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PROSPECTUS
Continental Airlines, Inc.
Offer to Exchange its 10.22% Series B Senior Unsecured
Sinking Fund Notes due July 1, 2000,
which have been registered under the
Securities Act of 1933, as amended,
for any and all of its outstanding
10.22% Series A Senior Unsecured Sinking Fund Notes
due July 1, 2000
The Exchange Offer will expire at 5:00 p.m., New York City
time, on June 24, 1996, unless extended.
Continental Airlines, Inc., a Delaware corporation (the
"Company" or "Continental"), hereby offers, upon the terms and
subject to the conditions set forth in this Prospectus and the
accompanying letter of transmittal (the "Letter of Transmittal"
and, together with this Prospectus, the "Exchange Offer"), to
exchange its 10.22% Series B Senior Unsecured Sinking Fund Notes
due July 1, 2000 (the "Series B Notes"), which have been
registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement of which
this Prospectus is a part, for an equal principal amount of its
outstanding 10.22% Series A Senior Unsecured Sinking Fund Notes
due July 1, 2000 (the "Series A Notes"), of which $65,046,762.06
aggregate principal amount is outstanding as of the date hereof.
The Series B Notes and the Series A Notes are collectively
referred to herein as the "Notes."
The Company will accept for exchange any and all Series A
Notes that are validly tendered and not withdrawn on or prior to
5:00 P.M., New York City time, on the date the Exchange Offer
expires, which will be June 24, 1996 (20 business days
following the commencement of the Exchange Offer) unless the
Exchange Offer is extended (such date, including as extended, the
"Expiration Date"). Tenders of Series A Notes may be withdrawn
at any time prior to 5:00 P.M., New York City time on the
Expiration Date. The Exchange Offer is not conditioned upon any
minimum principal amount of Series A Notes being tendered for
exchange. However, the Exchange Offer is subject to certain
customary conditions which may be waived by the Company and to
the terms of the Registration Rights Agreement (as defined
herein). See "The Exchange Offer-Conditions."
The Series B Notes will be entitled to the benefits of the
same Indenture (as defined herein) which governs the Series A
Notes and will govern the Series B Notes. The form and terms of
the Series B Notes are the same in all material respects as the
form and terms of the Series A Notes, except that the Series B
Notes do not contain terms with respect to Liquidated Damages (as
defined herein) and the Series B Notes have been registered under
the Securities Act and therefore will not bear legends
restricting the transfer thereof. See "The Exchange Offer" and
"Description of Series B Notes."
The Series B Notes will mature on July 1, 2000 and will be
limited to $65,046,762.06 in aggregate principal amount. The
Series B Notes will be senior unsecured obligations of the
Company and will rank senior in right of payment to all existing
and future subordinated indebtedness of the Company. The Series
B Notes will rank pari passu in right of payment with all the
Company's senior indebtedness. The Series B Notes will be
effectively subordinated to all indebtedness of the Company's
Subsidiaries (as defined herein). The Indenture permits the
Company and its Restricted Subsidiaries (as defined herein) to
incur additional Debt (as defined herein) under certain
circumstances. See "Description of Series B Notes-Certain
Covenants."
The Series B Notes will bear interest at the rate of 10.22%
per annum, accruing from the last date on which such interest was
paid on the Series A Notes surrendered in exchange therefor.
Consequently, holders who exchange their Series A Notes for
Series B Notes will receive the same interest payment on the next
interest payment date that they would have received had they not
accepted the Exchange Offer. Interest on the Series B Notes is
payable quarterly on January 1, April 1, July 1 and October 1 of
each year. See "The Exchange Offer - Interest on Series B
Notes."
(continued on next page)
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FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
HOLDERS IN EVALUATING THE EXCHANGE OFFER, SEE "RISK FACTORS"
BEGINNING ON PAGE 10 OF THIS PROSPECTUS.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------
The date of this Prospectus is May 24, 1996
The Company may redeem the Notes, at its option on notice to
the holders of the Notes as provided in the Indenture, at any
time in whole or from time to time in part, otherwise than
through the operation of the Sinking Fund (as defined herein)
provided for therein, at a redemption price equal to 100% of the
aggregate principal amount of the Notes to be redeemed, plus
accrued and unpaid interest thereon to the date of redemption.
See "Description of Series B Notes--Optional Redemption."
On and after April 1, 1997, the Company is required to
redeem on January 1, April 1, July 1 and October 1 of each year,
a portion of the aggregate principal amount of the Notes as set
forth herein at a redemption price equal to 100% of the aggregate
principal amount of the Notes so redeemed, plus accrued and
unpaid interest to the redemption date. The principal amount of
Notes to be redeemed may at the option of the Company be reduced
in inverse order of maturity by an amount equal to the sum of (i)
the principal amount of Notes theretofore issued and acquired at
any time by the Company and delivered to the Trustee for
cancellation, and not theretofore made the basis for the
reduction of a Sinking Fund payment and (ii) the principal amount
of Notes at any time redeemed and paid pursuant to the optional
redemption provisions of the Notes or which shall at any time
have been duly called for redemption (otherwise than through
operation of the Sinking Fund) and the redemption price shall
have been deposited in trust for that purpose and which
theretofore have not been made the basis for the reduction of a
Sinking Fund Payment. "See Description of Series B Notes-Sinking
Fund."
Based on interpretations by the staff of the Securities and
Exchange Commission (the "Commission"), as set forth in no-action
letters issued to third parties, including Exxon Capital Holdings
Corporation, SEC No-Action Letter (available April 13, 1989) (the
"Exxon Capital Letter"), Morgan Stanley & Co. Incorporated, SEC
No-Action Letter (available June 5, 1991)(the "Morgan Stanley
Letter") and Shearman & Sterling, SEC No-Action Letter (available
July 2, 1993)(the "Shearman & Sterling Letter")(collectively,
the "Exchange Offer No-Action Letters"), the Company believes
that the Series B Notes issued pursuant to the Exchange Offer may be
offered for resale, resold or otherwise transferred by holders
thereof (other than a broker-dealer who acquires such Series B
Notes directly from the Company for resale pursuant to Rule 144A
under the Securities Act or any other available exemption under
the Securities Act or any holder that is an "affiliate" of the
Company as defined under Rule 405 of the Securities Act), without
compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such Series B
Notes are acquired in the ordinary course of such holders'
business and such holders are not engaged in, and do not intend
to engage in, a distribution of such Series B Notes and have no
arrangement with any person to participate in a distribution of
such Series B Notes. However, the staff of the Commission has
not considered the Exchange Offer in the context of a no-action
letter and there can be no assurance that the staff of the
Commission would make a similar determination with respect to the
Exchange Offer as in such other circumstances. By tendering the
Series A Notes in exchange for Series B Notes, each holder, other
than a broker-dealer, will represent to the Company that: (i) it
is not an affiliate of the Company (as defined under Rule 405 of
the Securities Act) nor a broker-dealer tendering Series A Notes
acquired directly from the Company for its own account; (ii) any
Series B Notes to be received by it will be acquired in the
ordinary course of its business; and (iii) it is not engaged in,
and does not intend to engage in, a distribution of such Series B
Notes and has no arrangement or understanding to participate in a
distribution of the Series B Notes. If a holder of Series A Notes
is engaged in or intends to engage in a distribution of the Series B
Notes or has any arrangement or understanding with respect to the
distribution of the Series B Notes to be acquired pursuant to the
Exchange Offer, such holder may not rely on the applicable interpre-
tations of the staff of the Commission and must comply with the
registration and prospectus delivery requirements of the Securities
Act in connection with any secondary resale transaction. Each
broker-dealer that receives Series B Notes for its own account
pursuant to the Exchange Offer (a "Participating Broker-Dealer") must
acknowledge that it will deliver a prospectus in connection with
any resale of such Series B Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a
Participating Broker-Dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act. The
Company is under no obligation to prepare a prospectus for use in
connection with any such resale. See "Plan of Distribution."
The Company will not receive any proceeds from this
offering. Pursuant to the Registration Rights Agreement, the
Company has agreed to pay the expenses of the Exchange Offer. No
underwriter is being utilized in connection with the Exchange
Offer.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE
COMPANY ACCEPT SURRENDERS FOR EXCHANGE FROM, HOLDERS OF SERIES A
NOTES IN ANY JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE
ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES
AND BLUE SKY LAWS OF SUCH JURISDICTION.
Prior to this Exchange Offer, there has been no public
market for the Series A Notes or the Series B Notes. If a market
for the Series B Notes should develop, the Series B Notes could
trade at prices higher or lower than their principal amount. The
Company does not intend to list the Series B Notes on a national
securities exchange or to apply for quotation of the Series B
Notes through any automated quotation system. There can be no
assurance that an active public market for the Series B Notes
will develop. See "Risk Factors-Risk Factors Relating to
Series B Notes-Absence of a Public Market for Series B Notes."
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 Commission. Such reports, proxy
statements and other information may be inspected and copied at
the following public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549; Seven World Trade Center, 13th Floor,
New York, New York 10048; and Citicorp Center, 500 West Madison
Street, Suite 1400, 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-4 (together with all amendments and exhibits,
the "Registration Statement") filed by Continental with the
Commission under the Securities Act with respect to the Series B
Notes offered hereby. This Prospectus omits certain of the
information contained in the Registration Statement, and
reference is hereby made to the Registration Statement for
further information with respect to Continental and Holdings and
the securities offered hereby. Although statements concerning and
summaries of certain documents are included herein, reference is
made to the copy of such document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission.
These documents may be inspected without charge at the office of
the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies may be obtained at fees and
charges prescribed by the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission (File No.
0-9781) are hereby incorporated by reference in this Prospectus:
(i) Continental's Annual Report on Form 10-K for the year ended
December 31, 1995 (as amended by Forms 10-K/A1 and 10-K/A2 filed
on March 8, 1996 and April 10, 1996, respectively), (ii)
Continental's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996, (iii) Continental's Current Reports on Form 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.
This prospectus incorporates documents by reference that are
not presented herein or delivered herewith. These documents are
available without charge to any person to whom a prospectus is
delivered, upon written or oral request of such person, from
Continental Airlines, Inc., 2929 Allen Parkway, Suite 2010,
Houston, Texas 77019, Attention: Secretary, telephone (713) 834-
2950. In order to ensure timely delivery of the documents, any
request should be made by June 17, 1996.
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.
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.
The Exchange Offer
Registration Rights
Agreement. . . . . . . . . . . The Series A Notes were issued
by the Company on September 29,
1995. In connection therewith,
the Company and the holders of
the Series A Notes entered into
the Registration Rights
Agreement providing, among
other things, for the Exchange
Offer. See "The Exchange
Offer."
The Exchange Offer . . . . . . Series B Notes are being
offered in exchange for an
equal aggregate principal
amount of Series A Notes. As
of the date hereof,
$65,046,762.06 aggregate
principal amount of Series A
Notes are outstanding.
Resale of Series B Notes . . . Based on interpretations by the
staff of the Commission, as set
forth in no-action letters issued
to third parties, including the
Exchange Offer No-Action Letters,
the Company believes that the
Series B Notes issued pursuant
to the Exchange Offer may be
offered for resale, resold or
otherwise transferred by
holders thereof (other than a
broker-dealer who acquires such
Series B Notes directly from
the Company for resale pursuant
to Rule 144A under the
Securities Act or any other
available exemption under the
Securities Act or any holder
that is an "affiliate" of the
Company as defined under Rule
405 of the Securities Act),
without compliance with the
registration and prospectus
delivery provisions of the
Securities Act, provided that
such Series B Notes are
acquired in the ordinary course
of such holders' business and
such holders are not engaged
in, and do not intend to engage
in, a distribution of such
Series B Notes and have no
arrangement with any person to
participate in a distribution
of such Series B Notes.
However, the staff of the
Commission has not considered
the Exchange Offer in the
context of a no-action letter
and there can be no assurance
that the staff of the
Commission would make a similar
determination with respect to
the Exchange Offer as in such
other circumstances. By
tendering the Series A Notes in
exchange for Series B Notes,
each holder, other than a
broker-dealer, will represent
to the Company that: (i) it is
not an affiliate of the Company
(as defined under Rule 405 of
the Securities Act) nor a
broker-dealer tendering Series
A Notes acquired directly from
the Company for its own
account; (ii) any Series B
Notes to be received by it will
be acquired in the ordinary
course of its business; and
(iii) it is not engaged in, and
does not intend to engage in, a
distribution of such Series B
Notes and has no arrangement or
understanding to participate in
a distribution of the Series B
Notes. If a holder of Series A
Notes is engaged in or intends
to engage in a distribution of
the Series B Notes or has any
arrangement or understanding
with respect to the distribution
of the Series B Notes to be
acquired pursuant to the Exchange
Offer, such holder may not rely
on the applicable interpretations
of the staff of the Commission
and must comply with the
registration and prospectus
delivery requirements of the
Securities Act in connection
with any secondary resale
transaction. Each Participating
Broker-Dealer that receives
Series B Notes for its own
account pursuant to the
Exchange Offer must acknowledge
that it will deliver a
prospectus in connection with
any resale of such Series B
Notes. The Letter of
Transmittal states that by so
acknowledging and by delivering
a prospectus, a Participating
Broker-Dealer will not be
deemed to admit that it is an
"underwriter" within the
meaning of the Securities Act.
The Company is under no
obligation to prepare a
prospectus for use in
connection with any such
resale. See "Plan of
Distribution." To comply with
the securities laws of certain
jurisdictions, it may be
necessary to qualify for sale
or register the Series B Notes
prior to offering or selling
such Series B Notes. The
Company has agreed, pursuant to
the Registration Rights
Agreement and subject to
certain specified limitations
therein, to register or qualify
the Series B Notes for offer or
sale under the securities or
"blue sky" laws of such
jurisdictions as may be
necessary to permit the holders
of Series B Notes to trade the
Series B Notes without any
restrictions or limitations
under the securities laws of
the several states of the
United States.
Consequences of Failure to
Exchange Series A Notes. . . . Upon consummation of the
Exchange Offer, subject to
certain exceptions, holders of
Series A Notes who do not
exchange their Series A Notes
for Series B Notes in the
Exchange Offer will no longer
be entitled to registration
rights and will not be able to
offer or sell their Series A
Notes, unless such Series A
Notes are subsequently
registered under the Securities
Act (which, subject to certain
limited exceptions, the Company
will have no obligation to do),
except pursuant to an exemption
from, or in a transaction not
subject to, the Securities Act
and applicable state securities
laws. See "Risk Factors-Risk
Factors Relating to Series B
Notes-Consequences of Failure
to Exchange" and "The Exchange
Offer-Terms of the Exchange
Offer."
Expiration Date. . . . . . . . 5:00 p.m., New York City time,
on June 24, 1996 (20
business days following the
commencement of the Exchange
Offer), unless the Exchange
Offer is extended, in which
case the term "Expiration Date"
means the latest date and time
to which the Exchange Offer is
extended.
Interest on Series B Notes . . The Series B Notes will bear
interest at the rate of 10.22%
per annum, accruing from the
last date on which such
interest was paid on the Series
A Notes surrendered in exchange
therefor. Consequently,
holders who exchange their
Series A Notes for Series B
Notes will receive the same
interest payment on the next
interest payment date that they
would have received had they
not accepted the Exchange
Offer. Interest on the Series
B Notes is payable quarterly on
January 1, April 1, July 1 and
October 1 of each year. See
"The Exchange Offer-Interest on
Series B Notes."
Conditions to the
Exchange Offer . . . . . . . . The Exchange Offer is not
conditioned upon any minimum
principal amount of Series A
Notes being tendered for
exchange. However, the
Exchange Offer is subject to
certain customary conditions
which may be waived by the
Company and to the terms of the
Registration Rights Agreement.
See "The Exchange Offer-
Conditions." Except for the
requirements of applicable
Federal and state securities
laws, there are no Federal or
state regulatory requirements
to be complied with or obtained
by the Company in connection
with the Exchange Offer.
Procedures for Tendering
Series A Notes . . . . . . . . Each holder of Series A Notes
wishing to accept the Exchange
Offer must complete, sign and
date the Letter of Transmittal,
or a facsimile thereof, in
accordance with the
instructions contained herein
and therein, and mail or
otherwise deliver such Letter
of Transmittal, or such
facsimile, together with the
Series A Notes to be exchanged
and any other required
documentation to the Exchange
Agent (as defined herein) at
the address set forth herein.
See "The Exchange Offer-
Procedures for Tendering."
Guaranteed Delivery
Procedures . . . . . . . . . . Holders of Series A Notes who
wish to tender their Series A
Notes and whose Series A Notes
are not immediately available
or who cannot deliver their
Series A Notes and a properly
completed Letter of Transmittal
or any other documents required
by the Letter of Transmittal to
the Exchange Agent prior to the
Expiration Date may tender
their Series A Notes according
to the guaranteed delivery
procedures set forth in "The
Exchange Offer-Guaranteed
Delivery Procedures."
Withdrawal Rights. . . . . . . Tenders of Series A Notes may
be withdrawn at any time prior
to 5:00 p.m., New York City
time, on the Expiration Date.
To withdraw a tender of Series
A Notes, a written or facsimile
transmission notice of
withdrawal must be received by
the Exchange Agent at its
address set forth herein under
"The Exchange Offer-Exchange
Agent" prior to 5:00 p.m., New
York City time, on the
Expiration Date.
Acceptance of Series A
Notes and Delivery of
Series B Notes . . . . . . . . Subject to certain conditions,
the Company will accept for
exchange any and all Series A
Notes which are properly
tendered in the Exchange Offer
prior to 5:00 p.m., New York
City time, on the Expiration
Date. The Series B Notes
issued pursuant to the Exchange
Offer will be delivered
promptly following the
Expiration Date. See "The
Exchange Offer-Terms of the
Exchange Offer."
Certain Tax Considerations . . The exchange of Series B Notes
for Series A Notes should not
be a sale or exchange or
otherwise a taxable event for
Federal income tax purposes.
See "Certain Federal Income Tax
Considerations."
Exchange Agent . . . . . . . . Continental Airlines, Inc. is
serving as exchange agent (the
"Exchange Agent") in connection
with the Exchange Offer.
Fees and Expenses. . . . . . . All expenses incident to the
Company's consummation of the
Exchange Offer and compliance
with the Registration Rights
Agreement will be borne by the
Company. See "The Exchange
Offer-Fees and Expenses."
Use of Proceeds. . . . . . . . There will be no cash proceeds
payable to Continental from the
issuance of the Series B Notes
pursuant to the Exchange Offer.
See "Use of Proceeds."
Summary of Terms of Series B Notes
The Exchange Offer relates to the exchange of up to
$65,046,762.06 aggregate principal amount of Series B Notes for
up to an equal aggregate principal amount of Series A Notes. The
Series B Notes will be entitled to the benefits of the same
Indenture which governs the Series A Notes and will govern the
Series B Notes. The form and terms of the Series B Notes are the
same in all material respects as the form and terms of the Series
A Notes, except that the Series B Notes do not contain terms with
respect to Liquidated Damages and the Series B Notes have been
registered under the Securities Act and therefore will not bear
legends restricting the transfer thereof.
For additional information concerning the Series B Notes,
see "Description of Series B Notes."
Maturity Date. . . . . . . . . July 1, 2000.
Interest Rate. . . . . . . . . 10.22% per annum, computed on
the basis of a 360-day year of
twelve 30-day months.
Interest Payment Dates . . . . January 1, April 1, July 1 and
October 1 of each year.
Optional Redemption. . . . . . The Company may redeem the
Notes, at its option on notice
to the holders of the Notes as
provided in the Indenture, at
any time in whole or from time
to time in part, otherwise than
through the operation of the
Sinking Fund provided for
therein, at a redemption price
equal to 100% of the aggregate
principal amount of the Notes
to be redeemed, plus accrued
and unpaid interest thereon to
the date of redemption. See
"Description of Series B Notes-
Optional Redemption."
Sinking Fund . . . . . . . . . On and after April 1, 1997, the
Company is required to redeem
on January 1, April 1, July 1
and October 1 of each year, a
portion of the aggregate
principal amount of the Notes
as set forth herein at a
redemption price equal to 100%
of the aggregate principal
amount of the Notes so
redeemed, plus accrued and
unpaid interest to the
redemption date. The principal
amount of Notes to be redeemed
may at the option of the
Company be reduced in inverse
order of maturity by an amount
equal to the sum of (i) the
principal amount of Notes
theretofore issued and acquired
at any time by the Company and
delivered to the Trustee for
cancellation, and not
theretofore made the basis for
the reduction of a Sinking Fund
payment and (ii) the principal
amount of Notes at any time
redeemed and paid pursuant to
the optional redemption
provisions of the Notes or
which shall at any time have
been duly called for redemption
(otherwise than through
operation of the Sinking Fund)
and the redemption price shall
have been deposited in trust
for that purpose and which
theretofore have not been made
the basis for the reduction of
a Sinking Fund Payment. See
"Description of Series B Notes-
Sinking Fund."
Ranking. . . . . . . . . . . . The Notes will be senior
unsecured obligations of the
Company and will rank senior in
right of payment to all
existing and future
subordinated indebtedness of
the Company. The Notes will
rank pari passu in right of
payment with all the Company's
senior indebtedness. The
Series B Notes will be
effectively subordinated to all
indebtedness of the Company's
Subsidiaries. See "Description
of Series B Notes-General."
Covenants. . . . . . . . . . . The Indenture provides that
neither the Company nor any
Restricted Subsidiary shall at
any time directly or indirectly
create, incur or assume any
Debt (other than Excluded Debt)
(each, as defined herein) if,
at the date of (and after
giving effect to) such
creation, incurrence or
assumption, the pro forma
consolidated fixed charge
coverage ratio for the period
from September 28, 1995 through
December 31, 1996 is less than
1.75:1 and 2.0:1 thereafter.
See "Description of Series B
Notes-Certain Covenants."
Absence of Public Market
for the Series B Notes . . . . Prior to this Exchange Offer,
there has been no public market
for the Series A Notes or the
Series B Notes. If a market
for the Series B Notes should
develop, the Series B Notes
could trade at prices higher or
lower than their principal
amount. The Company does not
intend to list the Series B
Notes on a national securities
exchange or to apply for
quotation of the Series B
Notes through any automated
quotation system. There can be
no assurance that an active
public market for the Series B
Notes will develop. See "Risk
Factors-Risk Factors Relating
to Series B Notes-Absence of
Public Market for Series B
Notes."
RISK FACTORS
Holders of Series A Notes should carefully consider the
following risk factors, as well as other information set forth in
this Prospectus, before tendering their Series A Notes in the
Exchange Offer. The risk factors set forth below (other than "-
Risk Factors Relating to the Certificates-Consequences of Failure
to Exchange") are generally applicable to the Series A Notes as
well as the Series B Notes.
Risk Factors Relating to the Company
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 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."
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 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,
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.
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) of
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 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
After the Secondary Offering (as defined herein), which was
completed on May 14, 1996 and the conversion by Air Canada of its
Class A common stock into Class B common stock, Air Canada holds
approximately 10.1% of the common equity interests and 4.0% of
the general voting power of the Company, and Air Partners holds
approximately 9.9% of the common equity interests and 39.4% of
the general voting power of the Company. In addition, assuming
exercise of all of the warrants held by Air Partners,
approximately 23.4% of the common equity interests and 52.2% of
the general voting power would be held by Air Partners.
Various provisions in the Company's Restated Certificate of
Incorporation (the "Certificate of Incorporation"), the Company's
bylaws (the "Bylaws") and the Subscription and Stockholders'
Agreement among the Company, Air Partners and Air Canada dated as
of April 27, 1993 (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. 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 its annual meeting of stockholders on June 26,
1996 (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."
Industry Conditions and Competition
The airline industry is highly competitive and susceptible
to price discounting. The Company has in the past both responded
to discounting actions taken by other carriers and initiated
significant discounting actions itself. Continental's competitors
include carriers with substantially greater financial resources,
as well as smaller carriers with lower cost structures. Airline
profit levels are highly sensitive to, and during recent years
have been severely impacted by, changes in fuel costs, fare
levels (or "average yield") and passenger demand. Passenger
demand and yields have been adversely affected by, among other
things, the general state of the economy, international events
and actions taken by carriers with respect to fares. From 1990 to
1993, these factors contributed to the domestic airline
industry's incurring unprecedented losses. Although fare levels
have increased recently, significant industry-wide discounts
could be reimplemented at any time, and the introduction of
broadly available, deeply discounted fares by a major United
States airline would likely result in lower yields for the entire
industry and could have a material adverse effect on the
Company's operating results.
The airline industry has consolidated in past years as a
result of mergers and liquidations and may further consolidate in
the future. Among other effects, such consolidation has allowed
certain of Continental's major competitors to expand (in
particular) their international operations and increase their
market strength. Furthermore, the emergence in recent years of
several new carriers, typically with low cost structures, has
further increased the competitive pressures on the major United
States airlines. In many cases, the new entrants have initiated
or triggered price discounting. Aircraft, skilled labor and gates
at most airports continue to be readily available to start-up
carriers. Although management believes that Continental is better
able than some of its major competitors to compete with fares
offered by start-up carriers because of its lower cost structure,
competition with new carriers or other low cost competitors on
Continental's routes could negatively impact Continental's
operating results.
Regulatory Matters
In the last several years, the United States Federal
Aviation Administration (the "FAA") has issued a number of
maintenance directives and other regulations relating to, among
other things, retirement of older aircraft, collision avoidance
systems, airborne windshear avoidance systems, noise abatement,
commuter aircraft safety and increased inspections and
maintenance procedures to be conducted on older aircraft. The
Company expects to continue incurring expenses for the purpose of
complying with the FAA's noise and aging aircraft regulations. In
addition, several airports have recently sought to increase
substantially the rates charged to airlines, and the ability of
airlines to contest such increases has been restricted by federal
legislation, U.S. Department of Transportation regulations and
judicial decisions.
Management believes that the Company benefitted from the
expiration of the aviation trust fund tax (the "ticket tax") on
December 31, 1995, although the amount of any such benefit
resulting directly from the expiration of the ticket tax cannot
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.
Risk Factors Relating to Series B Notes
Consequences of Failure to Exchange
Holders of Series A Notes who do not exchange their Series A
Notes for Series B Notes pursuant to the Exchange Offer will
continue to be subject to the restrictions on transfer of such
Series A Notes as set forth in the legend thereon as a
consequence of the issuance of the Series A Notes pursuant to
exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable
state securities laws. In general, the Series A Notes may not be
offered or sold, unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities
laws. The Company does not anticipate that it will register the
Series A Notes under the Securities Act. To the extent that
Series A Notes are tendered and accepted in the Exchange Offer,
the trading market, if any, for untendered and tendered but
unaccepted Series A Notes could be adversely affected.
Absence of a Public Market for Series B Notes
The Series B Notes are new securities for which there is
currently no public market. If a market for the Series B Notes
should develop, the Series B Notes could trade at prices higher
or lower than their principal amount. The Company does not
intend to list the Series B Notes on a national securities
exchange or to apply for quotation of the Series B Notes through
any automated quotation system. There can be no assurance that
an active public market for the Series B Notes will develop.
RECENT DEVELOPMENTS
On April 19, 1996, the Company's Board of Directors approved
certain agreements (the "Agreements") with its two major
stockholders, Air Canada and Air Partners. The Agreements
contain a variety of arrangements intended generally to reflect
the intention that Air Canada has expressed to the Company of
divesting its investment in Continental 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. Because of these initiatives Air Canada has determined it
appropriate to redeploy the funds invested in the Company into
other uses in Air Canada's business. The Agreements also reflect
the recent distribution by Air Partners, effective March 29,
1996, to its investors (the "AP Investors") of all of the shares
of the Class B common stock held by Air Partners and the desire
of some of the AP Investors to realize the increase in value of
their investment in in the Company by selling all or a portion of
their shares of Class B common stock.
Among other things, the Agreements required the Company to
file a registration statement under the Securities Act to permit
the sale by Air Canada of 2,200,000 shares of Class B common stock
held by it and by certain of the AP Investors of an aggregate of
1,730,240 such shares, pursuant to an underwritten public offering
arranged by the Company (the "Secondary Offering"). The Secondary
Offering was completed on May 14, 1996. The Agreements provide for
the following additional steps to be taken in connection with the
completion of this offering:
- in light of its then-reduced equity stake in the Company,
Air Canada will no longer be entitled to designate
nominees to the Board of Directors of the Company, will
cause the four present or former members of the Air Canada
board who currently serve as directors of Continental to
decline nomination for reelection as directors (except
in limited circumstances), and will convert all of its
Class A common stock to Class B common stock;
- Air Canada and Air Partners have entered into a number
of agreements restricting, prior to December 16, 1996,
further disposition of the common stock of the Company
held by either of them; and
- each of the existing Stockholders' Agreement and the
registration rights agreement (the "Original 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.
After such sale and the conversion by Air Canada of its
Class A common stock into Class B common stock, Air Canada holds
approximately 10.1% of the common equity interests and 4.0% of
the general voting power of the Company, and Air Partners holds
approximately 9.9% of the common equity interests and 39.4% of
the general voting power of the Company. In addition, assuming
exercise of all of the warrants held by Air Partners,
approximately 23.4% of the common equity interests and 52.2% of
the general voting power would be held by Air Partners.
Reflecting the reduction of Air Canada's interest and the
decision of the current directors designated by Air Canada not to
stand for reelection (except under certain limited circumstances),
along with the expiration of various provisions specifically
included at the time of the Company's 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 Class B common stock.
Under agreements put in place at the time of the Company's
reorganization in 1993, and designed in part to ensure compliance
with the foreign ownership limitations applicable to United
States air carriers in light of the substantial stake in the
Company then held by Air Canada, holders of Class A common stock
(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 B 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 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 the 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. A
majority vote of shareholders is required to approve the employee
benefit matters; a two-thirds vote is required to approve the
Proposed Amendments.
USE OF PROCEEDS
There will be no cash proceeds payable to Continental from
the issuance of the Series B Notes pursuant to the Exchange
Offer. The Series A Notes were issued in exchange for
participants' interests in the Company's 10.22% Restructured Note
for Secured Class 9.37 due 2001 in connection with the
refinancing thereof.
RATIOS OF EARNINGS TO FIXED CHARGES
The following information for the years ended December 31,
1991 and 1992 and for the period January 1, 1993 through April
27, 1993 relates to Continental's predecessor, Holdings.
Information for the period April 28, 1993 through December 31,
1993, for the two years ended December 31, 1994 and 1995 and for
the three months ended March 31, 1995 and 1996 relates to
Continental. The information as to Continental has not been
prepared on a consistent basis of accounting with the information
as to Holdings due to Continental's adoption, effective April 27,
1993, of fresh start reporting in accordance with SOP 90-7.
For the years ended December 31, 1991 and 1992, for the
periods January 1, 1993 through April 27, 1993 and April 28, 1993
through December 31, 1993, for the year ended December 31, 1994
and for the three months ended March 31, 1995, earnings were not
sufficient to cover fixed charges. Additional earnings of $316
million, $131 million, $979 million, $60 million, $667 million
and $28 million, respectively, would have been required to
achieve ratios of earnings to fixed charges of 1.0. The ratio of
earnings to fixed charges for the year ended December 31, 1995
was 1.53. The ratio of earnings to fixed charges for the three
months ended March 31, 1996 was 1.70. For purposes of
calculating this ratio, earnings consist of earnings before
taxes, minority interest and extraordinary items plus interest
expense (net of capitalized interest), the portion of rental
expense deemed representative of the interest expense and
amortization of previously capitalized interest. Fixed charges
consist of interest expense and the portion of rental expense
representative of interest expense.
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. 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
Company's selected consolidated financial data should be read in
conjunction with, and are qualified in their entirety by
reference to, the consolidated financial statements, including
the notes thereto, incorporated by reference herein.
Three Months Year Ended
Ended March 31, December 31,
--------------- ---------------
1996 1995 1995 1994
---- ---- ---- ----
(In millions of dollars,
Statement of except per share data)
Operations Data: (unaudited)
Operating Revenue:
Passenger . . . . $1,375 $1,240 $5,302 $5,036
Cargo, mail
and other . . . . 114 169 523 634
------ ------ ------ ------
1,489 1,409 5,825 5,670
------ ------ ------ ------
Operating Expenses:
Wages, salaries and
related costs . . 364 366 1,432(1) 1,532
Aircraft fuel . . 177 169 681 741
Aircraft rentals. 124 123 497 433
Commissions . . . 126 119 489 439
Maintenance,
materials and
repairs . . . . . 112 97 429 495
Other rentals and
landing fees. . . 84 92 356 392
Depreciation and
amortization. . . 65 64 253 258
Other . . . . . . 317 351 1,303 1,391
------ ------ ------ ------
1,369 1,381 5,440 5,681
------ ------ ------ ------
Operating Income
(Loss) 120 28 385 (11)
------ ------ ------ ------
Nonoperating Income
(Expense):
Interest expense. (47) (53) (213) (241)
Interest
capitalized . . . 1 1 6 17
Interest
income. . . . . . 9 6 31 23
Gain on
System One
transactions. . . - - 108 -
Reorganization
items, net. . . . - - - -
Other, net. . . . 12 (10) (7) (439)(2)
------ ------ ------ ------
(25) (56) (75) (640)
------ ------ ------ ------
Income (Loss)
before Income Taxes,
Minority Interest
and Extraordinary
Gain . . . . . . . 95 (28) 310 (651)
Net Income
(Loss) . . . . . . $88 $(30) $224 $(613)
Earnings (Loss)
per Common and
Common Equivalent
Share. . . . . . . $2.70 $(1.21) $7.20 $(23.76)
====== ====== ====== =======
Earnings (Loss)
per Common Share
Assuming Full
Dilution . . . . . $2.36 $(1.21) $6.29 $(23.76)
====== ====== ====== =======
Period from Period from
Reorganization January 1,
(April 28, 1993 1993
through through
December 31, December 31,
1993) 1993
--------------- ---------------
(In millions of dollars,
Statement of except per share data)
Operations Data:
Operating Revenue:
Passenger . . . . $3,493 $1,622
Cargo, mail
and other . . . . 417 235
------ ------
3,910 1,857
------ ------
Operating Expenses:
Wages, salaries and
related costs . . 1,000 502
Aircraft fuel . . 540 272
Aircraft rentals. 261 154
Commissions . . . 378 175
Maintenance,
materials and
repairs . . . . . 363 184
Other rentals and
landing fees. . . 258 120
Depreciation and
amortization. . . 162 77
Other . . . . . . 853 487
------ ------
3,815 1,971
------ ------
Operating Income
(Loss) 95 (114)
------ ------
Nonoperating Income
(Expense):
Interest expense. (165) (52)
Interest
capitalized . . . 8 2
Interest
income. . . . . . 14 -
Gain on
System One
transactions. . . - -
Reorganization
items, net. . . . - (818)
Other, net. . . . (4) 5
------ ------
(147) (863)
------ ------
Income (Loss)
before Income Taxes,
Minority Interest
and Extraordinary
Gain . . . . . . . (52) (977)
Net Income
(Loss) . . . . . . $(39) $2,640(3)
Earnings (Loss)
per Common and
Common Equivalent
Share. . . . . . . $(2.33) N.M.(4)
======
Earnings (Loss)
per Common Share
Assuming Full
Dilution . . . . . $(2.33) N.M.(4)
======
As of As of
March 31, December 31,
--------- ------------
1996 1995
--------- ------------
Balance Sheet Data: (In millions of dollars)
(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) Reflects 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.
THE EXCHANGE OFFER
The summary herein of certain provisions of the Registration
Rights Agreement does not purport to be complete and reference is
made to the provisions of the Registration Rights Agreement which
has been filed as an exhibit to the Registration Statement and a
copy of which is available upon request to the Trustee.
Terms of the Exchange Offer
General
In connection with the issuance of the Series A Notes
pursuant to an agreement dated as of September 29, 1995, between
the Company and the initial holders of the Series A Notes, such
holders and their assignees became entitled to the benefits of
the Registration Rights Agreement.
Under the Registration Rights Agreement, the Company is
obligated to (i) use its reasonable best efforts to file the
Registration Statement of which this Prospectus is a part for a
registered exchange offer with respect to an issue of Series B
Notes identical in all material respects to the Series A Notes as
soon as practicable after September 29, 1995, (ii) use its
reasonable best efforts to cause the Registration Statement to
become effective as soon as practicable after the filing date and
(iii) to use its reasonable best efforts to consummate the
Exchange Offer as soon as practicable thereafter, but in no event
later than June 25, 1996 (the "Target Completion Date"). The
Company will keep the Exchange Offer open for a period of not
less than 20 business days. The Exchange Offer being made
hereby, if commenced and consummated by the Target Completion
Date, will satisfy those requirements under the Registration
Rights Agreement.
Upon the terms and subject to the conditions set forth in
this Prospectus and in the Letter of Transmittal (which together
constitute the Exchange Offer), the Company will accept for
exchange all Series A Notes validly tendered and not withdrawn
prior to 5:00 p.m., New York City time, on the Expiration Date.
The Company will issue Series B Notes in exchange for an equal
aggregate principal amount of outstanding Series A Notes accepted
in the Exchange Offer. As of the date of this Prospectus,
$65,046,762.06 aggregate principal amount of Series A Notes is
outstanding. This Prospectus, together with the Letter of
Transmittal, is being sent to all registered holders as of
May 24, 1996. The Exchange Offer is not conditioned upon
any minimum principal amount of Series A Notes being tendered for
exchange. However, the Company's obligation to accept Series A
Notes for exchange pursuant to the Exchange Offer is subject to
certain conditions as set forth herein under "-Conditions."
The Company shall be deemed to have accepted validly
tendered Series A Notes when, as and if the Company has given
oral or written notice thereof to the Exchange Agent. The
Exchange Agent will act as agent for the tendering holders of
Series A Notes for the purposes of receiving the Series B Notes
from the Company and delivering Series B Notes to such holders.
Based on interpretations by the staff of the Commission, as
set forth in no-action letters issued to third parties, including
the Exchange Offer No-Action Letters, the Company believes that the
Series B Notes issued pursuant to the Exchange Offer may be
offered for resale, resold or otherwise transferred by holders
thereof (other than a broker-dealer who acquires such Series B
Notes directly from the Company for resale pursuant to Rule 144A
under the Securities Act or any other available exemption under
the Securities Act or any holder that is an "affiliate" of the
Company as defined under Rule 405 of the Securities Act),
without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that
such Series B Notes are acquired in the ordinary course of
such holders' business and such holders are not engaged in, and
do not intend to engage in, a distribution of such Series B Notes
and have no arrangement with any person to participate in a
distribution of such Series B Notes. However, the staff of the
Commission has not considered the Exchange Offer in the context
of a no-action letter and there can be no assurance that the
staff of the Commission would make a similar determination with
respect to the Exchange Offer as in such other circumstances. By
tendering the Series A Notes in exchange for Series B Notes, each
holder, other than a broker-dealer, will represent to the Company
that: (i) it is not an affiliate of the Company (as defined
under Rule 405 of the Securities Act) nor a broker-dealer
tendering Series A Notes acquired directly from the Company for
its own account; (ii) any Series B Notes to be received by it
will be acquired in the ordinary course of its business; and
(iii) it is not engaged in, and does not intend to engage in, a
distribution of such Series B Notes and has no arrangement or
understanding to participate in a distribution of the Series B
Notes. If a holder of Series A Notes is engaged in or intends
to engage in a distribution of the Series B Notes or has any
arrangement or understanding with respect to the distribution
of the Series B Notes to be acquired pursuant to the Exchange
Offer, such holder may not rely on the applicable interpretations
of the staff of the Commission and must comply with the
registration and prospectus delivery requirements of the
Securities Act in connection with any secondary resale
transaction. Each Participating Broker-Dealer that receives Series B
Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with
any resale of such Series B Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a
Participating Broker-Dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
The Company is under no obligation to prepare a prospectus for
use in connection with any such resale. See "Plan of
Distribution."
In the event that Continental reasonably determines that any
changes in law or the applicable interpretations of the staff of
the Commission do not permit Continental to effect the Exchange
Offer or in the event that holders of at least 25% in aggregate
principal amount of the Series A Notes determine, based upon an
opinion of counsel which shall have been delivered, with notice
of such determination, to Continental, that because of changes in
law or the applicable interpretations of the staff of the
Commission, that (i) the Series B Notes would not be tradeable
without restriction under state or federal securities laws, (ii)
the Commission is unlikely to permit the Exchange Offer, (iii)
the participation of such holders in the Exchange Offer is not
legally permitted or (iv) a court decision or administrative
action may be reasonably expected to have a material adverse
effect on such holders in the event such holders participate in
the Exchange Offer, Continental will, in lieu of effecting the
registration of the Series B Notes pursuant to the Registration
Statement of which this Prospectus is a part, and at no cost to
the holders of Series A Notes, (a) as promptly as practicable,
file with the Commission a shelf registration statement covering
resales of the Series A Notes (the "Shelf Registration
Statement"), (b) use its best efforts to cause the Shelf
Registration Statement to be declared effective under the
Securities Act as soon as practicable thereafter, but in no event
later than the Target Completion Date and (c) use its best
efforts to keep effective the Shelf Registration Statement for a
period of 36 months after its effective date (or for such shorter
period as shall end when all of the Series A Notes covered by the
Shelf Registration Statement have been sold pursuant thereto or
may be freely sold pursuant to Rule 144 under the Securities
Act).
In the event that on the Target Completion Date neither (a)
the Exchange Offer has been consummated nor (b) a Shelf
Registration Statement has been declared effective, Continental
shall pay liquidated damages to the holders of the Series A Notes
("Liquidated Damages") in an amount equal to $.10 per $1,000
outstanding principal amount of the Series A Notes per week
beginning on the Target Completion Date. Such weekly Liquidated
Damages shall increase by an amount equal to an additional $.05
per $1,000 outstanding principal amount of the Series A Notes 90
days after the Target Completion Date, and shall thereafter
further increase by additional increments equal to $.05 per
$1,000 outstanding principal amount at the end of each subsequent
90-day period for so long as the Exchange Offer is not
consummated or the Shelf Registration Statement is not declared
effective, as the case may be.
Upon consummation of the Exchange Offer, subject to certain
exceptions, holders of Series A Notes who do not exchange their
Series A Notes for Series B Notes in the Exchange Offer will no
longer be entitled to registration rights and will not be able to
offer or sell their Series A Notes, unless such Series A Notes
are subsequently registered under the Securities Act (which,
subject to certain limited exceptions, the Company will have no
obligation to do), except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable
state securities laws. See "Risk Factors-Risk Factors Relating
to Series B Notes-Consequences of Failure to Exchange."
Expiration Date; Extensions; Amendments; Termination
The term "Expiration Date" shall mean June 24, 1996 (20
business days following the commencement of the Exchange Offer),
unless the Company, in its sole discretion, extends the Exchange
Offer, in which case the term "Expiration Date" shall mean the
latest date to which the Exchange Offer is extended.
Notwithstanding any extension of the Exchange Offer, if the
Exchange Offer is not consummated by June 25, 1996, Liquidated
Damages will be payable by the Company on the Series A Notes.
See "-General."
In order to extend the Expiration Date, the Company will
notify the Exchange Agent of any extension by oral or written
notice and will mail to the record holders of Series A Notes an
announcement thereof, each prior to 9:00 a.m., New York City
time, on the next business day after the previously scheduled
Expiration Date. Such announcement may state that the Company is
extending the Exchange Offer for a specified period of time.
The Company reserves the right (i) to delay accepting any
Series A Notes, to extend the Exchange Offer or to terminate the
Exchange Offer and not accept Series A Notes not previously
accepted if any of the conditions set forth herein under "-
Conditions" shall have occurred and shall not have been waived
by the Company, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent, or (ii) to amend
the terms of the Exchange Offer in any manner deemed by it to be
advantageous to the holders of the Series A Notes. Any such
delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice
thereof to the Exchange Agent. If the Exchange Offer is amended
in a manner determined by the Company to constitute a material
change, the Company will promptly disclose such amendment in a
manner reasonably calculated to inform the holders of the Series
A Notes of such amendment.
Without limiting the manner in which the Company may choose
to make public announcement of any delay, extension, amendment or
termination of the Exchange Offer, the Company shall have no
obligation to publish, advertise, or otherwise communicate any
such public announcement, other than by making a timely release
to an appropriate news agency.
Interest on Series B Notes
The Series B Notes will bear interest at the rate of 10.22%
per annum, accruing from the last date on which interest was paid
on the Series A Notes. Consequently, holders who exchange their
Series A Notes for Series B Notes will receive the same interest
payment on the next interest payment date that they would have
received had they not accepted the Exchange Offer. Interest on
the Series B Notes is payable quarterly on January 1, April 1,
July 1 and October 1 of each year.
Procedures for Tendering
To tender in the Exchange Offer, a holder must complete,
sign and date the Letter of Transmittal, or a facsimile thereof,
have the signatures thereon guaranteed if required by the Letter
of Transmittal and mail or otherwise deliver such Letter of
Transmittal or such facsimile, together with any other required
documents, to the Exchange Agent prior to 5:00 p.m., New York
City time, on the Expiration Date. In addition, either (i)
certificates for such Series A Notes must be received by the
Exchange Agent along with the Letter of Transmittal or (ii) the
holder must comply with the guaranteed delivery procedures
described below. THE METHOD OF DELIVERY OF SERIES A NOTES,
LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE
ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY MAIL,
IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Delivery of all
documents must be made to the Exchange Agent at its address set
forth below. Holders may also request their respective brokers,
dealers, commercial banks, trust companies or nominees to effect
such tender for such holders.
The tender by a holder of Series A Notes will constitute an
agreement between such holder and the Company in accordance with
the terms and subject to the conditions set forth herein and in
the Letter of Transmittal.
Only a holder of Series A Notes may tender such Series A
Notes in the Exchange Offer. The term "holder" with respect to
the Exchange Offer means any person in whose name Series A Notes
are registered on the books of the Company or any other person
who has obtained a properly completed bond power from the
registered holder.
Any beneficial owner whose Series A Notes are registered in
the name of a broker, dealer, commercial bank, trust company or
other nominee and who wishes to tender should contact such
registered holder promptly and instruct such registered holder to
tender on his behalf. If such beneficial owner wishes to tender
on his own behalf, such beneficial owner must, prior to
completing and executing the Letter of Transmittal and delivering
his Series A Notes, either make appropriate arrangements to
register ownership of the Series A Notes in such owner's name or
obtain a properly completed bond power from the registered
holder. The transfer of registered ownership may take
considerable time.
Signatures on a Letter of Transmittal or a notice of
withdrawal, as the case may be, must be guaranteed by any member
firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc., a commercial
bank or trust company having an office or correspondent in the
United States or an "eligible guarantor" institution within the
meaning of Rule 17Ad-15 under the Exchange Act (each an "Eligible
Institution") unless the Series A Notes tendered pursuant thereto
are tendered (i) by a registered holder who has not completed the
box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution.
If the Letter of Transmittal is signed by a person other
than the registered holder of any Series A Notes listed therein,
such Series A Notes must be endorsed or accompanied by bond
powers and a proxy which authorizes such person to tender the
Series A Notes on behalf of the registered holder, in each case
as the name of the registered holder or holders appears on the
Series A Notes.
If the Letter of Transmittal or any Series A Notes or bond
powers are signed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons
should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority
to so act must be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility
(including time of receipt) and withdrawal of the tendered Series
A Notes will be determined by the Company in its sole discretion,
which determination will be final and binding. The Company
reserves the absolute right to reject any and all Series A Notes
not properly tendered or any Series A Notes which, if accepted by
the Company, would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the absolute right to waive
any irregularities or conditions of tender as to particular
Series A Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in
the Letter of Transmittal) will be final and binding on all
parties. Unless waived, any defects or irregularities in
connection with tenders of Series A Notes must be cured within
such time as the Company shall determine. Neither the Company
nor any other person shall be under any duty to give notification
of defects or irregularities with respect to tenders of Series A
Notes, nor shall any of them incur any liability for failure to
give such notification. Tenders of Series A Notes will not be
deemed to have been made until such irregularities have been
cured or waived. Any Series A Notes received by the Exchange
Agent that are not properly tendered and as to which the defects
or irregularities have not been cured or waived will be returned
without cost to such holder by the Exchange Agent to the
tendering holders of Series A Notes, unless otherwise provided in
the Letter of Transmittal, as soon as practicable following the
Expiration Date.
In addition, the Company reserves the right in its sole
discretion, subject to the provisions of the Indenture, to (i)
purchase or make offers for any Series A Notes that remain
outstanding subsequent to the Expiration Date or, as set forth
under "- Conditions," to terminate the Exchange Offer in
accordance with the terms of the Registration Rights Agreement
and (ii) to the extent permitted by applicable law, purchase
Series A Notes in the open market, in privately negotiated
transactions or otherwise. The terms of any such purchases or
offers could differ from the terms of the Exchange Offer.
Acceptance of Series A Notes for Exchange; Delivery of Series B
Notes
Upon satisfaction or waiver of all of the conditions to the
Exchange Offer, the Company will accept, promptly after the
Expiration Date, all Series A Notes properly tendered and will
issue the Series B Notes promptly after acceptance of the Series
A Notes. See "- Conditions" below. For purposes of the Exchange
Offer, the Company shall be deemed to have accepted validly
tendered Series A Notes for exchange when, as and if the Company
has given oral or written notice thereof to the Exchange Agent.
In all cases, issuance of Series B Notes for Series A Notes
that are accepted for exchange pursuant to the Exchange Offer
will be made only after timely receipt by the Exchange Agent of
certificates for such Series A Notes, a properly completed and
duly executed Letter of Transmittal and all other required
documents. If any tendered Series A Notes are not accepted for
any reason set forth in the terms and conditions of the Exchange
Offer or if Series A Notes are submitted for a greater principal
amount than the holder desires to exchange, such unaccepted or
nonexchanged Series A Notes will be returned without expense to
the tendering holder thereof as promptly as practicable after the
expiration or termination of the Exchange Offer.
Guaranteed Delivery Procedures
If a registered holder of the Series A Notes desires to
tender such Series A Notes, and the Series A Notes are not
immediately available, or time will not permit such holder's
Series A Notes or other required documents to reach the Exchange
Agent before the Expiration Date, a tender may be effected if (i)
the tender is made through an Eligible Institution, (ii) prior to
the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed
Letter of Transmittal (or a facsimile thereof) and Notice of
Guaranteed Delivery, substantially in the form provided by the
Company (by facsimile transmission, mail or hand delivery),
setting forth the name and address of the holder of Series A
Notes and the amount of Series A Notes tendered, stating that the
tender is being made thereby and guaranteeing that within three
New York Stock Exchange ("NYSE") trading days after the date of
execution of the Notice of Guaranteed Delivery, the certificates
for all physically tendered Series A Notes, in proper form for
transfer, and any other documents required by the Letter of
Transmittal will be deposited by the Eligible Institution with
the Exchange Agent and (iii) the certificates for all physically
tendered Series A Notes, in proper form for transfer, and all
other documents required by the Letter of Transmittal are
received by the Exchange Agent within three NYSE trading days
after the date of execution of the Notice of Guaranteed Delivery.
Withdrawal of Tenders
Tenders of Series A Notes may be withdrawn at any time prior
to 5:00 p.m., New York City time on the Expiration Date.
For a withdrawal to be effective, a written notice of
withdrawal must be received by the Exchange Agent prior to 5:00
p.m., New York City time on the Expiration Date at one of the
addresses set forth below under "-Exchange Agent." Any such
notice of withdrawal must specify the name of the person having
tendered the Series A Notes to be withdrawn, identify the Series
A Notes to be withdrawn (including the principal amount of such
Series A Notes) and (where certificates for Series A Notes have
been transmitted) specify the name in which such Series A Notes
are registered, if different from that of the withdrawing holder.
If certificates for Series A Notes have been delivered or
otherwise identified to the Exchange Agent, then, prior to the
release of such certificates, the withdrawing holder must also
submit the serial numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures
guaranteed by an Eligible Institution unless such holder is an
Eligible Institution. All questions as to the validity, form and
eligibility (including time of receipt) of such notices will be
determined by the Company, whose determination shall be final and
binding on all parties. Any Series A Notes so withdrawn will be
deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer. Any Series A Notes which have
been tendered for exchange but which are not exchanged for any
reason will be returned to the holder thereof without cost to
such holder as soon as practicable after withdrawal, rejection of
tender or termination of the Exchange Offer. Properly withdrawn
Series A Notes may be retendered by following one of the
procedures described under "- Procedures for Tendering" and "-
Book-entry Transfer" above at any time on or prior to the
Expiration Date.
Conditions
Notwithstanding any other term of the Exchange Offer, the
Company will not be required to accept for exchange, or to issue
Series B Notes in exchange for, any Series A Notes and may
terminate or amend the Exchange Offer as provided herein before
the acceptance of such Series A Notes, if because of any change
in law, or applicable interpretations thereof by the Commission,
the Company determines that it is not permitted to effect the
Exchange Offer, and the Company has no obligation to, and will
not knowingly, accept tenders of Series A Notes from affiliates
of the Company (within the meaning of Rule 405 under the
Securities Act) or from any other holder or holders who are not
eligible to participate in the Exchange Offer under applicable
law or interpretations thereof by the Commission, or if the
Series B Notes to be received by such holder or holders of Series
A Notes in the Exchange Offer, upon receipt, will not be tradable
by such holder without restriction under the Securities Act and
the Exchange Act and without material restrictions under the
"blue sky" or securities laws of substantially all of the states
of the United States.
Exchange Agent
Continental Airlines, Inc. will act as Exchange Agent for
the Exchange Offer. Questions and requests for assistance and
requests for additional copies of this Prospectus or of the
Letter of Transmittal should be directed to the Exchange Agent
addressed as follows:
By Mail, Hand or Overnight Delivery
Continental Airlines, Inc.
2929 Allen Parkway, Suite 2010
Houston, Texas 77019
Attention: Jeffery A. Smisek
Facsimile Transmission:
(713) 523-2831
Confirm by Telephone:
Jeffery A. Smisek
(713) 834-2948
Fees and Expenses
The expenses of soliciting tenders pursuant to the Exchange
Offer will be borne by the Company. The principal solicitation
for tenders pursuant to the Exchange Offer is being made by mail;
however, additional solicitations may be made by telegraph,
telephone, telecopy or in person by officers and regular
employees of the Company.
The Company will not make any payments to brokers, dealers
or other persons soliciting acceptances of the Exchange Offer.
The Company may pay brokerage houses and other custodians,
nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of the Prospectus and
related documents to the beneficial owners of the Series A Notes,
and in handling or forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange
Offer will be paid by the Company, including fees and expenses of
the Trustee and holders of the Series A Notes (as defined herein)
and accounting, legal, printing and related fees and expenses.
The Company will pay all transfer taxes, if any, applicable
to the exchange of Series A Notes pursuant to the Exchange Offer.
If, however, certificates representing Series B Notes or Series A
Notes for principal amounts not tendered or accepted for exchange
are to be delivered to, or are to be registered or issued in the
name of, any person other than the registered holder of the
Series A Notes tendered, or if tendered Series A Notes are
registered in the name of any person other than the person
signing the Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the exchange of Series A Notes
pursuant to the Exchange Offer, then the amount of any such
transfer taxes (whether imposed on the registered holder or any
other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with the Letter of Transmittal, the
amount of such transfer taxes will be billed directly to such
tendering holder.
Accounting Treatment
The Series B Notes will be recorded in the Company's
accounting records at the same carrying value as the Series A
Notes as reflected in the Company's accounting records on the
date of the exchange. Accordingly, no gain or loss for
accounting purposes will be recognized upon the consummation of
the Exchange Offer.
DESCRIPTION OF SERIES B NOTES
Except as otherwise indicated below, the following summary
applies to both the Series A Notes and the Series B Notes. As
used herein, the term "Notes" shall mean the Series A Notes and
the Series B Notes, unless otherwise indicated.
The form and terms of the Series B Notes are the same in all
material respects as the form and terms of the Series A Notes,
except that the Series B Notes do not contain terms with respect
to Liquidated Damages and the Series B Notes have been registered
under the Securities Act and therefore will not bear legends
restricting the transfer thereof. As of the date hereof,
$65,046,762.06 aggregate principal amount of Series A Notes is
outstanding. See "The Exchange Offer."
General
The Series B Notes will be issued under the Indenture, dated
as of September 28, 1995 (the "Indenture"), between Continental
and Bank One, Texas, N.A., as trustee (the "Trustee"). The terms
of the Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"). The following
summary of certain provisions of the Indenture does not purport
to be a complete description of the Notes, and reference is made
to the provisions of the Indenture and those terms made a part of
the Indenture by the Trust Indenture Act. A copy of the
Indenture is available as set forth under "Available Information"
and "Incorporation of Certain Documents by Reference." Certain
defined terms used in this section are defined under "-Certain
Definitions."
The Series B Notes will be senior unsecured obligations of
the Company and will rank senior in right of payment to all
existing and future subordinated indebtedness of the Company.
The Series B Notes will rank pari passu in right of payment with
all the Company's senior indebtedness. The Series B Notes will
be effectively subordinated to all indebtedness of the Company's
Subsidiaries.
Form; Denomination
The Series A Notes initially were and the Series B Notes
initially will be issued in registered form, without coupons.
The Notes will be issued in denominations of $1,000 and integral
multiples thereof and in any other denomination the Company
determines is necessary to issue the aggregate principal amount
of the Notes.
Principal, Maturity and Interest
The Notes will be limited to $65,046,762.06 in aggregate
principal amount and will mature on July 1, 2000. Interest will
accrue on the Notes at the rate of 10.22% per annum, and will be
payable quarterly in arrears on January 1, April 1, July 1 and
October 1 of each year to holders of record on the immediately
preceding December 15, March 15, June 15 and September 15.
Interest will accrue from the most recent date on which interest
on the Notes has been paid. Interest shall accrue with respect
to principal of any Note to, but not including, the date of
repayment of such principal. To the extent lawful, the Company
shall pay interest on overdue principal and interest at the rate
of interest borne by the Notes.
Optional Redemption
The Company may redeem the Notes, at its option on notice to
the holders of the Notes as provided in the Indenture, at any
time in whole or from time to time in part, otherwise than
through the operation of the Sinking Fund provided for herein and
therein, at a Redemption Price equal to 100% of the aggregate
principal amount of the Notes to be redeemed, plus accrued and
unpaid interest thereon to the Redemption Date.
Sinking Fund
On and after April 1, 1997, the Company is required to
redeem on January 1, April 1, July 1 and October 1 of each year
(each, a "Sinking Fund Payment Date"), a portion of the aggregate
principal amount of the Notes as set forth below (each, a
"Sinking Fund Payment") at a Redemption Price equal to 100% of
the aggregate principal amount of the Notes so redeemed, plus
accrued and unpaid interest to the Redemption Date:
Sinking Fund Principal Amount
Payment Date to be Redeemed
------------ ----------------
April 1, 1997 $3,923,146.60
July 1, 1997 4,023,382.99
October 1, 1997 4,126,180.43
January 1, 1998 4,231,604.34
April 1, 1998 4,339,721.83
July 1, 1998 4,450,601.72
October 1, 1998 4,564,314.60
January 1, 1999 4,680,932.83
April 1, 1999 4,800,530.67
July 1, 1999 4,923,184.23
October 1, 1999 5,048,971.58
January 1, 2000 5,177,972.81
April 1, 2000 5,310,270.01
July 1, 2000 5,445,947.42
The principal amount of Notes to be redeemed may at the option of
the Company be reduced in inverse order of maturity by an amount
equal to the sum of (i) the principal amount of Notes therefore
issued and acquired at any time by the Company and delivered to
the Trustee for cancellation, and not theretofore made the basis
for the reduction of a Sinking Fund Payment and (ii) the
principal amount of Notes at any time redeemed and paid pursuant
to the provisions of "-Optional Redemption," or which shall at
any time have been duly called for redemption (otherwise than
through operation of the Sinking Fund) and the Redemption Price
shall have been deposited in trust for that purpose and which
theretofore have not been made the basis for the reduction of a
Sinking Fund Payment.
Notice of Redemption
Notice of redemption, whether through operation of the
Sinking Fund or otherwise, will be mailed at least 15 days, but
not more that 60 days, before the Redemption Date to each holder
of Notes or portions thereof to be redeemed to the registered
address of the holder.
From and after any Redemption Date, if monies for the
redemption of the Notes called for redemption shall have been
made available for redemption on such Redemption Date, the Notes
called for redemption shall cease to bear interest and the only
right of holders of such Notes will be to receive payments of the
Redemption Price.
Certain Covenants
The Indenture contains, among others, the following
covenants:
Limitation on Indebtedness
The Indenture provides that neither the Company nor any
Restricted Subsidiary shall at any time directly or indirectly
create, incur or assume any Debt (other than Excluded Debt) if,
at the date of (and after giving effect to) such creation,
incurrence or assumption, the Pro Forma Consolidated Fixed Charge
Coverage Ratio (i) for the period from September 28, 1995 through
December 31, 1996 is less than 1.75:1 and (ii) is less than 2.0:1
thereafter.
A "Restricted Subsidiary" is any subsidiary of the Company
(other than Continental Express, Inc.) at the time of
determination, the accounts of which would be consolidated with
those of the Company in its consolidated financial statements as
of such date.
Provision of Certain Information
While the Company is subject to the requirements of Section
13 or 15(d) of the Exchange Act, the Company shall file with the
Commission all quarterly and annual reports and such other
information, documents or other reports required to be filed
pursuant to such provisions of the Exchange Act. If at any time
the Company is not required to file the aforementioned reports,
the Company (at its own expense) shall file with the Trustee
within 15 days after it would have been required to file such
information with the Commission, all information and financial
statements, including any notes thereto, and with respect to
annual reports, an auditors' report by an accounting firm of
established national reputation.
No Personal Liability of Directors, Officers, Employees and
Stockholders
No director, officer, employee, incorporator or stockholder
of the Company or any successor corporation or the Trustee shall
have any liability for any obligation of the Company under the
Indenture or the Notes or for any claim based on, in respect of,
or by reason of, any such obligation or the creation of any such
obligation. Each holder by accepting the Notes, waives and
releases such Persons from all such liability and such waiver and
release are part of the consideration for the issuance of the
Notes.
Defeasance and Covenant Defeasance
The Company may elect either (i)(a) within one year of the
maturity of the Notes or in the event all of the Notes will be
called for redemption within one year under arrangements
satisfactory to the Trustee for giving the notice of redemption
or (b) at any time, to defease and be discharged from any and all
obligations with respect to the Notes (except as described below)
("defeasance") or (ii) to be released from its obligations with
respect to certain covenants ("covenant defeasance"), upon the
deposit with the Trustee (or other qualifying trustee), in trust
for such purpose, of money and/or U.S. Government Obligations
which through the payment of principal and interest in accordance
with their terms will provide money in an amount sufficient to
pay the principal of and any premium or interest on such Notes to
maturity or redemption, as the case may be, and any mandatory
Sinking Fund or analogous payments thereon. With respect to a
defeasance as described under (i)(a) above, after such deposit,
the Company will be deemed to have paid and discharged the entire
indebtedness represented by the Notes (except for (a) the
Company's obligation to compensate and indemnify the Trustee and
(b) the Trustee's obligation to apply such deposited funds for
payments of principal of and interest on the Notes. With respect
to a defeasance as described under (i)(b) above, on the 123rd day
after such deposit (or, in the case of a holder that may be
deemed an "insider" under the U.S. Bankruptcy Code (the
"Bankruptcy Code"), one year), the Company will be deemed to have
paid and discharged the entire indebtedness represented by such
Notes (except for (a) the rights of holders of such Notes to
receive payments in respect of the principal of and interest on
such Notes when such payments are due, (b) the obligations of the
Company to pay or cause to be paid principal of and interest on
such Notes when such payments are due and (c) certain other
obligations as provided in the Indenture). Upon the occurrence
of a covenant defeasance, the Company will be released only from
its obligations to comply with certain covenants contained in the
Indenture relating to such Notes, will continue to be obligated
in all other respects under such Notes and will continue to be
liable with respect to the payment of principal of and interest
on such Notes.
The conditions with respect to a defeasance as described in
(i)(a) in the preceding paragraph are as follows: (i) such
defeasance or covenant defeasance must not result in a breach or
violation of, or constitute a Default or Event of Default under
the Indenture, or result in a breach or violation of, or
constitute a default under, any other material agreement or
instrument of the Company and (ii) the Company must deliver to
the Trustee an Officers' Certificate and an Opinion of Counsel
with respect to compliance with the conditions precedent to such
defeasance or covenant defeasance. The conditions with respect
to both a defeasance as described in (i)(b) in the preceding
paragraph and a covenant defeasance are as follows: (i) such
defeasance or covenant defeasance must not result in a breach or
violation of, or constitute a Default or Event of Default under
the Indenture, or result in a breach or violation of, or
constitute a default under, any other material agreement or
instrument of the Company; (ii) the Company must deliver to the
Trustee a ruling from the Internal Revenue Service or an Opinion
of Counsel to the effect that the holders of such Notes will not
recognize income, gain or loss for federal income tax purposes as
a result of such defeasance or covenant defeasance and will be
subject to federal income tax on the same amounts and in the same
manner and at all the same times as would have been the case if
such defeasance or covenant defeasance had not occurred; (iii)
the Company must deliver an Opinion of Counsel to the effect that
(x) the creation of the defeasance trust does not violate the
Investment Company Act of 1940, as amended, (y) the holders have
a valid first priority security interest in the trust fund and
(z) after the passage of 123 days (or in the case of an "insider"
one year) following deposit, such funds will not be subject to
Section 547 of the Bankruptcy Code or Section 15 of the New York
Debtor and Creditor Law and in the event of a case commenced by
or against the Company under either statute, such trust funds
will no longer remain the property of the Company, or if a court
were to rule that such trust funds remained the property of the
Company, the holders' interest in such trust funds would be
protected; and (iv) the Company must deliver to the Trustee an
Officers' Certificate and an Opinion of Counsel with respect to
compliance with the conditions precedent to such defeasance or
covenant defeasance. The Indenture requires that a nationally
recognized firm of independent public accountants deliver to the
Trustee a written certification as to the sufficiency of the
trust funds deposited for the defeasance or covenant defeasance
of such Notes.
Transfer and Exchange
A holder may register the transfer of or exchange Notes in
accordance with the Indenture. The registrar for the Notes may
require a holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees
required by law or permitted by the Indenture. The Company need
not register the transfer of or exchange any Notes selected for
redemption, except, in the case of any Note to be redeemed in
part, the portion thereof not so redeemed. Additionally, the
Company need not issue, exchange or register the transfer of any
Notes for a period of 10 days prior to the first mailing of
notice of redemption of the Securities to be redeemed.
Modification of the Indenture
The Indenture contains provisions permitting the Company and
the Trustee to amend or supplement the Indenture or the Notes
without the consent of the holders of the Notes in order to (i)
cure any ambiguity, correct or supplement any provisions therein
which may be inconsistent with any other provision therein, or
make any other provisions with respect to matters or questions
arising under the Indenture which shall not be inconsistent with
the provisions of the Indenture, provided that such amendment
does not adversely affect the rights of the holders of the Notes;
(ii) provide for uncertificated Notes in addition to or in place
of certificated Notes; (iii) evidence the succession of another
corporation to the Company and provide for the assumption by such
successor of the Company's obligations to the holders of the
Notes; (iv) to make any change that would provide any additional
rights or benefits to holders of the Notes or not adversely
affect the legal rights under the Indenture of any holder; or (v)
comply with the requirements of the Commission in order to effect
or maintain the qualification of the Indenture under the Trust
Indenture Act.
The Indenture also contains provisions permitting the
Company and the Trustee to amend or supplement the Indenture or
the Notes with the written consent of the holders of at least a
majority in aggregate principal amount of the outstanding Notes,
and any existing Default or Event of Default or non-compliance
with any provision of the Indenture or the Notes may be waived
with the consent of the holders of at least a majority in
aggregate principal amount of the outstanding Notes. However, no
such amendment, supplement or waiver may, without the consent of
the holder of each Note so affected, (i) reduce the principal
amount of Notes whose holders must consent to an amendment,
supplement or waiver of any provision of the Indenture, (ii)
reduce the principal of or change the fixed maturity of any Note,
or alter the provisions with respect to the redemption of the
Notes including, without limitation, the provisions with respect
to the Sinking Fund obligations, in a manner adverse to the
holders, (iii) reduce the rate of or change the time of payment
of interest on any Note, (iv) waive a Default or Event of Default
in the payment of principal of or interest on the Notes or in the
payment of any Sinking Fund installment, (v) make any Note
payable in money other than U.S. Legal Tender, (vi) make any
change in the provisions of the Indenture relating to waivers of
past Defaults or the rights of holders to receive payments of
principal of or interest on the Notes or payments of any Sinking
Fund installments, (vii) waive a redemption payment with respect
to any Note, or (ix) modify particular provisions of the
Indenture relating to holders' rights to bring suit, waivers of
certain Defaults or any of the foregoing provisions.
Consolidation, Merger or Sale by the Company
The Indenture provides that the Company may not consolidate
with or merge into any other corporation or convey, lease or
transfer its properties and assets substantially as an entirety
to any Person, unless (i) the corporation formed by such
consolidation or into which the Company is merged or the Person
who acquires by conveyance, lease or transfer the properties and
assets of the Company substantially as an entirety shall be a
corporation organized and existing under the laws of the United
States of America or a state thereof and such corporation
expressly assumes by supplemental indenture all the obligations
of the Company under the Notes and under the Indenture, (ii)
immediately before and after such transaction, no Default or
Event of Default shall have occurred and be continuing and (iii)
the Company has delivered to the Trustee an Officer's Certificate
and Opinion of Counsel each stating that such consolidation,
merger conveyance or transfer and such supplemental indenture
comply with the foregoing provisions. In the event a successor
corporation assumes the obligations of the Company, such
successor corporation shall succeed to and be substituted for the
Company under the Indenture and under the Notes and all
obligations of the Company shall terminate.
Events of Default, Notice and Certain Rights on Default
The Indenture provides that, if an Event of Default occurs
with respect to the Notes and is continuing, the Trustee or the
holders of at least 25% in aggregate principal amount of all of
the outstanding Notes affected thereby (voting as a class), by
written notice to the Company (and to the Trustee, if notice is
given by such holders of Notes), may declare the entire unpaid
principal of all the Notes to be due and payable, provided that
the Notes shall become immediately due and payable without prior
notice upon the occurrence of certain events of bankruptcy,
insolvency or reorganization of the Company.
"Events of Default" with respect to the Notes are defined in
the Indenture as being: (i) default for 30 days in payment of
any interest on any Note or any additional amount payable with
respect to the Notes when due; (ii) default in payment of
principal of or premium, if any, on any Notes when due at
maturity, upon acceleration, redemption or otherwise; (iii)
default or breach for 30 days after notice to the Company by the
Trustee, or after notice by the holders of at least 25% in
aggregate principal amount of the outstanding Notes to the
Company and the Trustee, in the performance of any other covenant
or agreement in the Notes or the Indenture; (iv) an event of
default for 30 days with respect to any Indebtedness of the
Company or any of its Subsidiaries in excess of $25 million, or
the failure of the Company or any of its Subsidiaries to make any
payment (whether of principal, interest or other amount) of more
than $1 million on any Indebtedness, the principal amount of
which exceeds $25 million; (v) any final judgment or order (not
covered by insurance) for the payment of money in excess of $100
million in the aggregate rendered against the Company and not
discharged within sixty days; and (vi) certain events of
bankruptcy, insolvency or reorganization of the Company.
In case an Event of Default has occurred, has not been
waived and is continuing, the Trustee may in its discretion
proceed to protect and enforce the rights vested in it by the
Indenture by such appropriate judicial proceedings as the Trustee
shall deem most effectual to protect and enforce any of such
rights, either at law or in equity or in bankruptcy or otherwise.
A holder of Notes may not pursue any remedy with respect to
the Indenture or the Notes unless (i) such holder gives to the
Trustee written notice of a continuing Event of Default; (ii) the
holders of at least 25% in aggregate principal amount of the
outstanding Notes make a written request to the Trustee to pursue
the remedy; (iii) such holder or holders offer to the Trustee
indemnity satisfactory to the Trustee against any costs,
liability or expense to be incurred in compliance with such
request; (iv) the Trustee does not comply with the request within
60 days after receipt of the request and the offer of indemnity;
and (v) during such 60-day period, the holders of a majority in
aggregate principal amount of the outstanding Notes do not give
the Trustee a direction that is inconsistent with the request.
The holders of at least a majority in aggregate principal
amount of the outstanding Notes, by written notice to the Company
and the Trustee, may waive all past Defaults and rescind and
annul a declaration of acceleration and its consequences if (i)
all existing Events of Default, other than the non-payment of the
principal of and interest on Notes that have become due solely by
such declaration of acceleration, have been cured or waived and
(ii) the rescission would not conflict with any judgment or
decree of a court of competent jurisdiction.
Payment, Paying Agent
Payments on the Notes will be made, at the option of the
holders thereof, at the office of the Paying Agent, which
initially will be the office of the Trustee's agent in the City
of New York.
The Company will pay interest on the Notes (except defaulted
interest) to the Persons who are registered holders at the close
of business on the record date next preceding the applicable
Interest Payment Date. If the Company defaults in the payment of
the interest due on such Interest Payment Date, such defaulted
interest will be paid to the Persons who are registered holders
of Notes at the close of business on a subsequent record date
established by notice given not less that 15 days prior to such
subsequent record date. The Company will pay the principal on
the Notes to the holder that surrenders such Notes to a Paying
Agent on or after July 1, 2000 or, in the event of a redemption
of the Notes, whether through the operation of the Sinking Fund
or otherwise, on or after the Redemption Date, as described in "-
Optional Redemption" and "-Sinking Fund." Payments will be made
in U.S. Legal Tender.
Governing Law
The Indenture and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York.
Replacement Notes
In case any Note shall become mutilated, defaced, destroyed,
lost or stolen, the Company, in its discretion may execute, and
upon the Company's request, the Trustee will authenticate and
deliver a Note, of like series and tenor and equal principal
amount, registered in the same manner, dated the date of its
authentication and bearing interest from the date to which
interest has been paid on such Note, in exchange and substitution
for such Note (upon surrender and cancellation thereof) or in
lieu of and substitution for such Note. In case such Note is
destroyed, lost or stolen, at the request of the Company and the
Trustee in their reasonable discretion, the applicant for a
substituted Note shall furnish to the Company and the Trustee
such security or indemnity as may be required by them to save
each of them harmless, and, in every case of destruction, loss or
theft of such Note, the applicant shall also furnish to the
Company satisfactory evidence of the destruction, loss or theft
of such Note and of the ownership thereof. Upon the issuance of
any substituted Note, the Company may require the payment by the
registered holder thereof of a sum sufficient to cover fees and
expenses connected therewith.
Certain Definitions
"Adjusted Consolidated Interest Expense" means, without
duplication, with respect to the Company and its Restricted
Subsidiaries for any period, the sum of (a) the interest expense
of the Company and its Restricted Subsidiaries for such period,
on a consolidated basis, including, without limitation, (i)
amortization of debt discount, (ii) the net cost under interest
rate contracts (including amortization of discounts), (iii) the
interest portion of any deferred payment obligation and (iv)
accrued interest, but excluding all capitalized interest, plus
(b) the interest component of Capitalized Lease Obligations paid,
accrued and/or scheduled to be paid, or accrued by the Company
and its Restricted Subsidiaries during such period plus (c) one-
third of Consolidated Aircraft Rental Payments of the Company and
its Restricted Subsidiaries during such period. For purposes of
this definition, (x) interest on a Capitalized Lease Obligation
shall be deemed to accrue at an interest rate reasonably
determined by the Company to be the rate of interest implicit in
such Capitalized Lease Obligation in accordance with GAAP and (y)
interest expense attributable to any Debt represented by the
guaranty by the Company or a Restricted Subsidiary of an
obligation of another Person shall be deemed to be the interest
expense attributable to the Debt guaranteed.
"Affiliates" means, as applied to any Person, any other
Person directly or indirectly controlling, controlled by, or
under direct or indirect common control with, such Person. For
purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling", "controlled by"
and "under common control with"), as applied to any Person, is
defined to mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting
securities, by contract or otherwise.
"Capitalized Lease Obligation" means, as applied to any
Person, obligations of such Person under any lease of any
property (whether real, personal or mixed) which, in accordance
with GAAP, is required to be capitalized on the balance sheet of
such Person, and the amount of Indebtedness represented by such
obligations shall be the capitalized amount of such obligations
determined in accordance with GAAP.
"Consolidated Aircraft Rental Payments" means, for any
period, the aggregate rental obligations of the Company and its
Restricted Subsidiaries (not including taxes, insurance,
maintenance and similar expenses that the lessee is obligated to
pay under the terms of the relevant lease), payable in respect of
such period under leases of aircraft and aircraft-related
equipment (net of income from subleases thereof, not including
taxes insurance, maintenance and similar expenses that the
sublessee is obligated to pay under the terms of such sublease)
having an original term of not less than one year, whether or not
such obligations are reflected as liabilities or commitments on a
consolidated balance sheet of the Company and its Restricted
Subsidiaries or in the notes thereto, excluding, however, in any
event, payments by the Company or any of its Restricted
Subsidiaries in respect of Capitalized Lease Obligations.
"Consolidated Fixed Charge Coverage Ratio" means for any
period the ratio of (a) EBITDAR for such period, of the Company
and its Restricted Subsidiaries on a consolidated basis to (b)
Adjusted Consolidated Interest Expense for such period.
"Debt" means at any date of determination all indebtedness
for borrowed money of the Company and its Restricted Subsidiaries
and all indebtedness for borrowed money of other Persons to the
extent such indebtedness is guaranteed by the Company or any
Restricted Subsidiary, in each case other than Excluded Debt.
"Default" means any event that is, or after the passage of
time or both would be, an Event of Default.
"Depositary" shall have the meaning set forth under "-Form;
Denomination."
"EBITDAR" means earnings before interest, taxes,
depreciation, amortization and Consolidated Aircraft Rental
Payments.
"Effective Registration" means that the Company shall have
(i) consummated the Exchange Offer pursuant to an effective
registration statement under the Securities Act or (ii) filed and
caused to become and remain effective a Shelf Registration
Statement under the Securities Act for sale of Notes by the
holders.
"Event of Default" shall have the meaning set forth under "-
Events of Default, Notice and Certain Rights on Default."
"Excluded Debt" means, with respect to the Company and any
Restricted Subsidiary, any and all (i) Debt outstanding on the
date of the Indenture, (ii) Debt of the Company or any Restricted
Subsidiary owed to any Restricted Subsidiary or the Company,
(iii) Debt consisting of payment obligations under an interest
rate swap or similar arrangement or under a foreign currency
hedge, exchange or similar arrangement which is incurred solely
to act as a hedge against increases in interest rates or changes
in currency exchange rates that may occur under the terms of
other outstanding Debt of the Company or any Restricted
Subsidiary, (iv) Debt in respect of Capitalized Lease
Obligations, mortgage or other secured financings or purchase
money obligations, (v) trade payables and guarantees incurred in
the ordinary course of business with suppliers, licensees,
franchisees, airport authorities, credit card processing
companies and customers, and (vi) renewals, extensions,
refinancings, refundings, substitutions or replacements of any
Excluded Debt.
"GAAP" means generally accepted accounting principles in the
United States of America as in effect as of the date of the
Indenture, including, without limitation, those set forth in the
opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting
Standards Board.
"Guarantee" means any obligation, contingent or otherwise,
of any Person directly or indirectly guaranteeing any
Indebtedness or other obligation of any other Person and, without
limiting the generality of the foregoing, any obligation, direct
or indirect, contingent or otherwise, of such first Person (i) to
purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of such other
Person (whether arising by virtue of partnership arrangements, or
by agreement to keep-well, to purchase assets, goods, securities
or services, to take-or-pay, or to maintain financial statements
conditions or otherwise) or (ii) entered into for purposes of
assuring in any other manner the obligee of such Indebtedness or
other obligation of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part);
provided that the term "Guarantee" shall not include endorsements
for collection or deposit in the ordinary course of business.
The term "Guarantee" used as a verb has a corresponding meaning.
"Indebtedness" means, with respect to any Person at any date
of determination (without duplication), (i) all indebtedness of
such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar
instruments, (iii) all obligations of such Person in respect of
letters of credit or other similar instruments (including
reimbursement obligations with respect thereto), (iv) all
obligations of such Person to pay the deferred and unpaid
purchase price of property or services, except Trade Payables,
(v) all Capitalized Lease Obligations of such Person, (vi) all
Indebtedness of other Persons secured by a Lien on any asset of
such Person, whether or not such Indebtedness is assumed by such
Person; provided that the amount of such Indebtedness shall be
the lesser of (A) the fair market value of such asset at such
date of determination and (B) the stated principal amount of such
Indebtedness, and (vii) all Indebtedness of other Persons
Guaranteed by such Person to the extent such Indebtedness is
Guaranteed by such Person. The amount of Indebtedness of any
Person at any date shall be the outstanding balance at such date
of all unconditional obligations as described above and the
maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations at such
date; provided that the amount outstanding at any time of any
Indebtedness issued with original issue discount is the face
amount of such Indebtedness less the remaining unamortized
portion of the original issue discount of such Indebtedness at
such time as determined in conformity with GAAP.
"Lien" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including, without
limitation, any conditional sale or other title retention
agreement or lease in the nature thereof, any sale with recourse
against the seller or any Affiliate of the seller, or any
agreement to give any security interest); provided, that in no
event shall a true operating lease be deemed to constitute a
Lien.
"Officers' Certificate" means a certificate signed by the
Chairman, the President, the Chief Financial Officer or a Vice
President of the Company and by the Controller, Treasurer, an
Assistant Treasurer, the Secretary or an Assistant Secretary of
the Company.
"Opinion of Counsel" means a written opinion of legal
counsel, who may be either internal or outside counsel for the
Company.
"Paying Agent" means Bank One, Texas, N.A. or any other
entity authorized by the Company to pay the principal of or
interest on the Notes on behalf of the Company.
"Person" means an individual, a corporation, a partnership,
an association, a business trust, a trust or any other entity or
organization, including a governmental or political subdivision
or any agency or instrumentality thereof.
"Pro Forma Consolidated Fixed Charge Coverage Ratio" means,
in connection with the creation, incurrence or assumption of any
Debt, the Consolidated Fixed Charge Coverage Ratio after giving
pro forma effect to: (i) the creation, incurrence or assumption
of such Debt at the beginning of the four fiscal quarter period
(or such shorter period of fiscal quarters as shall have
commenced on or after January 1, 1995) preceding such creation,
incurrence or assumption (and the application of the net proceeds
therefrom for the purposes described in the following clause
(ii)) and (ii) the incurrence, repayment or retirement of any
other Debt by the Company or its Restricted Subsidiaries since
the first day of such four-quarter period (or such shorter
period) and through and including the date of determination as if
such Debt had been incurred, repaid or retired at the beginning
of such period.
"Redemption Date" when used with respect to any Note to be
redeemed, means the date fixed for such redemption (including,
without limitation, through the operation of the Sinking Fund)
pursuant to the Indenture and the Notes.
"Redemption Price" when used with respect to any Note to be
redeemed, means the price fixed for such redemption pursuant to
the Indenture and the Notes upon the redemption of any Notes in
whole or in part either at the option of the Company or through
operation of the Sinking Fund, but such term shall not include
the amount of any accrued interest payable upon any redemption.
"Registered Global Note" shall have the meaning set forth
under "-Form; Denomination."
"Sinking Fund" shall mean the method provided in the
Indenture and the Notes of amortizing the aggregate principal
amount of the Notes.
"Subsidiary" of any Person means any corporation more than
50% of the outstanding shares of Voting Stock of which at the
time of determination are owned by such Person, directly or
indirectly through on or more Subsidiaries, or both.
"Trade Payables" means, with respect to any Person, any
accounts payable or any other indebtedness or monetary obligation
to trade creditors created, assumed or Guaranteed by such Person
or any of its Subsidiaries and arising in the ordinary course of
business in connection with the acquisition of goods or services.
"U.S. Government Obligations" shall mean securities that are
(i) direct obligations of the United States of America for the
payment of which its full faith and credit is pledged or (ii)
obligations of a Person controlled or supervised by and acting as
an agency or instrumentality of the United States of America the
payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America, which, in
either case, are not callable or redeemable at the option of the
issuer thereof at any time prior to July 1, 2000, and shall also
include a depository receipt issued by a bank or trust company as
custodian with respect to any such U.S. Government Obligation or
a specific payment of interest on or principal of any such U.S.
Government Obligation held by such custodian for the account of
the holder of a depository receipt; provided that (except as
required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such
depository receipt from any amount received by the custodian in
respect of the U.S. Government Obligation or the specific payment
of interest on or principal of the U.S. Government Obligation
evidenced by such depository receipt.
"U.S. Legal Tender" means such coin or currency of the
United States of America as at the time of payment shall be legal
tender for the payment of public and private debts.
"Voting Stock" means any class or classes of capital stock
pursuant to which the holders thereof have the general voting
power under ordinary circumstances to vote for the election of
directors, managers or trustees of any Person (irrespective of
whether or not at the time stock of any class or classes will
have or might have voting power by the reason of the happening of
any contingency).
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
Exchange of Series A Notes for Series B Notes
The exchange of Series A Notes for Series B Notes (the
"Exchange") pursuant to the Exchange Offer will not be a taxable
event for U.S. federal income tax purposes. As a result, a
holder of a Series A Note whose Series A Note is accepted in an
Exchange Offer will not recognize gain on the Exchange. A
tendering holder's tax basis in the Series B Notes will be the
same as such holder's tax basis in its Series A Notes. A
tendering holder's holding period for the Series B Notes received
pursuant to the Exchange Offer will include its holding period
for the Series A Notes surrendered therefor.
ALL HOLDERS OF SERIES A NOTES ARE ADVISED TO CONSULT THEIR
OWN TAX ADVISORS REGARDING THE UNITED STATES FEDERAL, STATE AND
LOCAL TAX CONSEQUENCES OF THE EXCHANGE OF SERIES A NOTES FOR
SERIES B NOTES AND OF THE OWNERSHIP AND DISPOSITION OF SERIES B
NOTES RECEIVED IN THE EXCHANGE OFFER IN LIGHT OF THEIR OWN
PARTICULAR CIRCUMSTANCES.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Series B Notes for its own
account pursuant to the Exchange Offer must acknowledge that it
will deliver a prospectus in connection with any resale of such
Series B Notes. The Company will not receive any proceeds from
any sale of Series B Notes by broker-dealers. Series B Notes
received by broker-dealers for their own account pursuant to the
Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Series B
Notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of
commissions or concessions from any such broker-dealer and/or the
purchasers of any such Series B Notes. Any broker-dealer that
resells Series B Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer
that participates in a distribution of such Series B Notes may be
deemed to be an "underwriter" within the meaning of the
Securities Act and any profit of any such resale of Series B
Notes and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
The Company is under no obligation to prepare a prospectus for
use in connection with any such resale.
The Company has agreed to pay all expenses incident to the
Exchange Offer (including the reasonable fees and expenses of one
counsel for the holders of the Notes) other than commissions or
concessions of any brokers or dealers and will indemnify the
holders of the Notes against certain liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Series B Notes is being passed upon for
Continental by Cleary, Gottlieb, Steen & Hamilton, New York, New
York.
EXPERTS
The consolidated financial statements (including schedules
incorporated by reference) of Continental Airlines, Inc. as of
December 31, 1995 and 1994, and for the two years ended December
31, 1995, December 31, 1994 and the period April 28, 1993 through
December 31, 1993 and the consolidated statements of operations,
redeemable and non-redeemable preferred stock and common
stockholders' equity and cash flows of Continental Airlines
Holdings, Inc. for the period January 1, 1993 to April 27, 1993,
incorporated by reference in this Prospectus have been audited by
Ernst & Young LLP, independent auditors, as set forth in their
reports therein and incorporated herein by reference, in reliance
upon such reports given upon the authority of such firm as
experts in accounting and auditing.
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No person has been authorized to give any information or to make
any representations other than those contained or incorporated by
reference in this Prospectus and the accompanying Letter of
Transmittal and, if given or made, such information or
representations must not be relied upon as having been authorized
by the Company or the Exchange Agent. Neither this Prospectus
nor the accompanying Letter of Transmittal, or both together,
constitute an offer to sell or the solicitation of an offer to
buy securities in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation. Neither the
delivery of this Prospectus, nor the accompanying Letter of
Transmittal, or both together, nor any sale made hereunder shall,
under any circumstances, create an implication that there has
been no change in the affairs of the Company since the date
hereof or that the information contained herein is correct at any
time subsequent to the date hereof or thereof.
TABLE OF CONTENTS
Page
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Available Information. . . . . . . . . . . . . . . . . . 2
Incorporation of Certain Documents by Reference. . . . . 2
Prospectus Summary . . . . . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . 9
Recent Developments. . . . . . . . . . . . . . . . . . . 14
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . 16
Ratio of Earnings to Fixed Charges . . . . . . . . . . . 16
Selected Financial Data. . . . . . . . . . . . . . . . . 17
The Exchange Offer . . . . . . . . . . . . . . . . . . . 19
Description of Series B Notes. . . . . . . . . . . . . . 27
Certain U.S. Federal Income Tax Consequences . . . . . . 37
Plan of Distribution . . . . . . . . . . . . . . . . . . 37
Legal Matters. . . . . . . . . . . . . . . . . . . . . . 38
Experts. . . . . . . . . . . . . . . . . . . . . . . . . 38
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Continental Airlines, Inc.
Offer to Exchange its
10.22% Series B Senior Unsecured
Sinking Fund Notes
due July 1, 2000
which have been registered under the
Securities Act of 1933, as amended, for
any and all of its outstanding
10.22% Series A Senior Unsecured
Sinking Fund Notes
due July 1, 2000
PROSPECTUS
May 24, 1996
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