardous Material, or (iii) underground storage tanks and
related piping, and releases therefrom. The term
"Hazardous Material" means any pollutant, contaminant,
chemical, hazardous material, or industrial, toxic or
hazardous substance or waste (including, without
limitation, petroleum, including crude oil or any fraction
thereof or any petroleum product) regulated by or the
subject of any Environmental Law.
(xvii) The Securities are listed on the New York Stock
Exchange and have been registered under Section 12(b) of
the 1934 Act.
(xviii) The documents incorporated or deemed to be
incorporated by reference in the Prospectuses, at the time
they were or hereafter are filed with the Commission,
complied and will comply in all material respects with the
requirements of the 1934 Act and the rules and regulations
of the Commission under the 1934 Act (the "1934 Act
Regulations"), and, when read together with the other
information in the Prospectuses, at the time the
Registration Statement and any amendments thereto become
effective and at the Closing Time, will not contain an
untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary
to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(xix) Except as set forth on the inside front cover
page of the Prospectuses, the Company has not and is not
presently doing business with the government of Cuba or
with any person or any affiliate located in Cuba.
(b) Each of the Selling Stockholders severally, and
not jointly, represents and warrants to, and agrees with, each
International Underwriter as of the date hereof, as of the
International Representation Date and as of the Closing Time as
follows:
-12-
(i) Such Seller Stockholder has reviewed and is
familiar with the Registration Statement and the
Prospectuses contained therein or filed as supplements
thereto and such Selling Stockholder has no reason to
believe that the Prospectuses (and any amendment,
supplement or term sheet thereto) include (or, as of the
Closing Time, as defined in Section 2 below, will include)
an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements
therein, in the light of the circumstances under which
they were made, not misleading; and such Selling
Stockholder is not prompted to sell the Securities to be
sold by such Selling Stockholder by any information
concerning the Company that is not set forth in the
Prospectuses.
(ii) On the date the International Pricing Agreement
is executed and at the Closing Time, as defined in Section
2 below, and, unless the Company has notified you as
provided in Section 3(e) below, at all times between the
first delivery of the International Prospectus to the
International Underwriters for their use and the Closing
Time, as defined in Section 2 below, such parts of the
Registration Statement and any amendments and supplements
thereto as specifically refer to such Selling Stockholder
will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading and such parts of the International Prospectus
as specifically refer to such Selling Stockholder will not
include an untrue statement of a material fact or omit to
state a material fact necessary in order to make the
statements therein, in the light of the circumstances
under which they were made, not misleading.
(iii) Certificates for all of the Securities to be
sold by such Selling Stockholder pursuant to this
Agreement, in suitable form for transfer by delivery or
accompanied by duly executed instruments of transfer or
assignment in blank with signatures guaranteed have been
deposited with the Company, as custodian (the "Custodian")
pursuant to a Custody Agreement dated as of May , 1996,
for the purpose of effecting delivery pursuant to this
Agreement.
(iv) The execution and delivery of this Agreement,
the International Pricing Agreement, the Custody
Agreement, the U.S. Purchase Agreement and the U.S.
Pricing
-13-
Agreement by such Selling Stockholder and the
consummation of the transactions herein and therein
contemplated will not (A) result in the creation or
imposition of any lien, charge or encumbrance upon the
International Securities to be sold by such Selling
Stockholder or (B) result in a breach by such Selling
Stockholder of, or constitute a default by such Selling
Stockholder under, any material indenture, deed of trust,
contract or other agreement or instrument or any decree,
judgment or order to which such Selling Stockholder is a
party or by which such Selling Stockholder may be bound,
in each case that would have a Material Adverse Effect or
(C) result in any violation of the provisions of the
certificate or articles of incorporation or by-laws, trust
agreement or other organizational documents, if any, of
such Selling Stockholder.
(v) Such Selling Stockholder has and will have, at
the Closing Time, good and marketable title to the
International Securities to be sold by such Selling
Stockholder under this Agreement, free and clear of any
pledge, lien, security interest, encumbrance, equity,
community property rights, restriction on transfer or
claim whatsoever other than pursuant to this Agreement and
such Selling Stockholder's Custody Agreement; such Selling
Stockholder has full right, power and authority and all
authorizations and approvals required by law to sell,
transfer and deliver the International Securities to be
sold by such Selling Stockholder under this Agreement and
upon delivery of such International Securities and payment
of the purchase price therefor as contemplated in this
Agreement, each of the International Underwriters will
receive good and marketable title to the International
Securities purchased by it from such Selling Stockholder,
free and clear of any pledge, lien, security interest,
encumbrance, equity, restriction on transfer or claim
whatsoever.
(vi) All authorizations, approvals, consents and
orders necessary for the execution and delivery by such
Selling Stockholder of this Agreement, the International
Pricing Agreement, the Custody Agreement, the U.S.
Purchase Agreement and the U.S. Pricing Agreement and the
sale and delivery of the Securities to be sold by such
Selling Stockholder under this Agreement and the U.S.
Purchase Agreement (other than, at the time of execution
hereof, the issuance of the order of the Commission
declaring the Registration Statement effective and such
authorizations, approvals or consents as may be necessary
-14-
under state securities laws) have been obtained and are in
full force and effect, and such Selling Stockholder has
full right, power and authority to enter into and perform
its obligations under this Agreement, the International
Pricing Agreement, the Custody Agreement, the U.S.
Purchase Agreement and the U.S. Pricing Agreement, and to
sell, transfer and deliver the Securities to be sold by
such Selling Stockholder under this Agreement, the
International Pricing Agreement, the Custody Agreement,
the U.S. Purchase Agreement and the U.S. Pricing
Agreement.
(vii) Such Selling Stockholder has not taken, and will
not take, directly or indirectly, any action which is
designed to or which might reasonably be expected to cause
or result in or which has constituted stabilization or
manipulation of the price of any security of the Company
to facilitate the distribution of the Securities.
[(viii) Except as otherwise permitted under the relevant
lock-up agreement, such Selling Stockholder will not,
directly or indirectly, for a period of 90 days from the
date of the Pricing Agreement, except with the prior
written consent of Merrill Lynch, offer, sell, contract to
sell or otherwise dispose of shares of common stock of the
Company, or any interests therein, or any securities
convertible into or exchangeable for shares of common
stock of the Company.]
(c) Any certificate signed by any officer of the
Company and delivered to the International Underwriters or to
the U.S. Underwriters or to counsel for the Underwriters
pursuant to the terms of this Agreement shall be deemed a
representation and warranty by the Company to each Underwriter
as to the matters covered thereby, and any certificate signed
by any officer or partner, as the case may be, of a Selling
Stockholder and delivered to the International Underwriters or
to the U.S. Underwriters or counsel for the Underwriters
pursuant to the terms of this Agreement shall be deemed a
representation and warranty by such Selling Stockholder to each
International Underwriter as to the matters covered thereby.
SECTION 2. Sale and Delivery to the International
Underwriters; Closing.
______________________________________
(a) On the basis of the representations and
warranties herein contained and subject to the terms and
conditions herein set forth, the Selling Stockholders, acting
severally
-15-
and not jointly, agree to sell to each International
Underwriter, acting severally and not jointly, and each
International Underwriter, acting severally and not jointly,
agrees to purchase from the Selling Stockholders, acting
severally and not jointly, at the purchase price per share set
forth in the International Pricing Agreement (subject to
subparagraph (b) hereof), (i) the number of International
Securities from the Selling Stockholders set forth in Schedule
A opposite the name of such International Underwriter, plus
(ii) any additional number of International Securities which
such International Underwriter may become obligated to purchase
pursuant to the provisions of Section 10 hereof.
(1) If the Company has elected not to rely upon Rule
430A under the 1933 Act Regulations, the public offering
price and the purchase price per share to be paid by the
several International Underwriters for the International
Securities have each been determined and set forth in the
International Pricing Agreement, dated the date hereof,
and an amendment to the Registration Statement and the
Prospectuses containing such information will be filed
before the Registration Statement becomes effective.
(2) If the Company has elected to rely upon Rule
430A under the 1933 Act Regulations, the purchase price
per share to be paid by the several International
Underwriters for the International Securities shall be an
amount equal to the public offering price, less an amount
per share to be determined by agreement between the
International Underwriters, Air Canada and the Selling
Stockholders (or any Attorney-in-Fact (as defined in the
Custody Agreement) appointed by a Selling Stockholder).
The public offering price per share of the International
Securities shall be a fixed price to be determined by
agreement between the International Underwriters, Air
Canada and the Selling Stockholders (or any Attorney-in-
Fact appointed by a Selling Stockholder). The public
offering price and the purchase price shall be set forth
in paragraph 2 of the International Pricing Agreement. In
the event that such prices have not been agreed upon and
the International Pricing Agreement has not been executed
and delivered by all parties thereto by the close of
business on the fourth business day following the date of
this Agreement, this Agreement shall terminate forthwith,
without liability of any party to any other party, unless
otherwise agreed to by the Company, Air Canada, the
-16-
Selling Stockholders (or any Attorney-in-Fact appointed by
a Selling Stockholder) and the Lead Managers.
(b) Payment of the purchase price for, and delivery
of certificates for, the International Securities shall be made
at the world headquarters of Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, North Tower, World
Financial Center, New York, New York 10281 or at such other
place as shall be agreed upon by the Representatives and the
Company, at 10:00 A.M. on the third or fourth business day
(unless postponed in accordance with the provisions of Section
10) following the date the Registration Statement becomes
effective (or, if the Company has elected to rely upon Rule
430A of the 1933 Act Regulations, the third or fourth business
day after execution of the International Pricing Agreement), or
such other time not later than ten business days after such
date as shall be agreed upon by the Representatives, Air Canada
and the Selling Stockholders (or any Attorney-in-Fact appointed
by a Selling Stockholder) (such time and date of payment and
delivery being herein called "Closing Time"). Payment for
International Securities shall be made to Air Canada and to the
Custodian on behalf of the other Selling Stockholders by
certified or official bank check or checks drawn in New York
Clearing House funds or similar next day funds, or by wire
transfer to an account to be designated by the Custodian at
least one business day prior to the Closing Time of immediately
available funds (net of the cost to Merrill Lynch of obtaining
such immediately available funds), payable to the order of the
respective Selling Stockholders, against delivery to the Lead
Managers for the respective accounts of the International
Underwriters of certificates for the International Securities
to be purchased by them. Certificates for the International
Securities shall be in such denominations and registered in
such names as the Lead Managers may request in writing to the
transfer agent at least two business days before Closing Time.
It is understood that each International Underwriter has
authorized the Lead Managers, for its account, to accept
delivery of, receipt for, and make payment of the purchase
price for, the International Securities which it has agreed to
purchase. MLI, individually and not as representative of the
International Underwriters, may (but shall not be obligated to)
make payment of the purchase price for the International
Securities to be purchased by any International Underwriter
whose check has not been received by Closing Time, but such
payment shall not relieve such International Underwriter from
its obligations hereunder. The certificates for the
International Securities will be made available by the transfer
agent for examination
-17-
and packaging by the Lead Managers not later than 10:00 A.M.
on the last business day prior to Closing Time.
(c) Each Selling Stockholder will pay all applicable
stock transfer taxes which are required to be paid in
connection with the sale and transfer of the International
Securities by such Selling Stockholder to the International
Underwriters hereunder or will have fully provided for payment
of such taxes and all laws imposing such taxes will have been
fully complied with.
SECTION 3. Covenants of the Company. The Company
covenants with each International Underwriter as follows:
(a) The Company will, for so long as the
Underwriters are required to deliver a prospectus in
connection with the offer and sale of the Securities,
notify the Lead Managers promptly, and confirm the notice
in writing, (i) of the effectiveness of the Registration
Statement and any amendment thereto (including any post-
effective amendment), (ii) of the receipt of any comments
from the Commission, (iii) of any request by the
Commission for any amendment to the Registration Statement
or any amendment or supplement to the Prospectuses or for
additional information, and (iv) of the issuance by the
Commission of any stop order suspending the effectiveness
of the Registration Statement or the initiation of any
proceedings for that purpose. The Company will make every
reasonable effort to prevent the issuance of any stop
order and, if any stop order is issued, to obtain the
lifting thereof at the earliest possible moment. The
obligations of the Company pursuant to this Section 3(a)
shall be deemed to terminate 90 days after the date of the
International Pricing Agreement unless the Lead Managers
shall notify the Company in writing that the Underwriters
continue to be subject to prospectus delivery requirements
with respect to offers and sales of the Securities, and in
the event of any such notice the obligations of the
Company under this Section 3(a) shall be deemed to
terminate 60 days after the date of such notice unless a
further notice to such effect is so provided.
(b) The Company will, for so long as the
Underwriters are required to deliver a prospectus in
connection with the offer and sale of the Securities, give
the Lead Managers notice of its intention to file or
prepare any amendment to the Registration Statement
(including any
-18-
post-effective amendment) or any amendment
or supplement to the Prospectuses (including any revised
prospectus which the Company proposes for use by the
Underwriters in connection with the offering of the
Securities which differs from the prospectuses on file at
the Commission at the time the Registration Statement
becomes effective, whether or not such revised
prospectuses are required to be filed pursuant to Rule
424(b) of the 1933 Act Regulations), whether pursuant to
the 1933 Act, the 1934 Act or otherwise, will furnish the
Lead Managers with copies of any such amendment or
supplement a reasonable amount of time prior to such
proposed filing or use, as the case may be, and will not
file any such amendment or supplement or use any such
prospectus to which the Lead Managers or counsel for the
Underwriters shall reasonably object. In the event
(a) the Underwriters shall object to any such amendment,
supplement or prospectus and (b) the Company shall have
determined (based upon the written opinion of outside
counsel) that the failure to file with the Commission, or
use in connection with the sale of the securities included
in the Registration Statement, any such amendment,
supplement or prospectus would make the Prospectus include
a material misstatement or omit to state a material fact
in light of the circumstances existing at the time it is
delivered to a purchaser, then the Company may file with
the Commission any such amendment, supplement or
prospectus. The obligations of the Company pursuant to
this Section 3(b) shall be deemed to terminate 90 days
after the date of the International Pricing Agreement
unless the Lead Managers shall notify the Company in
writing that the Underwriters continue to be subject to
prospectus delivery requirements with respect to offers
and sales of the Securities, and in the event of any such
notice the obligations of the Company under this Section 3
(b) shall be deemed to terminate 60 days after the date of
such notice unless a further notice to such effect is so
provided.
(c) The Company will deliver to the Lead Managers as
many signed copies of the Registration Statement as
originally filed and of each amendment thereto (including
exhibits filed therewith or incorporated by reference
therein and documents incorporated or deemed to be
incorporated by reference therein) as the Lead Managers
may reasonably request and will also deliver to the Lead
Managers a conformed copy of the Registration Statement as
-19-
originally filed and of each amendment thereto (without
exhibits) for each of the International Underwriters.
(d) The Company will furnish to each International
Underwriter, from time to time during the period when the
International Prospectus is required to be delivered under
the 1933 Act or the 1934 Act, such number of copies of the
International Prospectus (as amended or supplemented) as
such International Underwriter may reasonably request for
the purposes contemplated by the 1933 Act or the 1934 Act
or the respective applicable rules and regulations of the
Commission thereunder.
(e) During the period when the International
Prospectus is required to be delivered under the 1933 Act
or the 1934 Act, if any event shall occur as a result of
which it is necessary, in the reasonable opinion of
counsel for the Lead Managers or counsel to the Company,
to amend or supplement the International Prospectus in
order that the International Prospectus, as then amended
or supplemented, will not include an untrue statement of
material fact or omit to state a material fact necessary
to make the statements therein, in the light of the
circumstances existing at the time it is delivered to a
purchaser, not misleading or, in the reasonable opinion of
the Lead Managers or counsel to the Lead Managers, such
amendment or supplement is necessary to comply with
applicable law, the Company will, subject to paragraph (b)
of this Section 3, promptly prepare such amendment or
supplement as may be necessary to correct such untrue
statement or omission or to effect such compliance (in
form and substance reasonably satisfactory to counsel for
the Lead Managers), so that, as so amended or
supplemented, the International Prospectus will not
include an untrue statement of a material fact or omit to
state a material fact necessary in order to make the
statements therein, in the light of the circumstances
existing at the time it is delivered to a purchaser, not
misleading, or so that such Prospectus as so amended or
supplemented will comply with applicable law, as the case
may be, and the Company will furnish to the International
Underwriters such number of copies of such amendment or
supplement as the International Underwriters may
reasonably request. The Company agrees to notify the
Underwriters in writing to suspend use of the Prospectuses
as promptly as practicable after the occurrence of an
event specified in this paragraph (e), and the
Underwriters hereby agree upon receipt of
-20-
such notice from the Company to suspend use of the
Prospectuses until the Company has amended or
supplemented the Prospectuses to
correct such misstatement or omission or to effect such
compliance.
(f) The Company, during the period when the
International Prospectus is required to be delivered under
the 1933 Act or the 1934 Act, will file all documents
required to be filed with the Commission pursuant to
Section 13, 14 or 15 of the 1934 Act within the time
periods required by the 1934 Act and the 1934 Act
Regulations.
(g) The Company will endeavor, in cooperation with
the International Underwriters, to qualify the Securities
for offering and sale under the applicable securities laws
of such states and other jurisdictions of the United
States as the Representatives may reasonably designate;
provided, however, that the Company shall not be obligated
to (i) qualify as a foreign corporation in any
jurisdiction in which it is not so qualified, (ii) file
any general consent to service of process in any
jurisdiction where it is not at the Closing Time then so
subject or (iii) subject itself to taxation in any such
jurisdiction if it is not so subject. In each
jurisdiction in which the Securities have been so
qualified, the Company will file such statements and
reports as may be required by the laws of such
jurisdiction to continue such qualification in effect for
a period of not less than one year from the effective date
of the Registration Statement or such shorter period that
will terminate when all Initial Securities and any Option
Securities to be sold subject to such qualification have
been sold or withdrawn. The Company shall promptly advise
the Lead Managers and counsel to the Lead Managers of the
receipt by the Company of any notification with respect to
the suspension of the qualification or exemption from
qualification of the Securities for offering or sale in
any jurisdiction or the institution of any proceeding for
such purpose. The Company will inform the Florida
Department of Banking and Finance if prior to the
completion of the distribution of the Securities by the
Underwriters the Company commences engaging, other than as
set forth in the Registration Statement, in business with
the government of Cuba or with any person or affiliate
located in Cuba. Such information will be provided within
90 days of the commencement thereof or after a change to
any such previously reported information.
-21-
(h) The Company will make generally available to its
security holders as soon as practicable, but not later
than 90 days after the close of the period covered
thereby, an earning statement (in form complying with the
provisions of Rule 158 of the 1933 Act Regulations)
covering a twelve-month period beginning not later than
the first day of the Company's fiscal quarter next
following the "effective date" (as defined in said Rule
158) of the Registration Statement.
(i) If, at the time that the Registration Statement
becomes effective, any information shall have been omitted
therefrom in reliance upon Rule 430A of the 1933 Act
Regulations, then immediately following the execution of
the International Pricing Agreement, the Company will
prepare, and file or transmit for filing with the
Commission in accordance with such Rule 430A and Rule
424(b) of the 1933 Act Regulations, copies of an amended
International Prospectus and an amended U.S. Prospectus,
or, if required by such Rule 430A, a post-effective
amendment to the Registration Statement (including amended
Prospectuses), containing all information so omitted.
(j) The Company will use its commercially reasonable
best efforts to cause the continued listing of the
Securities on the New York Stock Exchange.
(k) The Company will not, directly or indirectly,
for a period of 90 days from the International Repre-
sentation Date, except with the prior written consent of
Merrill Lynch, offer, sell, contract to sell, or otherwise
dispose of any shares of common stock of the Company or
any interests therein, or any securities that are
convertible into or exchangeable for shares of common
stock or other equity interests of the Company, except
that the Company may issue shares of common stock or other
equity interests of the Company (i) pursuant to the
exercise or conversion of options, warrants or other
securities outstanding on the date hereof, (ii) pursuant
to the grant of stock options or other stock-based awards
(and the exercise thereof) to directors, officers, and
employees of the Company or its subsidiaries, and (iii) as
may be required pursuant to the certificate of
incorporation of the Company and may cause to be
registered with the Commission (y) a resale shelf
registration statement for the shares of Class B Common
Stock to be issued upon the conversion of the Company's
outstanding 6 3/4% Convertible
-22-
Subordinated Notes Due April 15, 2006 and 8 1/2% Convertible
Trust Originated Preferred Securities (Convertible TOPrS)
and (z) a registration statement for the sale (only after the
expiration of the 90-day period referred to above) of up
to $50 million of Class B Common Stock.
(l) Immediately following the execution of the
International Pricing Agreement, the Company will prepare,
and file or transmit for filing with the Commission in
accordance with Rules 434 and 424(b) of the 1933 Act
Regulations, copies of amended Prospectus supplements and
term sheet, if any, to the Registration Statement,
containing all omitted information.
(m) If the Company uses Rule 434 of the 1933 Act
Regulations, it will comply with the requirements of Rule
434 of such regulations and the International Prospectus
will not be "materially different," as such term is used
in Rule 434 of the 1933 Act Regulations, from the
International Prospectus first given to the International
Underwriters for their use.
SECTION 4. Payment of Expenses. The Company will
pay all expenses incident to the performance of its obligations
under this Agreement, including (i) the printing and filing of
the Registration Statement as originally filed and of each
amendment thereto, (ii) the preparation and delivery of the
certificates for the Securities to the Underwriters, (iii) the
fees and disbursements of the Company's counsel and
accountants, (iv) the qualification of the Securities under
securities laws in accordance with the provisions of Section
3(g) hereof, including filing fees and the fees and
disbursements of counsel for the Underwriters in connection
therewith and in connection with the preparation of the Blue
Sky Survey, (v) the printing and delivery to the Underwriters
of copies of the Registration Statement as originally filed and
of each amendment thereto (excluding exhibits, except to the
Representatives), of each preliminary prospectus, and of the
Prospectus and any amendments or supplements thereto, (vi) the
printing and delivery to the Underwriters of copies of the Blue
Sky Survey, (vii) the fee of the National Association of
Securities Dealers, Inc. and (ix) the fees and expenses of
continuing the listing of the Securities on the New York Stock
Exchange, Inc.
Notwithstanding the foregoing, each Selling
Stockholder will pay and bear any stock transfer taxes,
underwriting discounts or commissions payable upon, or with
respect to the
-23-
sale of Securities sold by such Selling Stockholder
to the Underwriters, and any fees and disbursements
of counsel to the Selling Stockholders. The Company will pay
the amount of the Commission filing fee attributable to
Securities sold by each Selling Stockholder hereunder.
If after the execution of an International Pricing
Agreement this Agreement is terminated by the Lead Managers in
accordance with the provisions of Section 5 or Section 9(a)(i)
hereof, the Company shall reimburse the Underwriters for all of
their reasonable out-of-pocket expenses that shall have been
incurred by them in connection with the proposed purchase and
sale of the Securities, including the reasonable fees and
disbursements of counsel for the Underwriters [unless such
termination occurs by reason of the failure to satisfy the
conditions contained in Section 5(b)(3) and 5(g) insofar as it
relates to deliveries by the Selling Stockholders, in which
case such fees and expenses shall be paid by the Selling
Stockholder or Selling Stockholders as to which such failure of
condition relates].
SECTION 5. Conditions of International Underwriters'
Obligations. The obligations of the International Underwriters
hereunder are subject to the accuracy of the representations
and warranties of the Company and the Selling Stockholders
herein contained, to the performance by the Company and the
Selling Stockholders of their respective several obligations
hereunder, and to the following further conditions:
(a) The Registration Statement shall have become
effective not later than 5:30 P.M. on the date hereof, or
with the consent of the Lead Managers, at a later time and
date, not later, however, than 5:30 P.M. on the first
business day following the date hereof, or at such later
time and date as may be approved by a majority in interest
of the International Underwriters; and at Closing Time, no
stop order suspending the effectiveness of the
Registration Statement shall have been issued under the
1933 Act or proceedings therefor initiated or threatened
by the Commission. If the Company has elected to rely
upon Rule 430A of the 1933 Act Regulations, the price of
the Securities and any price-related information
previously omitted from the effective Registration
Statement pursuant to such Rule 430A shall have been
transmitted to the Commission for filing pursuant to Rule
424(b) of the 1933 Act Regulations within the prescribed
time period and, prior to Closing Time, the Company shall
have provided evidence
-24-
satisfactory to the Lead Managers of such timely filing,
or a post-effective amendment providing such information
shall have been promptly filed and declared effective
in accordance with the requirements of Rule 430A of
the 1933 Act Regulations.
(b) At Closing Time the Lead Managers, as
representatives of the International Underwriters, shall
have received:
(1) The favorable opinion, dated as of Closing
Time, of Cleary, Gottlieb, Steen & Hamilton, special
counsel for the Company, in form and substance
satisfactory to counsel for the Underwriters, to the
effect that:
(i) The Company is validly existing as a
corporation in good standing under the laws of
the State of Delaware.
(ii) The Company has corporate power to own
its properties and conduct its business as
described in the Registration Statement and to
enter into and perform its obligations under
this Agreement, the International Pricing
Agreement, the Custody Agreement, the U.S.
Purchase Agreement and the U.S. Pricing
Agreement.
(iii) The issuance and sale of the
Securities was not subject, at the date of
issue, to preemptive or other similar rights
arising under the certificate of incorporation
or by-laws of the Company or under the Delaware
General Corporation Law.
(iv) The execution and delivery of this
Agreement, the International Pricing Agreement,
the U.S. Purchase Agreement and the U.S. Pricing
Agreement have each been duly authorized by all
necessary corporate action of the Company.
[(v) The Registration Statement is
effective under the 1933 Act and, to the best of
their knowledge and information, no stop order
suspending the effectiveness of the Registration
Statement has been issued under the 1933 Act or
-25-
proceedings therefor initiated or threatened by
the Commission.]
(vi) The Class B Common Stock and each
other class of authorized capital stock of the
Company conform in all material respects to the
description thereof contained in the Prospec-
tuses under the heading "Description of Capital
Stock."
(vii) The statements set forth under the
headings "Description of Capital Stock" and
"Principal and Selling Stockholders --
Stockholders' Agreement" in the Prospectuses,
insofar as such statements purport to summarize
certain provisions of the Certificate of
Incorporation of the Company and that certain
Stockholders' Agreement, and any amendments
thereto, provide a fair summary of such
provisions; the statements set forth under the
headings "Certain U.S. Tax Consequences to Non-
U.S. Holders" and "Risk Factors -- Certain Tax
Matters," insofar as such statements purport to
summarize certain federal tax laws of the United
States referred to thereunder, provide a fair
[and accurate] summary of such laws.
(viii) No authorization, approval, consent or
order of any governmental authority of the
United States or the State of New York is
required as of the date of such opinion in
connection with the offering and sale of the
Securities to the Underwriters in the United
States pursuant to the U.S. Purchase Agreement,
except such as may have been obtained under the
1933 Act or the 1933 Act Regulations or the 1934
Act.
(2) The favorable opinion, dated as of Closing
Time, of Jeffery A. Smisek, Esq., Senior Vice
President and General Counsel of the Company, in form
and substance satisfactory to counsel for the
Underwriters, to the effect that:
(i) To the best of his knowledge, the
Company is duly qualified as a foreign
corporation to transact business and is in good
standing in each jurisdiction in the United
States which
-26-
such qualification is required, except in
jurisdictions where the failure to be
so qualified could not reasonably be expected to
have a Material Adverse Effect.
(ii) Each of the Subsidiaries has been duly
incorporated and is validly existing as a
corporation in good standing under the laws of
the jurisdiction of its incorporation, has all
requisite corporate power and authority to own,
lease and operate its properties and to conduct
its business as described in the Registration
Statement and, to the best of his knowledge, is
duly qualified as a foreign corporation to
transact business and is in good standing in
each jurisdiction in the United States in which
such qualification is required, except as could
not reasonably be expected to have a Material
Adverse Effect; all of the issued and
outstanding capital stock of each such
Subsidiary has been duly authorized and validly
issued, is fully paid and nonassessable and,
except as disclosed in the Prospectuses or
except as would not have a Material Adverse
Effect, is owned beneficially and of record by
the Company, directly or through subsidiaries,
free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or
equity.
(iii) To the best of his knowledge, there
are no legal or governmental proceedings pending
or threatened to which the Company or any
Subsidiary is a party or to which the assets of
the Company or any Subsidiary are subject which
are required to be disclosed in the Registration
Statement, other than those disclosed therein,
or those which individually or in the aggregate
would have a Material Adverse Effect.
(iv) To the best of his knowledge, none of
the Company or any of the Subsidiaries is in
default (or, with notice or lapse of time or
both, would be in default) in the performance or
observance of any material obligation,
agreement, covenant or condition contained in
any contract, indenture, mortgage, deed of
trust, loan agreement, note, lease or other
instrument
-27-
to which it is a party or by which it
is bound, or to which any of its respective
assets is subject, or in violation of any law,
statute, judgment, decree, order rule or
regulation of any domestic or foreign court with
jurisdiction over the Company or any of the
Subsidiaries or any of their respective assets,
or other governmental or regulatory authority,
agency or other body, other than such defaults
or violations which, individually or in the
aggregate, would not have a Material Adverse
Effect.
(v) To the best of his knowledge, the
execution, delivery and performance of this
Agreement, the International Pricing Agreement,
the Custody Agreement, the U.S. Purchase
Agreement and the U.S. Pricing Agreement and the
consummation of the transactions contemplated
herein and therein and compliance by the Company
with its obligations hereunder and thereunder
will not conflict with or constitute a breach
of, or default under, or result in the creation
or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or
any of the Subsidiaries pursuant to, any
material contract, indenture, mortgage, loan
agreement, note, lease or other instrument to
which the Company or any of the Subsidiaries is
a party or by which it or any of them is bound,
or to which any of the property or assets of the
Company or any of the Subsidiaries is subject,
except as would not, individually or in the
aggregate, have a Material Adverse Effect, nor
will such action result in any violation of the
provisions of the charter or by-laws of the
Company, or any applicable law, administrative
regulation or administrative or court decree.
(vi) To the best of his knowledge, there
are no contracts, indentures, mortgages, loan
agreements, notes, leases or other instruments
required to be described or referred to in the
Registration Statement other than those
described or referred to therein. The
descriptions thereof or references thereto are
correct in all material respects, and to his
actual knowledge no default exists in the due
-28-
performance or observance of any material
obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage,
loan agreement, note, lease or other instrument
so described, referred to or filed as an exhibit
to a document filed under the 1934 Act or the
1934 Act Regulation, except as could not rea-
sonably be expected to have a Material
Adverse Effect.
(vii) At the time the Registration Statement
became effective and at the Representation Date,
the Registration Statement (other than the
financial statements and supporting schedules
included therein and the Exhibits thereto, as to
which no opinion need be rendered) complied as
to form in all material respects with the
requirements of the 1933 Act and the 1933 Act
Regulations. Each document filed pursuant to
the 1934 Act (other than the financial
statements and supporting schedules included
therein, as to which no opinion need be
rendered) and incorporated or deemed to be
incorporated by reference in the Prospectuses
complied when so filed as to form in all
material respects with the 1934 Act and the 1934
Act Regulations.
(viii) The shares of issued and outstanding
Class A Common Stock and Class B Common Stock,
including the Securities to be sold by the
Selling Stockholders, have been duly authorized
by all necessary corporate action and validly
issued and are fully paid and nonassessable.
(3) The favorable opinion, dated as of Closing
Time, of counsel for each of the Selling
Stockholders, in form and substance satisfactory to
counsel for the Underwriters, to the effect that:
(i) This Agreement, the International
Pricing Agreement, the U.S. Purchase Agreement
and the U.S. Pricing Agreement have been duly
authorized, executed and delivered by or on
behalf of such Selling Stockholder.
(ii) The Custody Agreement has been duly
authorized, executed and delivered by or on
-29-
behalf of such Selling Stockholder and
constitute the valid and binding obligations of
such Selling Stockholder, enforceable in
accordance with their terms, except as the
enforcement thereof may be limited by
bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or
affecting creditors' rights generally or by
general equitable principles.
(iii) To the best of its knowledge and
information, such Selling Stockholder has good
and marketable title to the Securities to be
sold by such Selling Stockholder under this
Agreement and the U.S. Purchase Agreement, free
and clear of any pledge, lien, security
interest, encumbrance, claim or equity, other
than pursuant to this Agreement, the U.S.
Purchase Agreement and the Custody Agreement,
and has full right, power and authority to sell
the International Securities to be sold by such
Selling Stockholder under this Agreement; and
upon the delivery of and payment for the
International Securities as contemplated in this
Agreement, assuming that each such International
Underwriter is without notice of any "adverse
claim" (as such term is defined in the Uniform
Commercial Code), each of the International
Underwriters will acquire all of such Selling
Stockholder's rights and interests to the
Securities sold by such Selling Stockholder,
free and clear of any pledge, lien, security
interest, encumbrance, claim or equity.
(4) The favorable opinion, dated as of Closing
Time, of Cahill Gordon & Reindel, counsel for the
Underwriters, with respect to the matters set forth
in (i), (iv), (v) and (vi) of subsection (b)(1) of
this Section.
(5) In giving their opinions required by
subsections (b)(1) and (b)(4), respectively, of this
Section, Cleary, Gottlieb, Steen & Hamilton and
Cahill Gordon & Reindel shall each additionally state
that they have participated in conferences with
officers and other representatives of the Company,
representatives of the independent public accountants
-30-
for the Company and representatives of the
Underwriters at which the contents of the
Registration Statement and the Prospectuses and
related matters were discussed and, although they are
not passing upon, have not made any independent
verification of and do not assume any responsibility
for the accuracy, completeness or fairness of the
statements contained in the Registration Statement
and the Prospectuses (except to the extent expressly
set forth in their opinion), on the basis of the
foregoing (relying as to materiality to a large
extent upon the opinions of officers and other
representatives of the Company), no facts have come
to their attention that lead them to believe that the
Registration Statement at the time it became
effective or at the International Representation Date
contained an untrue statement of a material fact or
omitted to state a material fact necessary in order
to make the statements therein not misleading, or
that the Prospectuses, as of their dates and as of
the date of such opinion, contained an untrue
statement of a material fact or omitted to state a
material fact necessary in order to make the
statements therein, in light of the circumstances
under which they were made, not misleading (it being
specifically understood that they have not been
requested to and do not express any statement with
respect to the financial statements and schedules and
other financial and statistical data included or
incorporated by reference in the Registration
Statement).
(c) At Closing Time there shall not have been, since
the date hereof or since the respective dates as of which
information is given in the Registration Statement and the
Prospectus except as stated therein, any Material Adverse
Change or any development resulting in a prospective
Material Adverse Change, and the Lead Managers shall have
received a certificate of the President or a Vice
President of the Company and of the principal financial or
principal accounting officer of the Company, dated as of
Closing Time, addressed to the Lead Managers, as
representatives of the International Underwriters, and
each Selling Stockholder to the effect that (i) there has
been no such Material Adverse Change or development
resulting in a prospective Material Adverse Change, (ii)
the representations and warranties of the Company in this
Agreement are true and correct with the same force and
effect as though
-31-
expressly made at and as of Closing Time,
(iii) the Company has complied with all agreements and
satisfied all conditions on its part to be performed or
satisfied at or prior to Closing Time, and (iv) no stop
order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that
purpose have been initiated or threatened by the
Commission.
(d) At the time that this Agreement is signed, Ernst
& Young LLP shall have furnished to the Lead Managers, as
representatives of the International Underwriters, a
letter addressed to the Lead Managers, as representatives
of the International Underwriters, and the Company, dated
as of the date of this Agreement, in form and substance
satisfactory to the Lead Managers, confirming that they
are independent auditors with respect to the Company and
its subsidiaries within the meaning of the 1933 Act and
the 1933 Act Regulations and stating in effect that:
(i) in their opinion the audited financial
statements and supporting schedules included in the
Registration Statement or incorporated or deemed to
be incorporated by reference therein comply as to
form in all material respects with the applicable
accounting requirements of the 1933 Act and the 1933
Act Regulations;
(ii) on the basis of a reading of the latest
unaudited financial statements made available by the
Company; carrying out certain procedures specified in
such letter (but not an examination in accordance
with generally accepted auditing standards) which
would not necessarily reveal matters of significance
with respect to the comment set forth in such letter;
a reading of the minutes of the meetings of the
stockholders, the board of directors and committees
thereof of the Company; and inquiries of certain
officials of the Company who have responsibility for
financial and accounting matters of the Company as to
transactions and events subsequent to March 31, 1996,
and such other inquiries and procedures as may be
specified in such letter, nothing has come to their
attention which causes them to believe that:
(A) the unaudited financial statements of
the Company and its subsidiaries included in the
-32-
Registration Statement or incorporated or deemed
to be incorporated by reference therein do not
comply as to form in all material respects with
the applicable accounting requirements of the
1933 Act and the 1933 Act Regulations or are not
presented in conformity with generally accepted
accounting principles applied on a basis
substantially consistent with the audited
financial statements incorporated by reference
therein; or
(B) the unaudited amounts of revenues, net
income and net income per share set forth under
"Selected Financial Data" in the Prospectuses
were not determined on a basis substantially
consistent with what is used in determining the
corresponding amounts in the audited financial
statements incorporated by reference in the
Registration Statement; or
(C) with respect to the period subsequent
to March 31, 1996, that at a specified date not
more than five days prior to the date of this
Agreement, there has been any change in the
capital stock of the Company or any increase in
the consolidated long term debt or consolidated
net current liabilities of the Company and its
subsidiaries or any decrease in common
stockholders' equity as compared with the
amounts shown in the March 31, 1996 balance
sheet incorporated by reference in the
Registration Statement and Prospectuses, or for
the period from March 31, 1996 to such specified
date, there were any decreases, as compared with
the corresponding period in the preceding year,
in consolidated operating revenues, net income
or primary or fully diluted income per common
share or any increases in net loss or primary or
fully diluted loss per common share of the
Company and its subsidiaries, except in all
instances for changes, increases or decreases
that are described in such letter or that the
Registration Statement and the Prospectus
disclose have occurred or may occur; and
(iii) in addition to the examination referred to
in their opinion and the limited procedures referred
to in clause (ii) above, they have performed certain
-33-
other specified procedures, not constituting an
audit, with respect to certain amounts, percentages
and financial information that are derived from the
general accounting records of the Company and are
included in the Registration Statement and
Prospectuses, and have compared such amounts,
percentages and financial information with such
records of the Company and with information derived
from such records and have found such amounts,
percentages and financial information to be in
agreement with the relevant accounting, financial and
other records of the Company and its subsidiaries
identified in such letter.
(e) At Closing Time the Lead Managers shall have
received from Ernst & Young a letter addressed to the Lead
Managers, as representatives of the International
Underwriters, and each Selling Stockholder, dated as of
Closing Time, to the effect that they reaffirm the
statements made in the letter furnished pursuant to
subsection (d) of this Section, except that the specified
date referred to shall be a date not more than five days
prior to Closing Time and, if the Company has elected to
rely on Rule 430A of the 1933 Act Regulations, to the
further effect that they have carried out procedures as
specified in clause (iii) of subsection (d) of this
Section with respect to certain amounts, percentages and
financial information specified by the Lead Managers and
deemed to be a part of the Registration Statement pursuant
to Rule 430A(b) and have found such amounts, percentages
and financial information to be in agreement with the
records specified in such clause (iii).
(f) At Closing Time, and at each Date of Delivery,
the Securities shall continue to be listed on the New York
Stock Exchange.
(g) At Closing Time and at each Date of Delivery, if
any, counsel for the Underwriters shall have been
furnished with such documents as they may reasonably
require and have specifically requested prior to such time
for the purpose of enabling them to pass upon the issuance
and sale of the Securities as herein contemplated and
related proceedings, or in order to evidence the accuracy
of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained;
and all proceedings taken by the Company and the Selling
Stockholders
-34-
in connection with the sale of the International
Securities as herein contemplated shall be
satisfactory in form and substance to the Lead Managers
and counsel for the Underwriters.
(h) Each Selling Stockholder shall have executed and
delivered to the Underwriters a 90-day lock-up agreement
in the forms attached hereto as Exhibit A.
(i) The Selling Stockholders shall have furnished to
the Underwriters such other documents, certificates and
opinions as the Underwriters shall have reasonably and
specifically requested prior to the Closing Time.
If any condition specified in this Section shall not
have been fulfilled in all material respects when and as
required to be fulfilled, this Agreement may be terminated by
the Lead Managers by notice to the Company and each Selling
Stockholder at any time at or prior to Closing Time, and such
termination shall be without liability of any party to any
other party except as provided in Section 4 hereof.
SECTION 6. Indemnification.
(a) The Company agrees to indemnify and hold
harmless each International Underwriter, each Selling
Stockholder and each person, if any, who controls any
International Underwriter or any Selling Stockholder within the
meaning of Section 15 of the 1933 Act as follows:
(i) against any and all loss, liability, claim,
damage and expense whatsoever, including any amounts paid
in settlement of any investigation, litigation, proceeding
or claim, as incurred, arising out of any untrue statement
or alleged untrue statement of a material fact contained
in the Registration Statement (or any amendment thereto),
including the information deemed to be part of the
Registration Statement pursuant to Rule 430A(b) of the
1933 Act Regulations, if applicable, or the omission or
alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements
therein not misleading or arising out of any untrue
statement or alleged untrue statement of a material fact
contained in any preliminary prospectus or the Prospectus
(or any amendment or supplement thereto) or the omission
or alleged omission therefrom of a material fact necessary
in order to make the statements therein, in the light of
the
-35-
circumstances under which they were made, not
misleading, provided, that the Company shall not be liable
under this clause (i) for any settlement of any action
effected without its written consent, which consent shall
not be unreasonably withheld; and
(ii) against any and all expense whatsoever, as
incurred (including, subject to Section 6(d) hereof, the
reasonable fees and disbursements of counsel chosen by
Merrill Lynch to represent the Underwriters, which counsel
shall also represent any Selling Stockholder seeking
indemnity from the Company pursuant to this Section 6(a)
based upon similar claims, provided, that, if such Selling
Stockholders, on the one hand, and the Company on the
other hand, reasonably determine that there may be legal
defenses available to such Selling Stockholders which are
different from or in addition to those available to you,
then the Selling Stockholders shall be entitled to retain
separate counsel to conduct the defense of such Selling
Stockholders), reasonably incurred in investigating,
preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever
based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, to the extent
that any such expense is not paid under (i) above;
provided, however, that this indemnity agreement shall not
apply to any loss, liability, claim, damage or expense to
the extent arising out of any untrue statement or omission
or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished
to the Company by any Underwriter through Merrill Lynch
expressly for use in the Registration Statement (or any
amendment thereto) or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto). The
foregoing indemnification with respect to any preliminary
prospectus shall not inure to the benefit of any
International Underwriter, or any person who controls a
International Underwriter within the meaning of Section 15
of the 1933 Act, from whom the person asserting any such
losses, claims, damages or liabilities purchased
International Securities if a copy of the International
Prospectus (as then amended or supplemented if the Company
shall have furnished to the International Underwriters for
their use any amendments or supplements thereto) was not
sent or given by or on behalf of such International
Underwriter to such person, if such is required by law, at
or prior to
-36-
the written confirmation of the sale of such
International Securities to such person and to the extent
that delivery of the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to
such loss, claim, damage or liability.
(b) Each International Underwriter severally agrees
to indemnify and hold harmless the Company, its directors, each
of its officers who signed the Registration Statement, each
Selling Stockholder, and each person, if any, who controls the
Company or a Selling Stockholder within the meaning of Section
15 of the 1933 Act against any and all loss, liability, claim,
damage and expense described in the indemnity contained in
subsection (a) of this Section, as incurred, but only with
respect to untrue statements or omissions, or alleged untrue
statements or omissions, made in the Registration Statement (or
any amendment thereto) or any preliminary prospectuses or the
Prospectuses (or any amendment or supplement thereto) in
reliance upon and in conformity with written information
furnished to the Company by such International Underwriter
through Merrill Lynch expressly for use in the Registration
Statement (or any amendment thereto) or such preliminary
prospectuses or the Prospectuses (or any amendment or
supplement thereto).
(c) Each Selling Stockholder severally, and not
jointly, agrees to indemnify and hold harmless each
International Underwriter, the Company, its directors and each
of its officers who signed the Registration Statement, and each
other Selling Stockholder, and each person, if any, who
controls any of the foregoing within the meaning of Section 15
of the 1933 Act, against any and all loss, liability, claim,
damage and expense described in the indemnity contained in
Section 6(a), as incurred, but only with respect to untrue
statements or omissions, or alleged untrue statements or
omissions, made in the Registration Statement (or any amendment
thereto), or any preliminary prospectus or the Prospectus (or
any supplement thereto) in reliance upon and in conformity with
public documents, or oral or written information pertaining to
such Selling Stockholder furnished to the Company by or on
behalf of such Selling Stockholder expressly for use in the
Registration Statement (or any amendment thereto), or any
preliminary prospectus or the Prospectus (or any amendment or
supplement thereto); provided, however, that each Selling
Stockholder's maximum aggregate liability under this Section
6(c) [and for any breach of the representations and warranties
of such Selling Stockholder set forth in Section 1(b)(i) of
this Agreement (together with any liability of such Selling
Stockholder for
-37-
any breach or alleged breach of the representations and
warranties of such Selling Stockholder set forth in
Section 1(b)(i) of the U.S. Purchase Agreement)] shall
be limited to the aggregate amount of the net proceeds (after
deducting the Underwriters' discount but before deducting
expenses) received by such Selling Stockholder from the sale of
such Selling Stockholder's Securities pursuant to this
Agreement and the U.S. Purchase Agreement; provided, further,
that each Selling Stockholder agrees to indemnify and hold
harmless each International Underwriter, the Company, its
directors and each of its officers who signed the Registration
Statement, each other Selling Stockholder, and each person, if
any, who controls any of the foregoing within the meaning of
Section 15 of the 1933 Act, against any all loss, liability,
claim, damage and expense whatsoever, as incurred, arising out
of a breach or alleged breach of such Selling Stockholder's
representation and warranties set forth in Section 1(b)(i).
[In making a claim for indemnification under this
Section 6 or contribution under Section 7 in each case, with
respect to a breach or alleged breach by a Selling Shareholder
of its representation and warranty set forth in Section
1(b)(i), the indemnified parties may proceed against either
(i) both the Company (in respect of claims under Section 6(a)
or Section 7) and such Selling Stockholder or (ii) the Company
only, but may not proceed solely against such Selling
Stockholder. In the event that the indemnified parties are
entitled to seek indemnity or contribution hereunder against
any loss, liability, claim, damage and expense incurred with
respect to a final judgment from a trial court then, as a
precondition to any indemnified party obtaining indemnification
or contribution from a Selling Stockholder in respect of a
breach or alleged breach of its representation and warranty set
forth in Section 1(b)(i), the indemnified parties shall first
obtain a final judgment from a trial court that such
indemnified parties are entitled to indemnity or contribution
under this Agreement with respect to such loss, liability,
claim, damage or expense (the "Final Judgment") from the
Company (in respect of claims under Section 6(a) or Section 7)
and such Selling Stockholder and shall seek to satisfy such
Final Judgment in full from the Company by making a written
demand upon the Company for such satisfaction. Only in the
event such Final Judgment shall remain unsatisfied in whole or
in part 45 days following the date of receipt by the Company of
such demand shall any indemnified party have the right to take
action to satisfy such Final Judgment by making demand directly
on such Selling Stockholder (but only if and to the extent the
Company has not already satisfied
-38-
such Final Judgment, whether by settlement, release or
otherwise). The indemnified parties may exercise this
right to first seek to obtain payment from the Company
and thereafter obtain payment from a Selling Stockholder
without regard to the pursuit by any party of its
rights to the appeal of such Final Judgment. The indemnified
parties shall, however, be relieved of their obligation to
first obtain a Final Judgment, seek to obtain payment from the
Company with respect to such Final Judgment or, having sought
such payment, to wait such 45 days after failure by the Company
to immediately satisfy any such Final Judgment if (i) the
Company files a petition for relief under the United States
Bankruptcy Code (the "Bankruptcy Code"), (ii) an order for
relief is entered against the Company in an involuntary case
under the Bankruptcy Code, (iii) the Company makes an
assignment for the benefit of its creditors or (iv) any court
orders or approves the appointment of a receiver or custodian
for the Company or a substantial portion of its assets. The
foregoing provisions of this paragraph are not intended to
require any indemnified party to obtain a Final Judgment
against the Company or a Selling Stockholder before obtaining
reimbursement of expenses pursuant to clause (a)(i), (a)(ii) or
(c) of this Section 6. However, the indemnified parties shall
first seek to obtain such reimbursement in full from the
Company by making a written demand upon the Company for such
reimbursement. Only in the event such expenses shall remain
unreimbursed in whole or in part 45 days following the date of
receipt by the Company of such demand shall any indemnified
party have the right to receive reimbursement of such expenses
from a Selling Stockholder by making written demand directly on
a Selling Stockholder (but only if and to the extent the
Company has not already satisfied the demand for reimbursement,
whether by settlement, release or otherwise). The indemnified
parties shall, however, be relieved of their obligation to
first seek to obtain such reimbursement in full from the
Company or, having made written demand therefor, to wait such
45 days after failure by the Company to immediately reimburse
such expenses if (i) the Company files a petition for relief
under the Bankruptcy Code, (ii) an order for relief is entered
against the Company in an involuntary case under the Bankruptcy
Code, (iii) the Company makes an assignment for the benefit of
its creditors or (iv) any court orders or approves the
appointment of a receiver or custodian for the Company or a
substantial portion of its assets.]
(d) Each indemnified party shall give prompt notice
to each indemnifying party of any action commenced against it
in respect of which indemnity or contribution may be sought
-39-
hereunder, but failure to so notify an indemnifying party shall
not relieve it from any liability which it may have otherwise
than on account of this indemnity agreement. An indemnifying
party may participate at its own expense in the defense of such
action. If it so elects within a reasonable time after receipt
of such notice, an indemnifying party, jointly with any other
indemnifying parties receiving such notice, may assume the
defense of such action with counsel chosen by it and approved
by the indemnified parties defendant in such action, unless
such indemnified parties reasonably object to such assumption
on the ground that there may be legal defenses available to
them which are different from or in addition to those available
to such indemnifying party. If an indemnifying party assumes
the defense of such action, the indemnifying parties shall not
be liable for any fees and expenses of counsel for the
indemnified parties incurred thereafter in connection with such
action. In no event shall the indemnifying party be liable for
the fees and expenses of more than one counsel (separate from
its own counsel) for each of the U.S. Underwriters, the Company
and the Selling Stockholders, as applicable, in connection with
any one action or separate but similar or related actions in
the same jurisdiction arising out of the same general
allegations or circumstances.
SECTION 7. Contribution. In order to provide for
just and equitable contribution in circumstances in which the
indemnity agreement provided for in Section 6 hereof is for any
reason held to be unenforceable by the indemnified parties
although applicable in accordance with its terms, the Company,
the International Underwriters and the Selling Stockholders
shall contribute to the aggregate losses, liabilities, claims,
damages and expenses of the nature contemplated by said
indemnity agreement incurred by the Company, the Selling
Stockholders and one or more of the International Underwriters,
in such proportion that the International Underwriters are
responsible for that portion represented by the percentage that
the underwriting discount appearing on the cover page of the
Prospectus bears to the public offering price appearing thereon
and the Company and the Selling Stockholders are responsible
for the balance; provided, however, that each Selling
Stockholder shall only be responsible in an amount equal to
that portion of the balance that is in the same proportion to
such balance as the net proceeds to such Selling Stockholder
bears to the net proceeds of the offerings, up to an amount
equal to the net proceeds realized by such Selling Stockholder;
provided, further, that no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
1933 Act) shall be entitled
-40-
to contribution from any person who was not guilty of
such fraudulent misrepresentation; and provided, further,
that the contribution provisions of this Section 7
shall not inure to the benefit of any U.S. Underwriter
to the extent that the aggregate losses, liabilities,
claims, damages and expenses result from the circumstances
described in the first proviso in Section 6(a) (ii).
For purposes of this Section, each person, if any, who
controls an International Underwriter within the meaning of
Section 15 of the 1933 Act shall have the same rights to
contribution as such International Underwriter, and each
director of the Company, each officer of the Company who signed
the Registration Statement, and each person, if any, who
controls the Company or any Selling Stockholder within the
meaning of Section 15 of the 1933 Act shall have the same
rights to contribution as the Company or such Selling
Stockholder, as the case may be. No party shall be liable for
contribution with respect to any action, suit, proceeding or
claim settled without its written consent.
SECTION 8. Representations, Warranties and
Agreements to Survive Delivery. All representations,
warranties and agreements contained in this Agreement and the
International Pricing Agreement, or contained in certificates
of officers of the Company submitted pursuant hereto, shall
remain operative and in full force and effect, regardless of
any investigation made by or on behalf of any International
Underwriter or controlling person, or by or on behalf of the
Company, and shall survive delivery of the International
Securities to the International Underwriters.
SECTION 9. Termination of Agreement.
(a) The Lead Managers may terminate this Agreement,
by notice to the Company and each Selling Stockholder, at any
time at or prior to Closing Time (i) if there has been, since
the date of this Agreement or since the respective dates as of
which information is given in the Registration Statement,
except as stated therein, any Material Adverse Change or any
development resulting in a prospective Material Adverse Change
or (ii) if there has occurred any material adverse change in,
the financial markets in the United States or elsewhere or any
outbreak of hostilities or escalation thereof or other calamity
or crisis the effect of which is such as to make it, in the
judgment of the Lead Managers, impracticable to market the
International Securities or to enforce contracts for the sale
of the International Securities, or (iii) if trading in the
Common Stock has been suspended by the Commission, or if
-41-
trading generally on either the American Stock Exchange or the
New York Stock Exchange has been suspended, or minimum or
maximum prices for trading have been fixed, or maximum ranges
for prices for securities have been required, by either of said
exchanges or by order of the Commission or any other
governmental authority, or if a banking moratorium has been
declared by either Federal, New York or Texas authorities.
(b) If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any
party to any other party except as provided in Section 4
hereof. Notwithstanding any such termination, the provisions
of Sections 6 and 7 shall remain in effect.
SECTION 10. Default by One or More of the
International Underwriters. If one or more of the
International Underwriters shall fail at Closing Time to
purchase the International Securities which it or they are
obligated to purchase under this Agreement and the
International Pricing Agreement (the "Defaulted Securities"),
the Lead Managers shall have the right, within 24 hours
thereafter, to make arrangements for one or more of the non-
defaulting International Underwriters, or any other
underwriters, to purchase all, but not less than all, of the
Defaulted Securities in such amounts as may be agreed upon and
upon the terms herein set forth; if, however, the Lead Managers
shall not have completed such arrangements within such 24-hour
period, then:
(a) if the number of Defaulted Securities does not
exceed 10% of the number of International Securities, each
of the non-defaulting International Underwriters shall be
obligated, severally and not jointly, to purchase the full
amount thereof in the proportions that their respective
underwriting obligations hereunder bear to the
underwriting obligations of all non-defaulting
International Underwriters, or
(b) if the number of Defaulted Securities exceeds
10% of the number of International Securities, this
Agreement shall terminate without liability on the part of
any non-defaulting International Underwriter.
No action taken pursuant to this Section shall
relieve any defaulting Underwriter from liability in respect of
its default.
-42-
In the event of any such default which does not
result in a termination of this Agreement, either the Lead
Managers or the Company or the Selling Stockholders acting
unanimously shall have the right to postpone Closing Time for a
period not exceeding seven days in order to effect any required
changes in the Registration Statement or Prospectuses or in any
other documents or arrangements.
SECTION 11. Notices. All notices and other
communications hereunder shall be in writing and shall be
deemed to have been duly given if mailed or transmitted by any
standard form of telecommunication. Notices to the
International Underwriters shall be directed to the Lead
Managers at Merrill Lynch International, Ropemaker Place, 25
Ropemaker Street, London EC 2Y 9LY, attention of Equity
Syndicate; notices to the Company shall be directed to it at
2929 Allen Parkway, Suite 2010, Houston, Texas 77019-4607,
attention of Chief Financial Officer, with a copy to the
attention of General Counsel, and notices to each Selling
Stockholder shall be directed to it at the address set forth in
Schedule B hereto.
SECTION 12. Information Supplied by the U.S.
Underwriters. The Statements set forth in the last paragraph
on the front cover page and under the heading "Underwriting" in
the U.S. Prospectus, the International Prospectus or the
Registration Statement (to the extent such statements relate to
the Underwriters) constitute the only information furnished by
Merrill Lynch to the Company for the purposes of Sections 1 and
6 hereof.
SECTION 13. Parties. This Agreement, the
International Pricing Agreement, the U.S. Purchase Agreement
and the U.S. Pricing Agreement shall each inure to the benefit
of and be binding upon the Underwriters, the Company and the
Selling Stockholders and their respective successors. Nothing
expressed or mentioned in this Agreement, the International
Pricing Agreement, the U.S. Purchase Agreement and the U.S.
Pricing Agreement is intended or shall be construed to give any
person, firm or corporation, other than the Underwriters, the
Company and the Selling Stockholders and their respective
successors and the controlling persons and officers and
directors referred to in Sections 6 and 7 and their heirs and
legal representatives, any legal or equitable right, remedy or
claim under or in respect of this Agreement, the International
Pricing Agreement, the U.S. Purchase Agreement and the U.S.
Pricing Agreement or any provision herein or therein contained.
This Agreement, the International Pricing Agreement, the U.S.
-43-
Purchase Agreement and the U.S. Pricing Agreement and all
conditions and provisions hereof and thereof are intended to be
for the sole and exclusive benefit of the Underwriters, the
Company and the Selling Stockholders and their respective
successors, and said controlling persons and officers and
directors and their heirs and legal representatives, and for
the benefit of no other person, firm or corporation. No
purchaser of Securities from any Underwriter shall be deemed to
be a successor by reason merely of such purchase.
SECTION 14. Governing Law and Time. This Agreement
and the International Pricing Agreement shall be governed by
and construed in accordance with the laws of the State of New
York applicable to agreements made and to be performed in said
State. Specified times of day refer to New York City time.
-44-
If the foregoing is in accordance with your
understanding of our agreement, please sign and return to the
Company a counterpart hereof, whereupon this instrument, along
with all counterparts, will become a binding agreement among
the Underwriters, the Selling Stockholders and the Company in
accordance with its terms.
Very truly yours,
CONTINENTAL AIRLINES, INC.
By: _______________________
Title:
-45-
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH INTERNATIONAL
GOLDMAN SACHS INTERNATIONAL
LEHMAN BROTHERS INTERNATIONAL (EUROPE)
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
By: MERRILL LYNCH INTERNATIONAL
By: ________________________
Authorized Signatory
For themselves and as Lead Managers of the other International
Underwriters named in Schedule A to the International Pricing
Agreement.
[Selling Stockholders Counterpart Signature Page]
AIR CANADA
By: ____________________
Name:
Title:
[Selling Stockholders Counterpart Signature Page]
____________________________
DAVID BONDERMAN
BONDERMAN FAMILY LIMITED
PARTNERSHIP
By:_________________________
Name: David Bonderman,
as General Partner
1992 AIR, INC.
By:_________________________
Name: David Bonderman
Title:
AIR II GENERAL, INC.
By:_________________________
Name: David Bonderman
Title:
BONDO AIR, L.P.
By: 1992 AIR, INC
By:_________________________
Name: David Bonderman
Title:
[Selling Stockholders Counterpart Signature Page]
AMERICAN GENERAL CORPORATION
By:_________________________
Name:
Title:
[Selling Stockholders Counterpart Signature Page]
SUNAMERICA INC.
By:_________________________
Name:
Title:
[Selling Stockholders Counterpart Signature Page]
____________________________
ELI BROAD
[Selling Stockholders Counterpart Signature Page]
ESTATE OF LARRY L. HILLBLOM
DHL MANAGEMENT, INC.
DONALD STURM
CONAIR LIMITED PARTNERS, L.P.
AIR SAIPAN, INC.
By:__________________________
Name:
Title: Attorney-in-Fact
854,203 Shares
CONTINENTAL AIRLINES, INC.
(a Delaware corporation)
Class B Common Stock
(Par Value $.01 Per Share)
INTERNATIONAL PRICING AGREEMENT
London, England
May __, 1996
MERRILL LYNCH INTERNATIONAL
GOLDMAN SACHS INTERNATIONAL
LEHMAN BROTHERS INTERNATIONAL (EUROPE)
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
as Representatives of the several
International Underwriters
c/o MERRILL LYNCH INTERNATIONAL
Ropemaker Place
25 Ropemaker Street
London EC 2Y 9LY
Dear Sirs:
Reference is made to the International Purchase
Agreement dated May __, 1996 (the "International Purchase
Agreement") relating to the purchase by the several
International Underwriters named in Schedule A hereto, for whom
Merrill Lynch International, Goldman Sachs International,
Lehman Brothers International (Europe) and Morgan Stanley & Co.
International Limited are acting as representatives (the "Lead
Managers"), of the above shares of Class B Common Stock (the
"Securities") of Continental Airlines, Inc., a Delaware
corporation (the "Company"), to be sold by certain stockholders
named in Schedule B thereto (the "Selling Stockholders").
Capitalized terms used herein have the meanings provided in the
International Purchase Agreement.
-2-
Pursuant to Section 2 of the International Purchase
Agreement, the Company, Air Canada and the Selling
Stockholders, severally and not jointly, agree with each
International Underwriter as follows:
1. The initial public offering price per share for
the International Securities, determined as provided in
said Section 2, shall be $ .
2. The purchase price per share for the
International Securities to be paid by the several
International Underwriters shall be $ , being an
amount equal to the public offering price set forth above
less $ per share.
3. The number of shares to be sold by the Selling
Stockholders, as determined by whether the initial public
offering price per share set forth in paragraph 1 above is
equal to or greater than the designated minimum initial
public offering price per share as set forth on Schedule B
of the Purchase Agreement, is as follows:
Number of Shares of Class B
Name of Selling Stockholder Common Stock to be Sold
--------------------------- ---------------------------
-3-
If the foregoing is in accordance with your
understanding of our agreement, please sign and return to the
Company a counterpart hereof, whereupon this instrument, along
with all counterparts, will become a binding agreement among
the International Underwriters, the Selling Stockholders and
the Company in accordance with its terms.
Very truly yours,
CONTINENTAL AIRLINES, INC.
By: _______________________
Name:
Title:
-4-
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH INTERNATIONAL
GOLDMAN SACHS INTERNATIONAL
LEHMAN BROTHERS INTERNATIONAL (EUROPE)
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
By: MERRILL LYNCH INTERNATIONAL
By: _____________ _________
Authorized Signatory
For themselves and as Representatives of the other
International Underwriters named in the International Purchase
Agreement.
-5-
[Selling Stockholders Counterpart Signature Page]
AIR CANADA
By: ______________________
Name:
Title:
[Selling Stockholders Counterpart Signature Page]
____________________________
DAVID BONDERMAN
BONDERMAN FAMILY LIMITED
PARTNERSHIP
By:_________________________
Name: David Bonderman,
as General Partner
1992 AIR, INC.
By:_________________________
Name: David Bonderman
Title:
AIR II GENERAL, INC.
By:_________________________
Name: David Bonderman
Title:
BONDO AIR, L.P.
By: 1992 AIR, INC
By:_________________________
Name: David Bonderman
Title:
[Selling Stockholders Counterpart Signature Page]
AMERICAN GENERAL CORPORATION
By:_________________________
Name:
Title:
[Selling Stockholders Counterpart Signature Page]
SUNAMERICA INC.
By:_________________________
Name:
Title:
[Selling Stockholders Counterpart Signature Page]
____________________________
ELI BROAD
[Selling Stockholders Counterpart Signature Page]
ESTATE OF LARRY L. HILLBLOM
DHL MANAGEMENT, INC.
DONALD STURM
CONAIR LIMITED PARTNERS, L.P.
AIR SAIPAN, INC.
By:__________________________
Name:
Title: Attorney-in-Fact
SCHEDULE A
Number
Name of International Underwriter of Securities
Merrill Lynch International...........................
Goldman Sachs International...........................
Lehman Brothers International (Europe)................
Morgan Stanley & Co. International Limited............
SCHEDULE B
Number of Shares Minimum Initial
Name and Address of of Class B Common Public Offering
Selling Stockholder Stock to Be Sold Price Per Share
- ------------------- ----------------- ---------------
Air Canada 2,000,000 $
Air Canada Center
Montreal Int'l Airport (Dorval)
P.O. Box 14000
Postal Station, St. Laurent
Canada H4Y 1H4
American General Corporation 382,074
2929 Allen Parkway
Houston, TX 77019
David Bonderman 114,586
Bonderman Family Limited
Partnership 33,219
Estate of Larry L. Hillblom 319,800
c/o William I. Webster
Special Administrator for
the Estate of Larry Lee Hillblom
AAA-305,, Box 10001
Saipan, MP 96950
DHL Management, Inc. 322,970
DHL Airways, Inc.
333 Twin Dolphin Dr.
Redwood City, CA 94065
Attn: Bill Roure, Asst. Treas.
and Bill Smart, CFO
Sun America Inc. 143,152
SunAmerica Inc.
1 SunAmerica Center
Century City
Los Angeles, CA 90067-6022
Attn: Lynn Hopton (Corp. Finance)
-2-
Number of Shares Minimum Initial
Name and Address of of Class B Common Public Offering
Selling Stockholder Stock to Be Sold Price Per Share
- ------------------- ----------------- ---------------
Eli Broad 66,488
c/o SunAmerica Inc.
1 SunAmerica Center
Century City
Los Angeles, CA 90067-6022
Attn: Jay S. Wintrob and
Cindy Qunne
Donald Sturm 120,000
Conair, L.P. 38,282
Bondo Air, L.P. 412,499
Air Saipan, Inc. 10,086
1992 Air, Inc. 305,456
Air II General, Inc. 2,403
Draft: 4/23/96
April 26, 1996
Continental Airlines, Inc.
2929 Allen Parkway, Suite 2010
Houston, Texas 77019
Ladies and Gentlemen:
I am Senior Vice President, General Counsel and Secretary of
Continental Airlines, Inc., a Delaware corporation (the "Company"). You have
requested my opinion in my capacity as General Counsel in connection with the
Company's Registration Statement (File No. 333-02701) on Form S-3 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Act") which has been filed with the Securities and Exchange Commission.
The Registration Statement relates to the offering of up to 4,471,015
shares (the "Shares") of the Company's Class B common stock, $.01 par value, by
Air Canada, a Canadian corporation and by certain partners of Air Partners,
L.P., a Texas limited partnership (collectively, the "Selling Stockholders").
It is my opinion that the Shares to be sold by the Selling
Stockholders are duly authorized by all necessary corporate action on the part
of the Company and are validly issued, fully paid and nonassessable.
In rendering the foregoing opinion, I have examined such records and
documents and made such examination of law as I have deemed relevant.
The opinion expressed herein is rendered solely for the benefit of the
Company in connection with the transaction described herein. This opinion may
not be used or relied upon by any other person, nor may this letter or any copy
thereof be furnished to a third party, filed with a governmental agency, quoted,
cited or otherwise referred to without my prior written consent.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to me under the caption "Legal
Matters" therein. In so doing, I
Continental Airlines, Inc., p. 2
do not admit that I am in the category of persons whose consent is required
under Section 7 of the Act or the rules and regulations thereunder.
Very truly yours,
/s/ Jeffery A. Smisek
Execution Copy
WARRANT PURCHASE AGREEMENT
WARRANT PURCHASE AGREEMENT, dated as of May 2, 1996 (the "Agreement"),
---------
by and between Continental Airlines, Inc., a Delaware corporation
("Continental") and Air Partners, L.P., a Texas limited partnership ("Air
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Partners").
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W I T N E S S E T H
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WHEREAS, pursuant to the Stockholders' Agreement, the Investment
Agreement and the Warrant Agreement (each as hereinafter defined), Continental
issued to Air Partners warrants to purchase up to an aggregate of 2,557,600
shares of Class B common stock, par value $.01 per share, of Continental ("Class
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B Common Stock") at an initial exercise price of $15.00 per share and up to an
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aggregate of 825,032 shares of Class B Common Stock at an initial exercise price
of $30.00 per share (collectively, the "Warrants");
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WHEREAS, pursuant to the Amendment to Subscription and Stockholders'
Agreement (the "Stockholders Agreement Amendment"), dated as of April 19, 1996,
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between Continental, Air Partners and Air Canada, a Canadian corporation ("Air
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Canada"), Air Partners has agreed not to make certain transfers or acquisitions
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of Continental securities (including Warrants) prior to December 16, 1996;
WHEREAS, Air Partners desires to have the right to require Continental
to repurchase the Warrants, subject to certain specified limitations, and
Continental desires to repurchase such Warrants, all on the terms and subject to
the conditions as hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
and obligations hereinafter set forth, the parties hereto agree as follows:
1. Definitions
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The following terms used in the Agreement shall have the following
meanings (all terms defined in the singular have the correlative meanings when
used in the plural and vice versa).
"Act" shall mean the Securities Act of 1933, as amended, and the
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rules and regulations promulgated thereunder.
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"Agreement" shall mean this Agreement, as originally executed and as
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modified, amended or supplemented from time to time.
"Blackout Period" shall have the meaning specified in Section 2(b)
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hereof.
"Business Day" shall mean any day that is not a Saturday, Sunday or
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other day on which banking institutions in New York, New York are authorized or
required by law or executive order to close.
"Class B Common Stock" shall have the meaning set forth in the
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recitals hereto.
"Consent Fee" shall have the meaning specified in Section 5(a).
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"Exchange Act" shall mean the Securities Exchange Act of 1934, as
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amended, and the rules and regulations promulgated thereunder.
"Earnings Release Date" shall have the meaning specified in
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Section 2(b).
"GE" shall have the meaning specified in Section 5(a).
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"GE Expenses" shall mean the Consent Fee together with any other
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reasonable and documented out-of-pocket expenses incurred by Continental
(including reasonable fees and expenses of GE's counsel) in connection with the
actions taken by it pursuant to Section 5(a).
"Intrinsic Value" shall mean, on a per Warrant basis, the positive
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difference between the Market Price Per Share and the Warrant Price, each as
determined on the Notification Date.
"Investment Agreement" shall mean the Investment Agreement, dated as
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of November 9, 1992, as amended on January 13, 1993, among Air Partners, Air
Canada, Continental and Continental Holdings, Inc., as it may be further amended
from time to time.
"Loan Agreements" shall have the meaning specified in Section 5(a).
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"Market Price Per Share" shall mean the per share closing price,
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regular way, of Class B Common Stock on the NYSE on the Notification Date.
"Notification Date" shall mean the date on which a Repurchase Notice
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is delivered by Air Partners to Continental in accordance with Section 2(a).
"NYSE" shall mean the New York Stock Exchange, Inc.
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"Person" shall mean any natural person, corporation, division of a
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corporation, partnership, trust, joint venture association, limited liability
company, company, estate, unincorporated organization or governmental entity.
"Preliminary Repurchase Notification" shall have the meaning set
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forth in Section 2(a).
"Put Date" shall mean the date which is the third Business Day
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following the Notification Date.
"Repurchase Notice" shall mean a written notice delivered to
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Continental by Air Partners specifying (i) that Air Partners is electing to
exercise its put right in accordance with this Agreement, (ii) the number of
Warrants Air Partners desires Continental to repurchase, (iii) the account or
accounts to which the Repurchase Price should be paid and (iv) that Air Partners
has all authority, consents and approvals necessary to sell the Warrants
specified in such notice.
"Repurchase Price" shall mean the Intrinsic Value multiplied by the
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number of Warrants to be repurchased by Continental as set forth in the
Repurchase Notice.
"Stockholders' Agreement" shall mean the Subscription and
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Stockholders' Agreement, dated as of April 27, 1993, among Continental, Air
Partners and Air Canada.
"Stockholders Agreement Amendment" shall have the meaning specified
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in the recitals hereto.
"Warrant Agreement" shall mean the Warrant Agreement, dated as of
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April 27, 1993, between Continental in its corporate capacity and Continental in
its capacity as warrant agent.
"Warrant Price" shall have the meaning specified in the Warrant
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Agreement and shall be subject to adjustment from time to time in accordance
with Article IV thereof.
"Warrants" shall have the meaning specified in the recitals hereto.
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2. Repurchase of Warrants
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(a) In the event Air Partners desires to sell its Warrants to Continental
pursuant to the terms hereof (i) it shall use good faith efforts to provide
(including by telephone) to Continental's Chief Financial Officer or General
Counsel, not later than 1 P.M. Eastern Time on the date of such intended sale,
preliminary advance notice (a "Preliminary Repurchase Notification") of its
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intention to exercise its put right hereunder and (ii) shall deliver to
Continental at its principal office not later than 7 P.M. Eastern Time on the
date of such intended sale, a Repurchase Notice confirming (or, if a Preliminary
Repurchase Notification was not delivered pursuant to clause (i) of this Section
2(a), notifying Continental of) the exercise by Air Partners of its put right
hereunder, provided, that (x) the delivery of a Preliminary Repurchase
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Notification alone shall in no way obligate Air Partners to sell Warrants to
Continental pursuant to the terms of this Agreement and (y) the failure to
provide a Preliminary Repurchase Notification shall not preclude the delivery by
Air Partners of a valid Repurchase Notice.
(b) Upon its receipt of a Repurchase Notice, Continental shall, upon the
terms and subject to the conditions of this Agreement, be required to repurchase
each Warrant specified in the Repurchase Notice at its Intrinsic Value, provided
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that (i) in no event shall Continental be required to repurchase during the term
hereof Warrants with an aggregate Intrinsic Value of more than $50 million and
(ii) Continental may, at its option, determine not to repurchase Warrants
specified in any Repurchase Notice delivered by Air Partners during any five-
Business Day period (the "Blackout Period") commencing on the Business Day
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following the date on which Continental releases quarterly and annual earnings
reports (such date of release, the "Earnings Release Date") if Continental has
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notified Air Partners at least two Business Days prior to the relevant Earnings
Release Date of its determination not to repurchase Warrants during the Blackout
Period.
(c) Continental agrees that at any time after December 16, 1996, upon the
written request of Air Partners, and provided Air Partners has complied with its
obligations set forth in Section 12 of the Stockholders Agreement Amendment, it
will agree to amend the terms of the Warrants and, to the extent necessary, the
Warrant Agreement, to permit the "cashless exercise" of the Warrants, it being
understood that a "cashless exercise" represents the exercise of Warrants by Air
Partners, and the corresponding delivery by Air Partners to Continental of
Warrants with an aggregate Intrinsic Value equal to the aggregate Warrant Price
of the Warrants so exercised, in consideration therefor. The parties agree that
the aforementioned method of "cashless exercise" may be modified (including,
without limitation, to permit the transfer by Air Partners of shares of Class B
Common Stock in payment of the exercise price of the Warrants so exercised) to
the extent deemed necessary by Air Partners to
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avoid adverse consequences to Air Partners under Section 16 of the Exchange Act
that may arise in connection with any "cashless exercise."
3. Method of Repurchase. Upon the terms and subject to the
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conditions of this Agreement, at 11:00 a.m. (Eastern Standard Time) on any Put
Date with respect to which Continental has received a Repurchase Notice, at the
principal offices of Continental, or at such other time or place as Continental
and Air Partners may agree (a) Air Partners shall transfer to Continental full
right, title and interest in and to the Warrants specified in its' Repurchase
Notice, free and clear of any and all mortgages, liens, pledges, charges,
security interests, encumbrances or adverse claims of any kind and nature in
respect of such Warrants, and shall deliver to Continental a certificate or
certificates representing such Warrants, in each case duly endorsed for transfer
or accompanied by appropriate stock transfer powers duly endorsed; and (b)
Continental shall pay to Air Partners, in full payment of the Warrants specified
in the Repurchase Notice, an amount equal to the Repurchase Price, less, except
as otherwise provided in Section 5(a), any GE Expenses incurred by Continental
pursuant to Section 5(a), by wire transfer of immediately available funds to the
account or accounts specified in the Repurchase Notice.
4. Certain Conditions to Repurchase. Continental's obligation to
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repurchase any Warrants pursuant to Section 3 hereof shall be subject to the
satisfaction, or the written waiver by Continental, of the following conditions:
(i) the repurchase of Warrants shall not contravene any law, rule, order, rule,
regulation or ordinance of any federal, state or local government or regulatory
authority, including the Act or the Exchange Act, (ii) no preliminary or
permanent injunction or other order against the repurchase of Warrants issued by
any federal, state or other court of competent jurisdiction within or without
the United States shall be in effect and (iii) Air Partners has, prior to the
Put Date, complied with its obligations set forth in Section 12 of the
Stockholders Agreement Amendment.
5. Additional Obligations of Continental.
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(a) In order to comply with its obligations hereunder, and for so long as
the Series B-1 Loan Agreement or the Series B-2 Loan Agreement, each as amended
(the "Loan Agreements") between Continental and Global Project & Structured
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Finance Corporation remain in full force and effect, Continental agrees to take
any and all actions necessary to obtain from Global Project & Structured Finance
Corporation or its affiliates ("GE") the consents to the transactions
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contemplated by Section 3 hereof required pursuant to the terms of such Loan
Agreements, including paying any amount to GE in exchange for such consent (the
"Consent Fee"), provided, that the portion of the GE Expenses allocated to the
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Consent Fee shall not be deducted as specified in Section 3(b) hereof unless
Continental shall have obtained the written consent of Air Partners prior to the
payment of any Consent Fee to GE.
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(b) Notwithstanding anything to the contrary contained in paragraph (a) of
this Section 5, Continental shall use its best efforts to (i) refinance, prior
to June 30, 1996, its remaining obligations under the Loan Agreements on the
same or better terms to Continental so as to permit the transactions
contemplated by Section 3 hereof and (ii) obtain any consent required from GE in
connection with the performance of its obligations hereunder without paying a
Consent Fee; provided, that Continental shall have no obligation to purchase
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Warrants under this Agreement if Continental has complied with this Section 5(b)
and Air Partners does not consent to the payment of any applicable Consent Fee
to GE.
6. Term and Termination. Unless earlier terminated by written
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agreement of the parties hereto, this Agreement shall be effective for a period
of one year commencing August 15, 1996, provided, however, that (i) the
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obligations of Continental set forth in Section 5(b)(i) shall be in full force
and effect as of the date hereof and (ii) the obligations of the parties hereto
set forth in Section 2(c) shall continue in full force and effect until April
27, 1998.
7. Assignment.
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(a) This Agreement and all of the provisions hereof shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns; provided, however, that, except as set forth in paragraph
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(b) of this Section 7, neither this Agreement nor any of the rights or
obligations hereunder shall be assigned by either party hereto without the prior
written consent of the other party.
(b) Notwithstanding the foregoing, Air Partners may, at any time and from
time to time, transfer Warrants to its partners and, in connection therewith,
may assign the rights associated with such Warrants under Section 2(c) hereof to
such partners.
8. Amendment; Severability. This Agreement may be altered or
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amended only with the written consent of each of the parties. If any provision
of this Agreement shall be held to be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions hereof shall
not be affected or impaired thereby.
9. Notices.
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(a) Except for the Preliminary Repurchase Notification, all notices,
requests, documents or other communications required or permitted hereunder
shall be in writing and shall be delivered (i) by personal delivery or (ii) by
sending a facsimile transmission of a copy of such writing, addressed as
follows:
if to Continental:
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Continental Airlines, Inc.
Suite 2010
2929 Allen Parkway
Houston, Texas 77019
Attention: Chief Financial Officer and General Counsel
Fax: (713) 523-2831
if to Air Partners:
Air Partners, L.P.
201 Main Street, Suite 2420
Fort Worth, Texas 76102
Attn.: James G. Coulter
Fax: (817) 871-4010
(b) Each party by written notice given to the other party in
accordance with this Section 9 may change the name or address to which notices,
requests, documents or other communications are to be sent to such party. All
notices, requests, documents or other communications hereunder shall be deemed
to have been given (i) upon actual delivery when given by personal delivery or
(ii) upon receipt of facsimile confirmation when delivered by facsimile
transmission.
10. Complete Agreement; Counterparts. This Agreement constitutes the
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entire agreement among the parties hereto relating to the subject matter hereof,
and all prior agreements and understandings, written or oral, with respect
thereto are superseded. This Agreement may be executed by the parties in any
number of counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one and the same instrument.
11. Headings. The section headings herein are for convenience of
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reference only and in no way define, limit or extend the scope or intent of this
Agreement or any provisions hereof.
12. Choice of Law; Submission to Jurisdiction.
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(a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
(b) Each of the parties hereto irrevocably consents and submits (i) to
the exclusive jurisdiction of the State and Federal courts located in the County
of New York in
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the State of New York in connection with any suits, actions or other proceedings
arising between or among such parties under this Agreement and (ii) to the
laying of venue in any such court in any such suit, action or proceeding. Each
of such parties irrevocably agrees that such suits, actions or proceedings may
only be commenced or prosecuted in such courts, and each irrevocably waives any
claim that any such court constitutes an inconvenient forum for the prosecution
of such suit, action or proceeding. Each of the parties irrevocably agrees not
to seek the transfer to any court located outside the County of New York of any
such suit, action or proceeding.
13. Third-Party Rights. Except as specifically provided herein,
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this Agreement is not intended to confer any benefits upon, or create any rights
in favor of, any Person other than the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
CONTINENTAL AIRLINES, INC.
By:____________________________
Name:
Title:
AIR PARTNERS, L.P.
By: 1992 Air GP, as General Partner
By: 1992 Air, Inc., as General Partner
By:__________________________
Name:
Title:
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